2004 August 11 Wednesday
More On The Bush Medicare Drug Benefit Backfire

George W. Bush's prescription drug plan is not helping him politically.

The Medicare prescription drug benefit President Bush signed into law in December has not provided the political boost among seniors that the White House and independent analysts expected, according to a comprehensive survey released yesterday.

The Kaiser Family Foundation and the Harvard School of Public Health have released a new poll done on old folks which shows the old folks are not happy about the new prescription drug entitlement.

WASHINGTON, DC-(August 10, 2004)- Many more people on Medicare have an unfavorable than a favorable impression of the new law that adds a drug benefit to the program, but most want Congress to fix rather than repeal it, according to a new survey of the opinions of people on Medicare released today. The survey found that, as of July 2004, nearly twice as many people on Medicare have an unfavorable view of the law (47%) as have a favorable view (26%), and one in four (25%) say that they don't know enough to offer an opinion.

Overall, two out of three people on Medicare (66%) say that lawmakers in Washington should work to fix problems in the law. Much smaller numbers favor repealing the law (10%) or leaving the law as is (13%), according to a national survey of 1,223 seniors and people with disabilities who receive Medicare conducted from June 16 to July 21. The survey, Views of the New Medicare Drug Law: A Survey of People On Medicare, was conducted jointly by the Kaiser Family Foundation and the Harvard School of Public Health to provide insight into the opinions of the 41 million Americans on Medicare, including the 6 million people on Medicare under age 65 who have permanent disabilities.

"Fifteen months from implementation, seniors are mostly negative and very confused, but there is little evidence of a large scale backlash," said Drew Altman, President and CEO of the Kaiser Family Foundation. "This survey suggests that there will be big debates in the future about the prescription drug law, but they will be about improving it, not repealing it."

What will a debate about "improving it" entail? I'm sure I do not have to spell it out for you but I will anyway: "improving it" means spending more money to provide more benefits to old folks at the expense of the rest of us. George W. Bush, in one of his bigger follies, has managed to commit the taxpayers to a large increase in entitlements that sets the stage for an even larger increase in entitlments and Bush managed to engineer this large increase in government spending without improving his own electoral prospects. Look, if you are going to buy votes (suppoisedly to maintain his ability to push other policies that right-wing partisans favor - but really only for his own self) then at least get something in return for the spending. Otherwise, what is the point in inflicting this spending splurge and eventual tax burden on the populace?

John Kerry is even worse than Bush on drug policy. Kerry favors importation of price-controlled drugs from Canada and "negotiation" of lower drug prices.

You know what's happening. Your premiums, your co-payments, your deductibles have all gone through the roof.

Our health care plan for a stronger America cracks down on the waste, greed, and abuse in our health care system and will save families up to $1,000 a year on their premiums. You'll get to pick your own doctor and patients and doctors, not insurance company bureaucrats, will make medical decisions.

Under our plan, Medicare will negotiate lower drug prices for seniors. And all Americans will be able to buy less expensive prescription drugs from countries like Canada.

The story of people struggling for health care is the story of so many Americans. But you know what, it's not the story of senators and members of Congress. Because we give ourselves great health care and you get the bill.

Well, I'm here to say, your family's health care is just as important as any politician's in Washington, D.C.

And when I'm President, America will stop being the only advanced nation in the world which fails to understand that health care is not a privilege for the wealthy, the connected, and the elected it is a right for all Americans.

Medicare already gets the lowest prices that pharmaceutical makers provide to their other domestic customers.

An extension of price controls into the United States will lower the rate of return for investment in new drugs development and therefore will inevitably lead to a reduction in research and development budgets by pharmaceutical companies as well as a reduction of venture capital funding for biotech start-ups. As a result we will have fewer new treatments and lower life expectancies than would otherwise have been the case..

As bad as Bush is on drug policy a President Kerry would be even worse. Is it worth putting up with Bush's foreign policy folly in order to maintain the incentives of pharma and biotech companies to develop new treatments? That's a hard call.

For more on the drug benefit debacle see my previous post Republican Medicare Drug Benefit Backfires Politically.

