Why Bush's prescription-drug plan is a fiasco.

The thinking behind the news.
Jan. 18 2006 3:33 PM

Drug Addled

Why Bush's prescription plan is such a fiasco.

President Bush thought that millions would welcome his intervention. But the effort has not gone as planned. Costs are spiraling out of control, and many of the people we wanted to help are protesting that the situation is worse than ever. Three years later, the entire poorly conceived enterprise is in jeopardy.

I refer, of course, to the administration's program to subsidize the cost of prescription drugs for the elderly. This plan, which went into effect on Jan. 1, offers so many baffling options that only 1 million of 21 million eligible Medicare beneficiaries have signed up for it on their own. Many of these early adopters, along with millions of impoverished Medicaid recipients transferred into the new system automatically, have been unable to obtain their prescriptions at the promised discounted price. The specter of citizens going without needed medications has provoked action by several governors, some of whom have invoked emergency powers to pay for drugs. Meanwhile, the estimated cost of this plan that no one likes has already more than doubled and is now projected at more than $1 trillion over the next decade.

Jacob  Weisberg Jacob Weisberg

Jacob Weisberg is chairman and editor-in-chief of The Slate Group and author of The Bush Tragedy. Follow him on Twitter.

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It's tempting to conclude that "Medicare D" has flopped because of Republican disdain for government. And that is indeed part of the problem. It's hard to think of a major federal program or initiative (other than military procurement and domestic espionage) that has thrived under Bush, who tends to tune out such specifics as design and implementation. With the Medicare drug bill, politically attuned but government-detesting conservatives resolved the inherent conflict between the interests of beneficiaries and the affected industries in favor of everyone. Crucial aspects of the plan were characteristically delegated to insurance and pharmaceutical companies, while the senior-citizens' lobby was appeased in various ways.

But in fact, there's an even more basic problem with the Medicare prescription-drug plan that cannot be laid solely at the doorstep of Republicans. Over the past quarter-century, governments the world over have evolved away from statist solutions and toward programs that rely to a greater degree on markets and incentives. This has been, by and large, a positive evolution. In much of the public sector, privatization and regulated markets work well. But the mixed public-private programs now in vogue have a big disadvantage. They are inherently more complex, sometimes so much so that they simply won't take. Whatever the advantages of Medicare D in theory, it has an overwhelming drawback common to all recent presidential proposals for health-care reform: It's too damn complicated.

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It's ironic to hear Sen. Hillary Clinton denouncing the failure of Bush's plan, since her own effort suffered from a remarkably similar flaw. Like Bush in 2003, the Clintons in 1993 attempted to structure a market—in their case for comprehensive medical coverage as opposed to just drugs. Rather than provide medical benefits directly, the way Britain and Canada do, the federal government under the Clinton plan would have required that private companies offer their workers a menu of insurance options. For smaller employers and individuals, the government would create buying cooperatives known as "alliances." There would be costs caps, subsidies of various kinds, and a vast new regulatory apparatus, all detailed in a 1,300-page bill. It was easy for opponents to mischaracterize this plan as a government takeover of health care because proponents could never explain what it was supposed to be instead.

The Clintons were drawn to this kind of hybrid system because they wanted to avoid being labeled as old-fashioned liberals. Bush's motivation was to get the political credit for a new government benefit without having government much involved. All of them sincerely believed that private-sector involvement would promote efficiency and help to control costs. But when it comes to health care, which is by nature not a transparent consumer market, this assumption isn't necessarily justified. Government is well-suited to pool risk and provide insurance, and it does so efficiently with both Social Security and Medicare as a whole. The insistence on writing private insurers into the equation buys off a powerful interest group but adds expense and complexity.

How much complexity? Under the Bush plan, a typical retiree pays a monthly premium for prescription drugs averaging $32 a month. After he or she satisfies a $250 deductible, the insurer must cover 75 percent of the next $2,000 in drug costs. The assistance then vanishes through the so-called "doughnut hole," until total expenditures exceed $5,100, at which point insurance kicks in again to cover 95 percent of additional drug costs. A retiree who judges this proposition a good deal must choose between an integrated, Medicare managed-care plan that includes drugs, and a free-standing drugs-only plan. In the latter category, there are more than 40 choices available in most locales, including multiple options from competing insurers, each covering different brand-name drugs and offering different inducements. The only way to navigate the decision-making process is via the Internet, which I am sorry to say that some elderly people still have not learned how to use.

The failure of Bush's reform effort illustrates an important point about psychology and economics—what writer Barry Schwartz * calls the "paradox of choice." Given too many options, rational actors are more likely to be paralyzed than to pick wisely. To take another example, consumers now have the right to choose from a long list of electricity suppliers via their local utilities. If you are a frustrated energy trader, this is a fabulous new benefit. If you just want the electricity to stay on in your house, you're likely to ignore the menu and accept the default setting. The potential savings from choosing a new supplier—which come with a risk of increased costs as well—don't justify the investment of time, even for the small minority of people capable of figuring out the new system.

Beyond that, the Medicare D fiasco offers a lesson about policymaking in an age of market consensus—one that we would do well to bear in mind as we contemplate further expansion of public health-care benefits and the eternal possibility of Social Security reform. Market-based schemes for distributing public goods may begin as clear and sturdy concepts, but they tend to become increasingly convoluted as the political and legislative processes work their magic. Whatever simplicity may have been present at the outset tends to get lost. And if the plan isn't simple enough for average people to understand, it just won't work.

Correction, Jan. 18: The article originally misspelled writer Barry Schwartz's surname as Schwarz. (Return to the corrected sentence.)

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