by hilzoy
While thinking about Medicare Part D (the prescription drug plan), Mark Kleiman has had what he calls “a blinding flash of the obvious”. Many Medicare Part D plans are set up in the following way:
You pay the first $250
Then the drug company pays 75% and you pay 25% until total spending reaches $2,250
Then you pay 100% of the cost of your drugs until spending reaches $5,100 (this is the “doughnut hole”; to get out of it, you need to pay $2850 in drug costs.)
And finally, once total spending exceeds $5,100, your plan will pay almost all subsequent prescription drug bills.
There is no good reason why the “doughnut hole” exists; it was put there to keep costs down. I, like most people who get wonky about health care policy, think that we should just have allowed the government to negotiate directly with pharmaceutical companies over prices; this would have virtually eliminated the need for a doughnut hole. Oh well.
Anyways, what Kleiman noticed was this:
“Because the coverage gap is defined by actual expenditure, not by prescription, a Medicare recipient with very big drug bills who can’t scrape up $2850 is out of luck for the rest of the year. It’s not as if he or she can just forgo $2850 worth of medicine, or get it in physician samples or under drug-company programs to assist low-income patients, and then start collecting again. There needs to be actual money on the table. So the program is well-designed for those to whom high drug prices are an annoyance, and badly designed for those to whom high drug prices are a catastrophe.”
Exactly right. If you really can’t come up with a way to pay for your medications, then you will never get out of the doughnut hole at all. (Some insurance.)
But Kleiman misses one additional point, which is the final crowning touch on this: while you are stuck in the doughnut hole, receiving no benefits, paying for no drugs because you cannot afford to, guess what?
You’re still liable for your prescription drug coverage premiums. Those you do have to pay for.
Medicare Part D wonks like myself have been wondering since this began whether the Republicans who are responsible for this badly designed monstrosity of a bill will pay a price for it in the ’06 Congressional elections. People are just starting to fall into the doughnut hole, so all these problems should be quite vivid round about November. I hope the voters do take it out on the people who designed this: they deserve it.
(And remember: if you gaze for long into a doughnut hole, the doughnut hole gazes also into you.)
Indeed. Let’s hope a Democratic Congress repeals Plan D.
[in which I, without a single link, try to persuade Andrew to support the idea of universal health care insurance.]
how is health care insurance different from homeowners’ insurance? Because most people’s house never burn down, but most people will, at some point, need expensive medical care.
so what we call insurance is really an inter-year pooling plan.
Let’s say that on your 18th birthday, you decide to self-insure for health care. Every day, you’ll put a chunk of cash in a savings account, which will earn interest, out of which you’ll pay your medical bills. (Let’s assume, for purposes of this hypothetical, that health care pricing is transparent and competitive.)
Want to smoke? Add more. Eat badly? More. Not exercise (ahem)? More. Not get married? more. Use extreme measures at life end? more. pay for technologies and medicines which don’t even exist yet? more (maybe).
This system would be, by far, the fairest way of paying for medical care. Now, a few problems.
Affordability. Lack of perfect knowledge of own risk. Market failure in pricing. Changing medical technologies.
These problems are so acute that instead of a single person pooling risk along his [her] lifespan, people a long time ago started pooling risk year by year over a large enough group. And because most families in our society have at least one adult who works, employers turned out to be a neat source of finding a group of people to pool with.
50 years later and we’re seeing some real cracks in employer-provided health care:
Loss of mobility in labor markets. Free-riding by the young, irresponsible and under-paid. Increasing failures in the market for health care pricing. Incredibly high transactional costs as insurers seek to deny claims.
Now, it is plausible to want a world in which the free-riders are not provided health care at taxpayer expense. But even the most ruthless libertarian on the internet is usually reluctant to argue that those without health care insurance should simply either pay out of pocket or go die quietly in a public park somewhere.
so where do we go from here? One — eliminate the free-rider and transactional costs problems by requiring everyone to pay something for health care insurance. Only the government can do that. Two — ?