Share |      By Randall Parker at 2004 August 11 03:39 PM  Politics American Domestic

Gene Berman said at August 13, 2004 7:32 AM:

Kerry's plan to force drug prices down, particularly for American seniors, is seriously flawed.

The availabilty of US-produced, patent-protected drugs on foreign markets is an example of a type of "dumping" that is justifiable whether viewed economically, financially, or ethically.

The guide to differential pricing in different markets is the simple "whatever the trade will bear." Lower prices in some market segments are acceptable and impact the "bottom line" favorably as long as the price charged exceeds the marginal cost of production. With ordinary commodities, trade flows would prevent the emergence of such differentials and establish uniform pricing (with allowance for trans costs).
But the patent protection (true to a lesser extent only in brand-name or trade-secret examples) secures the basis for distributorship, etc. agreements restricting such goods movement. The peculiarity of pharmaceuticals is that they re extraordinarily small (in relation to value)
and are therefore, more easily re-introduced into the original manufacturing nation and market--added to which is the "pressure-group"-induced agitation for tolerance of the sub-rosa trade flow on the part of authorities. It is alleged that the legat regime which permits the differential pricing is somehow "unfair" to the seniors and that their needs are redressed by ignoring enforcement of the law or, more ideally, by changing the law to permit such re-importation under more routine, legal circumstances.

Such a plan is self defeating. It's institution will have precisely the opposite effects of those purportedly sought by its proponents. The outcome cannot be predicted with nicety but would almost certainly move along predictable lines. The price charged in the US market is likely to contain a "consumer's surplus" (a difference between what the consumer might conceivably pay and what he actually must--determined by the seller as that likely to maximize gross profit) which is substantially larger than any such fraction comprising the much-smaller price on the foreign market). Thus, the height of the domestic price is actually restrained by the existence of the foreign market.
But those units of the good which are re-imported simply eliminate the ordinary profit per unit and, multiplied by the extent of such diversion, impact the "bottom line" negatively to an extent substantially greater than their export-market contribution at the margin.
The upshot is simple: the firm thus beleaguered will raise domestic prices within a margin guestimated as that of the "consumer's surplus and will also raise prices in the foreign market toward that height discourging to the re-import entrepreneur. Thus, they will achieve a profit on foreign sales more commensurate with domestic activity but remain entirely indifferent as to whether this strategy reduces sales and profit or not in the foreign market--each loss in that foreign market guarantees a greater in the domestic. What happens, in essence, is that one group of Americans, acting illegally and in concert with others (entrepreneurs) in deliberate violation of the law, cause
other Americans to pay unduly higher prices. It might be added here that the extent of predatory practice is by no means exhausted. The
very existence of the lower price on the (particularly Canadian) foreign market is enhanced (and so the impetus to cross-border flow) by means of intimidatory tactics of the gov't. of that country (in the form of their health-service administration) using tactics including threatening barring the products entirely (to the detriment of their citizen-enrolees' benefit) or to purchase from patent-ignoring "knock-off"
firms, generally located in Third-world countries (both of which--manufacturing nd the purchase) are in violation of existing international laws and treaties.

A simple analogy would be that a bunch of thirsty people watch as a loaded beerwagon approaches, for which they know the price will be
$1 for each of the 2000 bottles (and for which the beer-guy's going to make $1000). But, before it gets there, a couple of thugs hold it up and remove 1000 bottles and run to the crowd, 1000 of whom quickly and willingly fork over half-a-buck a bottle. Then, when the beer-wagon arrives, the other folks are forced to pay $2 a bottle (at which price the beer-guy's made whole) or, perhaps, a litttle more or less,
depending on circumstances (and degree of thirst). Market economics have been virtually stood on their head by the robbery and by the willingness of some to benefit thereby. Under the legal scenario, the beer-guy's price to everyone for all of the load was determined by the marginal valuation--the highest price of the least-anxious consumer in the crowd--no one has to pay more than the market-clearing price.
But due to the removal of half the stock and its distribution among half the crowd, those remaining are forced to fork over the balance of what they might otherwise have been able to keep in their pocket--for the next beer-wagon?

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