Piecemeal Reform

The Wall Street Journal today has an interesting article suggesting it will be difficult for the Democrats to force Medicare to negotiate lower drug prices for senior citizens. Even if they get a bill past President Bush's veto pen, you can't force an agency to negotiate lower prices if it doesn't want to -- not unless you specify in the law that it must and how to do it! That's a formula for a not very successful negotiation, especially if the government officials on the public's side of the table are angling for a job within the drug industry once they leave office in two years.

Then there's the fact that most people receiving the benefit have been corralled into private sector drug plans, who have already cut deals with the big drug companies . . . or at least we hope they did. There's been precious little discussion in the press about the prices that Medicare is being forced to pay. As Ron Pollack of Families USA points out in the article, many of the "dual eligibles" (elderly Medicaid recipients who had drug coverage who had to switch to Medicare once Part D was established) found themselves paying higher drug co-pays because Medicaid by law must get the lowest available price in the market. Passing a similar "best price" law for Medicare is vehemently opposed by the drug industry because it would become the de facto price controls that the industry says will choke off innovation. (Wouldn't it be nice to test whether this "fear" actually come to pass if the U.S. did what every other advanced industrial country does: establish formularies and negotiate prices for drugs.)

Meanwhile, Rep. Pete Stark (D-CA) is pushing for the establishment of a government drug plan to compete directly with the private sector plans. He would let that plan establish formularies and negotiate lower prices, just as the Veterans Administration has done. This is similar in many ways to Stark's plan (authored by Jacob Hacker of Yale University) for insuring the uninsured. If employers don't currently provide health insurance, make them pay into Medicare and expand it to cover the uninsured. Then let the expanding government insurance program compete on price and quality with the employer-based insurance plans.

If the government is as cost-effective and efficient (because of lower administrative costs) as its boosters claim it is, most employers will eventually gravitate toward the "pay" side of this "pay or play" system for health insurance. In other words, they'll drop their own plans and simply begin paying a per capita tax into the government plan. Eventually, Medicare for All will become the U.S.'s default national insurance program.

I'm a devotee of single-payer. The question is what is the politically most acceptable way of achieving it. This incremental approach seems like a good way of moving the country toward the eventual solution with a minimum of short-run disruption. It's hard to write "Harry and Loise" ads when no one is forcing Harry and Loise to do anything -- accept have their employers pay a per capita tax into the government health insurance plan if they don't already provide insurance.