It is absolutely the case that a not-for-profit national health care insurer will have adverse impacts on the market. Paying for the development of new drugs, loss of privacy, massive sclerotic bureaucracy, figuring out how to pay for various services, etc. will be major issues. But hey, if the French can do it so can we.
SH: most people who try to debate fairly about the merits of Soc.Sec. are pretty open about the fact that the program is a public pension with a legacy debt.
“But even the most ruthless libertarian on the internet is usually reluctant to argue that those without health care insurance should simply either pay out of pocket or go die quietly in a public park somewhere.”
This is not true. They would never let people die quietly in a public park. They would sell the park to a private developer and then charge people to die quietly.
Francis, that was a good comment. I think Andrew’s comment was pretty good, too, considering that he has agreed to a Democratic Congress (progress). That he also implies that it’s not the hole in the donut he doesn’t like, but the donut itself and the chocolate filling a Democratic Congress will fill it with, is the rub.
Seriously, though, as bad as Medicare D is, I see big problems with Democrats repealing it. At that point, I think the American people will say, hey, where’s that public park because I just want to die quietly. Because I’m tired of the confusion. The Republican Party will be wheeling Terry Schiavo down there and hoping she keeps quiet.
Well, bear in mind that:
a) the doughnut hole doesn’t apply to qualifying low-income beneficiaries;
b) if a non-low-income beneficiary has fallen into the doughnut hole, that means that for the price of around $30.00/month, s/he has already received $2,500 in benefits.
The doughnut hole sounds odd and might catch some people by surprise, but it isn’t much different from other limited-benefit plans. My dental insurance only covers up to $1000/year, and if I go over that amount in the first month, guess what? I still have to pay my monthly premium. And I’m not particularly sorry about that, because without the coverage I would’ve had to pay the whole $1000 myself.
I’m not saying that there aren’t perfectly valid criticisms of the part D benefit, but the hand-wringing over the doughnut hole in particular seems over the top to me.
I find it somewhat hard to believe that I am agreeing with kenB, at least to some degree.
As he pointed out, low-income people such as my mother-in-law not only don’t have the doughnut hole, but also are not required to pay a premium.
Also, these people will have received if not $2,500 in benefits, but at least close to $2,000, depending on their co-pays.
However, unlike his dental insurance, this plan starts paying again at a certain point, and that is what becomes very confusing to people. Plus, just what is the price figured from? This is where it is confusing, because two people on the same drugs may reach the hole at totally different times if they have different coverers.
There really is no conformity in this program, and as such, it is a poor program, if not totally due to the doughnut hole.
BTW, kenB’s realistic comment notwithstanding, many people will still be angry by this and the democrats would be really stupid not to take advntage o it, even if they have to stretch the truth. After all that is how the Republicans have won.
Damn, John beat me to that comment.
Francis, please give me until tomorrow to respond coherently, as I just got in from my evening constitutional and will be heading to bed in an hour, so anything I put up now would be worthless. [Ed. How would we know? Shouldn’t you be harrassing Kaus?]
I’m not so sure about the low-income part, because Social Security benefits push people out of the low-income group, which seems a bit rough.
My understanding (from Googling this am trying to find out how the name donut hole came about) is that the prices are figured from the insurers cost. This seems to me to be a huge problem because in my experience, insurers routinely negotiate various discounts in a variety of ways, so I don’t see how they can determine how much their costs are fair and equivalent. Furthermore, hospitals really increase the paper costs of drugs so as to have more bargaining room.
I’m also sensing a ObWi crusade to get Andrew to admit that universal health care is a good thing. Hey, there are worse things we can do with our time.
Never!
Besides, if I did that I’d lose my Winger secret decoder ring, and the hive mind would have to expel me and go find another real righty. 😉
Heh heh heh…
It’s all part of our master plan, along with getting Seb to give up on “reforming” Social Security 😉
Andrew: my part of the hive mind would protest any such thing. Besides, it’s not as though it isn’t four against one already…
Actually, SS does not necessarily push someone out of the low-income level. If I remember correctly, the threshold is something like 12,000 per year and my mother-in-law’s social security comes out to under that. I may be wrong on the threshold, but I do know that is only income and she is below the level.
