Medicare Part D Policy: The Cost to the Republican Party

Medicare Part D Policy: The Cost to the Republican Party
by Gary M. Votour, MHCA
UPDATED 04/27/2015

As a nation politically divided approaches another presidential election, health care policy will again move to the front burner of public opinion. The Democrats passed the Affordable Care Act (ACA) early in President Obama’s term, and there will be the inevitable Republican presidential candidate promising to repeal it if elected this fall. I’ll be writing more on the ACA soon, but right now I wanted to share some history from twelve years ago to show how the Republican party has a past record of using health care to win elections.

Medicare Part D was passed in 2003 in a political climate that used it as a tool to ensure the re-election of a President facing a huge deficit. It is representative of the power of lobbying forces to dictate and control public health care policy. Most importantly, it is a cautionary tale on the result of allowing the abuse of political power.

Introduction

Medicare began covering the cost of some of the precription drugs that are taken at home on January 1, 2006. Known as the Medicare Part D Benefit (Part D), this benefit is administered through private insurance companies that offer Medicare approved prescription plans (PDPs) and through Medicare Advantage managed care plans that include a Part D drug benefit (MA-PDs). Part D replaced the coverage formerly provided by Medigap plans, Medicare drug discount cards and many managed care plans. (Matthews, 2006)

For many benefit recipients, Part D reduces their out of pocket expenses for prescription drugs. Patients with very high annual expenses for prescription medication generally realize a significant reduction. For patients with low incomes, however, Part D actually costs them more than they paid prior to its adoption when they were covered by state Medicaid programs. Also, because the legislation that established Part D prohibits Medicare from negotiating lower prices with drug manufacturers, the increases in costs of prescription medications are often passed on to the benefit recipients. (Matthews, 2006)

Much of this situation is due to the nature of how the Part D legislation came into being, and how this happened is a fascinating look at public health policy and how it is influenced by political agendas and profit motives from lobbying forces.

I’m going to focus on two key aspects, the first being the actual passage of Part D in the House by the Republicans in 2003. Second to this, and likely more important in terms of policy impacts is the fact that it profited the pharmaceutical industry more than anyone else by preventing Medicare from using their buying power to negotiate lower prices. I think these two examples show how public policy is often misused for both political and financial gain.

Congress in 2003

Part D has been called many things since its passage, but I believe the most accurate description is that of Comptroller General David Walker, who called it “the most fiscally irresponsible piece of legislation since the 1960s.” In 2003, the Bush administration was projecting the largest deficit in American history. The July 2003 mid-session Congressional budget review projected the fiscal year 2004 deficit would be $475 billion. With an election looming the next year, Bush and the Republican Party decided to gain the votes of America’s seniors by giving them a new program that appeared to be designed to pay for their prescription drugs. (Bartlett, 2009)

This occurred at a time when every fiscal projection pointed to a looming deficit ahead for Medicare. The 2003 Medicare trustees report projected spending was going to rise more rapidly than the payroll tax as baby boomers began to retire. Republican leaders had access to the actual costs of Part D and suppressed them before it was passed, and exerted undue influence on fellow Republicans to get the legislation enacted. The estimated cost stated to Congress was that Part D in its first ten years would incur was $395 billion.

The Bush administration knew this was not accurate. Medicare’s chief actuary, Richard Foster, had previously concluded the cost would be in excess of $535 billion. A Republican appointee at the Department of Health and Human Services, Thomas Scully, actually threatened to fire him if he made his report public before the 2003 vote. (Singer, 2007)

This was because a congressional budget resolution had already placed a cap on the projected cost at $400 billion. If the official estimate from Medicare had been made public, then it would only have taken a single member of the House or Senate to kill it by raising a point of order. (Bartlett, 2009)

There was also an unprecedented move to apply pressure on members of congress to get the law passed. Despite the fact that the Republicans held the majority in the House of Representatives, when the legislation came up for a final vote it was failing by 216 to 218. Then, even though the fifteen minutes allowed for voting came to an end, the vote was kept open for three more hours while pressure was put on republicans to change their votes.

What happened during those three hours was unseen by America, as the C-SPAN cameras were frozen by the republican leadership. House Majority Leader Tom DeLay was later ‘admonished’ by the House Ethics Committee, specifically for attempting to bribe fellow Republican Nick Smith to change his vote by promising he would ensure his son got his house seat when he retired if he voted in favor of the bill. These strong arm tactics eventually got enough Republicans to change sides, and the final vote was 220 to 215 in favor of Medicare Part D. (Bartlett, 2009)

Pharmaceutical Lobbying

In addition to a massive political gain to the Republican Party in the next election, the passage of Part D yielded tremendous financial rewards to several of its key proponents.

Thomas Scully, the man who threatened to fire Richard Foster if he disclosed the projected costs of Part D prior to the vote, was actively pursuing a job as a lobbyist at the time. In fact, when Bush appointed him to his position to run Medicare, he was a hospital industry lobbyist. Scully had already received a special ethics waiver allowing him to negotiate for future jobs with lobbying firms while he was in public office.

