Insight, analysis & opinion from Joe Paduda

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Jan
9

Intelligent reform of Medicare Rx…is it possible?!

There are rumblings that a large number of Republican representatives are pushing to reform the Medicare Prescription Drug Program. Hallelujah.
There are several problems with this ill-conceived and poorly-executed program. They are all related to a core issue – the plan is voluntary and appears to be structured to promote adverse selection; that is, only the people that need drugs will sign up for it. Here’s why.
1. The deductible is very low – $250 annually – and cannot be changed by any health plan.
2. Monthly premiums are estimated to be $35 per senior.
3. There is a late enrollment penalty (that only starts in May of 2006) that is 1% per month. To quote Bob Laszewski of Health Policy and Strategy Associates, you can “wait 30 months until you can make money off the drug plan and it will only cost you $10.50 more per month than if you had enrolled at the beginning.”
What does all this add up to?
Well, seniors will run the numbers. They will calculate what they are paying for drugs today, then add up program’s the monthly premium cost, deductible, their co-pay (25% of the cost of their drugs), and compare the two. Seniors that will “make” money will enroll, seniors that won’t benefit, will stay away.
This is not insurance per se; it is just a terrible business proposition.
Bob’s prediction is not many health plans are going to jump at the opportunity to sell these programs; he’s undoubtedly right.
So, the news that some Congressman have decided they don’t like the program is welcome news. It is somewhat distressing, but wholly unsurprising, that they waited until after the election to have this “ah-hah” moment.


Joe Paduda is the principal of Health Strategy Associates

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