I believe you are correct re figuring costs. And that is where the unfairness comes in.
Andrew thinks he was brought in for the Winger side, but eventually he’ll realize that he was really brought in for the B5 references. ;^)
Ah, perhaps Social Security should be my next topic. 🙂
hilzoy, four against one when you’re the one is an unfair fight for the four. Besides, you have the lion’s share of the commenters in your corner. You’re for the people, we’re for the powerful. 😉
Andrew thinks he was brought in for the Winger side, but eventually he’ll realize that he was really brought in for the B5 references. ;^)
Well, that would be more in line with my qualifications…
Again, it’s just me and my google jones over here. This Baltimore Sun article seemed good. It has this
Eligibility and how much assistance you receive depends on income and assets, Parkin said. Generally, income must be less than $14,700 for an individual to qualify, and $19,800 for a married couple.
Assets — which include savings and cash-value life insurance but not a home — can’t exceed $11,500 for an individual or $23,000 for a couple.
Wow, you really got to spend down your assets to get to a safe place, it seems like.
This paper looks like it might some information about the origin of the term donut hole, here’s the abstract, but I can’t get the paper to download
Here’s a page discussing the link between the notion of an ownership society and the drug benefits which I found interesting.
Anyway, looking forward to the discussion.
if a non-low-income beneficiary has fallen into the doughnut hole, that means that for the price of around $30.00/month, s/he has already received $2,500 in benefits.
So what this means is that for $30/month you get $2500 (or less – see John Miller’s comment) in drugs. After that, if you are in a different doughnut hole – too “rich” to qualify for low-income subsidies and too poor to come up with another $2850 – nothing.
On the other hand, if you’ve got the $2850 (which remember, goes for medicine, not insurance) you’ve got virtually unlimited coverage thereafter, for the same $30/month.
Notice that the analogy with dental insurance doesn’t work. Even though the dental benefits are limited, everyone faces the same limits.
Who thought of this?
The donut hole exists for a reason, whether you like it or not. It’s not to directly control costs. It’s to make drug consumers cost-conscious.
Up to the donut hole, “we” say you didn’t have much control over that antibiotic you got for an unanticipated case of strep, or whatever. But if you have a couple of chronic diseases with a choices of drug therapies, you are going to land in the donut hole. The question is how deep you’ll land. And the strategy here is for you and your doctor to sit down on Jan 1 and figure out if you really need name-brand, currently advertised drugs for all of them.
The entire point of the donut hole is to try to force cost-consciousness on people who have multiple mid-range long-term prescriptions.
Just think of this as rationing dressed up in kindler, gentler irrational-looking clothing.
[Ed. How would we know? Shouldn’t you be harrassing Kaus?]
See, with universal health insurance, Andrew could afford the medications that would make those voices in his head go away.
Notice that the analogy with dental insurance doesn’t work.
That’s true. drive-by triangulation points to a better analogy, though — the donut hole functions just like a deductible, albeit one that doesn’t kick in until after a certain amount of coverage has been given. Any deductible potentially yields the same sort of perverse result. If you can’t afford the care up to the deductible, you don’t get the benefit you paid for.
Granted, with commercial insurance you’d generally have the option to get a low-deductible/high-premium plan; but in any case I’d still argue that the doughnut hole itself isn’t the bizarre monstrous thing it’s made out to be. I assume you’d agree that it’s better than having an immediate $1500 deductible (or whatever number would work out to generate the same cost estimates).
I assume you’d agree that it’s better than having an immediate $1500 deductible (or whatever number would work out to generate the same cost estimates).
Why would you assume that? I haven’t thought it through, but offhand a first-dollar deductible makes a whole lot more sense.