He left Medicare ten days after Part D was signed by Bush, and became a lobbyist again, working for pharmaceutical companies. Many of the key figures involved in passing Part D left for positions working with lobbying firms after it was passed, all with substantially higher salaries than they had before. Representative Bill Tauzin, one of the bill’s leading supporters, also left Congress shortly after the bill was passed to become president of the Pharmaceutical Research and Manufacturers of America. (Krugman, 2006)

In retrospect, it seems obvious that the political agendas of many of these key figures were influenced by their goal of pleasing their future employers. The result of these hidden agendas left behind a political mess that has cost the country billions of dollars and created a system that was flawed in several critical ways. (Krugman, 2006)

The Problem with Medicare D

The most lasting effect of Part D’s passage was to fragment the potential purchasing power of Medicare into dozens of smaller entities.

Because none of them have the power to negotiate with pharmaceutical companies to the degree that Medicare would have had, this has given the pharmaceutical industry near complete control of pricing. This is one of the main reasons why the price of prescription drugs in this country is among the highest in the world. (Bartelett, 2009)

Democrats attempted to continue to modify Part D after its passage by amendment, but they did not have the political power to do so. Attempts to extend deadlines for enrollment where met with adamant refusal by the Bush administration, most likely because deals had been made and political favors needed to be paid for. No consideration was given to the actual needs of the beneficiaries. To do so would have given Medicare the ability to control costs by negotiating prices. (Zwillich, 2006)

The ACA Solves Some Part D Problems

It was not until the passage of the Affordable Care Act (ACA) in 2010 that some these issues were finally addressed. A 55% discount was negotiated for Medicare Part D recipients with the pharmaceutical providers that includes most medications.  The infamous “donut hole” where recipients are required to pay high prices for medications until huge annual deductibles are reached is being closed and will be gone by 2020. (The ACA and Medicare, 2015). In the meantime, the “Extra Help” program was implemented as part of the ACA to provide financial assistance for those Medicare recipients making less than $13,000 a year, and provides up to $4,000 of help anually in purchasing medications. (Extra Help, 2015)

Conclusion

The passage and implementation of Part D was clearly a part of a larger political agenda. The one stakeholder group that most needed this law, Medicare beneficiaries, actually gained the least from it. The law ended up being written by lobbyists and entrenched the industry’s control over drug prices in the United States. It became a partisan issue, and helped assure the re-election of a president. These were the stakeholders who influenced Part D the most.

Part D was marked by an unprecedented use of lobbying power in congress coupled with a political agenda. Direct control of information by the Bush administration and strong arm tactics on the House floor accounted for a final vote that barely passed. Political payoffs in the form of future employment for those who advocated for Part D’s passage helped guarantee control over drug pricing for the drug industry.

I find that it is ironic that many Republicans who now vehemently opposed the ACA on the grounds that it will add to the national deficit are ones who voted for Part D. While Part D has already incurred a cost of $1 trillion dollars, the ACA only has an estimated cost of $900 billion.

It is also worth noting that Part D simply added to the deficit. It had no dedicated financing, no offsets to cost and no attempt to raise revenues to pay for it. The current health care law is likely to be paid for with a combination of spending cuts and tax increases, and is not likely to add to the national deficit. According to Medicare’s trustees the unfunded drug benefit added $15 trillion (in present value terms) to our national deficit.

In closing his article in Forbes, Bartlett (2009) clearly states the impact the passage of Part D had and continues to have on the credibility of Republican members of Congress: “The national debt belongs to both parties. But at least the Democrats don’t go on Fox News day after day proclaiming how fiscally conservative they are, and organize tea parties to rant about deficits, without ever putting forward any plan for reducing them. Nor do they pretend that they have no responsibility whatsoever for projected deficits, at least half of which can be traced directly to Republican policies, according to Office of Management and Budget Director Peter Orszag. It astonishes me that a party enacting anything like the drug benefit would have the chutzpah to view itself as fiscally responsible in any sense of the term. As far as I am concerned, any Republican who voted for the Medicare drug benefit has no right to criticize anything the Democrats have done in terms of adding to the national debt.” (Bartlett, 2009)

That opinion summarizes my own. It expresses the long term cost to the Republican Party of winning one election… a cost I doubt they planned for, because it was concealed from the party as a whole by members who had much to gain personally by doing so. In the political arena of public policy it is all about paying the price for what you gain, and often that cost is hidden and has very long term consequences.

References

Bartlett, Bruce. (2009). Republican deficit hypocrisy. Forbes.com. 11.20.09.  http://www.forbes.com/2009/11/19/republican-budget-hypocrisy-health-care-opinions-columnists-bruce-bartlett.html

Extra Help With Medicare Prescription Drug Plan Costs, Social Security Administration, (2015). http://www.ssa.gov/medicare/prescriptionhelp/

Krugman, Paul. (2006). The K street prescription. New York Times. January 20, 2006. http://select.nytimes.com/gst/abstract.html?res=F40A17FD395B0C738EDDA80894DE404482&showabstract=1

Matthews, Joseph. (2006). Medicare: Part D. Social Security, Medicare & Government Pensions. pp. 11/37-11/40. Berkeley, CA: Nolo Books.

Singer, Michelle. (2007). Under the influence. 60 Minutes, CBS News. April 1, 2007. http://www.cbsnews.com/stories/2007/03/29/60minutes/main2625305.shtml

The ACA and Medicare, The Official US Government Site for Medicare, (2015). http://www.medicare.gov/about-us/affordable-care-act/affordable-care-act.html

Zwillich, Todd. (2006). Medicare Part D deadline debate heats up. The National Ledger. Apr 21, 2006. http://www.nationalledger.com/cgi-bin/artman/exec/view.cgi?archive=1#=5164

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