The Other Surge

If there is one thing the Democrats can’t stand, it’s a Bush Administration sponsored surge, one that they feel reflects ideology triumphing over common sense. No, I’m not talking about Iraq. I’m talking about the recent spike in enrollment in the Medicare Advantage program, under which senior citizens and the disabled can opt out of the government run Medicare program to join a private sector managed care plan.

Okay, I know I know. There is no comparison between the Iraq war and the Medicare Advantage program.

But they do have some things in common. After all, they are both a matter of life and death. That may be more obvious in the case of the Iraq war, where soldiers are putting their lives on the line every day. But it is no less true of the Medicare program, which by its very nature is the health care plan most Americans will rely on to care for them at the end of their lives.

Both are costing the Treasury billions of dollars a year. Everyone knows the Iraq war is expensive. (The Defense legislation pending in Congress would set aside $140 billion to fund operations in Iraq and Afghanistan for fiscal 2008). But did you know that Medicare Advantage plans will collect about $95 billion from the Treasury the same year?

And the long term costs are staggering. CBO says that the Medicare Advantage side of Medicare will consume well over $1 trillion in federal spending over the next 10 years.

But what really sets the Democrats off is the feeling that the money is being wasted. The wisdom of the surge in Iraq is a debate I’m happy to leave to the politicians. But in Medicare Advantage, there is no real debate over one fact: the per capita cost for a Medicare Advantage enrollee is higher—by 10% or more—than the cost of covering the same person in the traditional Medicare program.

That certainly seems to fly in the face of the logic of privatizing Medicare. After all, private plans are supposed to be cheaper and more efficient than big government right?

The two surges have something else in common: however easy it may be to argue that the money is being wasted, it is very difficult politically to do anything about it. No one wants to be accused of failing to support the troops in battle. And no one wants to be accused of penny pinching when it comes to health care for America’s senior citizens. The fact is that Medicare Advantage plans spend a lot of money on better benefits for seniors, so any cuts are likely to be very unpopular with voters.

But the Democrats aren’t giving up. In May, there were no fewer than 9 hearings on ideas to improve the Medicare program. They topics covered ran the gamut, but shared a common theme: all would in some way or the other put the brakes on the growth in the Medicare Advantage program.

Okay, so why should pharmaceutical companies care? In the June issue of The RPM Report, we tease out the implications of the Democratic attack on the Medicare Advantage surge. (You can read the story for free by clicking here.)

If the new leaders in Congress are successful, it means tougher times ahead for pharma companies. Why? Managed care plans will have no choice but to squeeze drug prices even more—or get out of the Medicare business altogether. That, frankly, is what a lot of Democrats probably want. Because that means they get to design the Medicare drug benefit they always wanted—one that you can be sure will include much tougher control of drug pricing.