[Congressional Record (Bound Edition), Volume 146 (2000), Part 12]
[Extensions of Remarks]
[Pages 16905-16906]
[From the U.S. Government Publishing Office, www.gpo.gov]



                      A REAL MEDICARE DRUG BENEFIT

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                       HON. JANICE D. SCHAKOWSKY

                              of illinois

                    in the house of representatives

                        Wednesday, July 26, 2000

  Ms. SCHAKOWSKY. Mr. Speaker, I wish to share with my colleagues an 
Op-ed by Paul Krugman that appeared in today's New York Times. This 
thoughtful piece dispels the myth that prescription drug insurance 
plans for the elderly are the answer to lower drug prices.
  Mr. Krugman bases his conclusion on the fact that the market will not 
allow for prescription drug only plans, since the cost of premiums to 
seniors would be prohibitive. He clearly states that the only way to 
ensure the success of a Medicare prescription drug benefit ``is to make 
the coverage part of a government program.''
  He adds, ``Republican leaders in the House, in particular, are true 
believers in the miraculous powers of the free market--they are in 
effect members of a sect that believes that markets will work even when 
the businessmen actually involved say they won't, and that government 
involvement is evil even where conventional analysis says it is 
necessary.''
  From the start, Republicans in Congress crafted a prescription drug 
bill that would guarantee only one thing--that the pharmaceutical 
companies can continue to price gouge seniors. The President and 
Democrats in Congress want to give seniors a Medicare prescription drug 
benefit that is universal, voluntary, and affordable, and builds on the 
current structure of Medicare.
  Below is the full text of Mr. Krugman Op-ed.

                [From the New York Times, July 26, 2000]

                  Reckonings; Prescription for Failure

                           (By Paul Krugman)

       In denouncing President Clinton's plan to extend Medicare 
     coverage to prescription drugs, and in touting their own 
     counterproposal, Republicans have rolled out the usual 
     rhetoric. They excoriate the administration plan as a 
     bureaucratic, ``one size fits all'' solution. They claim that 
     their plan offers more choice.

[[Page 16906]]

       And for once their claims are absolutely right. The 
     Republican plan does offer more choice. Unfortunately, this 
     is one of those cases in which more choice is actually bad 
     for everyone. In fact, by trying to give people more choices 
     the Republican plan would end up denying them any choice at 
     all.
       Where Democrats want to offer drug coverage directly to 
     Medicare recipients, the Republicans propose to offer money 
     to private insurance companies instead, to entice them into 
     serving the senior market. But all indications are that this 
     plan is a non-starter. Insurance companies themselves are 
     very skeptical; there haven't been many cases in which an 
     industry's own lobbyists tell Congress that they don't want a 
     subsidy, but this is one of them. And an attempt by Nevada to 
     put a similar plan into effect has been a complete dud--not a 
     single insurer licensed to operate in the state has shown any 
     interest in offering coverage.
       The reason is ``adverse selection''--a problem that 
     afflicts many markets, but insurance markets in particular. 
     Basically, adverse selection is the reason you shouldn't buy 
     insurance from companies that say ``no medical exam 
     necessary'': when insurance is sold to good and bad prospects 
     at the same price, the bad risks drive out the good.
       Why can't the elderly buy prescription drug insurance? 
     Suppose an insurance company were to offer a prescription 
     drug plan, with premiums high enough to cover the cost of 
     insuring an average Medicare recipient. It turns out that 
     annual spending on prescription drugs varies hugely among 
     retirees--depending on whether they have chronic conditions, 
     and which ones. Healthy retirees, who know that their bills 
     won't be that high, would be unwilling to buy insurance that 
     costs enough to cover the bills of the average senior--which 
     means that the insurance plan would attract only those with 
     above-average bills, meaning higher premiums, driving still 
     more healthy people away, and so on until nobody is left. 
     Insurance companies understand this logic very well--and are 
     therefore simply not interested in getting into the market in 
     the first place.
       The root of the problem is that private drug insurance 
     could be offered at a reasonable price only if people had to 
     commit to paying the necessary premiums before they knew 
     whether they would need expensive drugs. Such policies cannot 
     be offered if those who find out later that they don't 
     require such drugs can choose to stop paying what turn out to 
     be unnecessarily high premiums.
       And while in principle one could write a contract that 
     denies the insured the choice of opting out, just try to 
     imagine the legal complications if a private company tried to 
     force a healthy retiree to keep paying high premiums for 
     decades on end, even though he turns out not to need the 
     company's benefits. As a practical matter the only way to 
     avoid this opt-out problem, to enforce the kind of till-
     death-do-us-part commitment needed to make drug insurance 
     work, is to make the coverage part of a government program.
       All of this is more or less textbook economics. So why are 
     Republican leaders insisting on a plan that almost nobody 
     familiar with the issue thinks will work?
       Cynical politics no doubt plays an important role. So does 
     money; the insurance industry is by and large against the 
     Republican plan, but the pharmaceutical industry is very 
     anxious to avoid anything that might push down drug prices, 
     and fears that the administration plan will do just that. But 
     sincere fanaticism also enters the picture. Republican 
     leaders in the House, in particular, are true believers in 
     the miraculous powers of the free market--they are in effect 
     members of a sect that believes that markets will work even 
     when the businessmen actually involved say they won't, and 
     that government involvement is evil even where conventional 
     analysis says it is necessary.
       The Republican plan is, in short, an assertion of a faith 
     that transcends mundane economic logic. But what's in it for 
     us heathens?

     

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