The trek thru Google reveals a lot of pages aimed at doctors who have to sit down with their patients to figure out what to do. And tons of anecdotes about patients getting by on samples. I have to think that we would like to have doctors thinking more about health and less about trying to sort out people’s financial problems.
There won’t be a Democratic Congress in 2006: the Bush administration cannot possibly permit it.
Andrew, it would be interesting to see you attempt to defend the principle that universal health care just doesn’t work, that people are better off without access to health insurance, and that it’s better for thousands of people to die each year rather than permit the kind of efficient socialist medical system in use in other countries. (Roads, military, firefighting, and health care are four large public services which work far better if run as socialist services than as capitalist services: oddly enough, while the US accepts socialism in building roads, running the military, and fighting fires, inferior capitalist health care is preferred.)
But I’d rather discuss Babylon 5. Which, incidentally, does appear to have free-at-the-point-of-access health care for everyone in it: just like the NHS!
Health care in the B5 universe: the next silly thread.
Why would you assume that? I haven’t thought it through, but offhand a first-dollar deductible makes a whole lot more sense
Well, I guess it depends on what the goals are — a fairly high first-dollar deductible would’ve made part D look more like a catastrophic coverage plan, with benefits paid to many fewer members but (presumably) better coverage for those who face the highest bills.
It would be interesting to know what that deductible would have to be to be actuarily equivalent to the current plan — on the one hand, the average member wouldn’t cost as much, but on the other, the healthiest (and thus most profitable) seniors would be less likely to enroll in the first place.
See, with universal health insurance, Andrew could afford the medications that would make those voices in his head go away.
I’m in the military. I already have ‘free’ health care.
Which, incidentally, does appear to have free-at-the-point-of-access health care for everyone in it: just like the NHS!
Incorrect. In the episode ‘The Quality of Mercy’ Doctor Franklin is seen running a free clinic in downbelow for those who can’t afford service in the station’s clinic.
it would be interesting to see you attempt to defend the principle that universal health care just doesn’t work, that people are better off without access to health insurance, and that it’s better for thousands of people to die each year
There’s a whole universe of gray areas between the extremes you claim are the only options.
Andrew: There’s a whole universe of gray areas between the extremes you claim are the only options.
The “extreme” I describe is the current situation in the US: the other “extreme”, of universal health care free at point of access, is the current situation in the UK. As you say, there are other options. But it’s a little unrealistic of you to this as “two extremes”.
I’m in the military. I already have ‘free’ health care.
How awful for you. I hope you are consistent in your principles and make a point of refusing it in favor of whatever private health insurance you can afford.
Andrew: Incorrect. In the episode ‘The Quality of Mercy’ Doctor Franklin is seen running a free clinic in downbelow for those who can’t afford service in the station’s clinic.
*rueful grin* Thanks for the correction. *loses geek cred*
And your evidence of ‘thousands of people dying’ from lack of medical care is…?
As for my military health care, since I am paying for it with my service, I see no reason not to accept it. Not to mention the fact a failure to take care of my health could get me in legal trouble for failure to properly care for Army equipment.
Andrew: And your evidence of ‘thousands of people dying’ from lack of medical care is…?
According to the Institute of Medicine, an estimated 18,000 people die each year in the US because they don’t have access to health insurance.
As for my military health care, since I am paying for it with my service, I see no reason not to accept it.
So you deserve good health care, but people who only join the National Guard, or who don’t or can’t join the military at all – they don’t deserve it?
Not to mention the fact a failure to take care of my health could get me in legal trouble for failure to properly care for Army equipment.
That kind of puts paid to the argument that universal health care is a bad thing, isn’t it?
Interesting, although I can’t help but note that the Institute of Medicine has certain incentives to make America’s health care crisis appear as dire as possible.
So you deserve good health care, but people who only join the National Guard, or who don’t or can’t join the military at all – they don’t deserve it?
The Army isn’t much use without healthy soldiers, therefore it is logical for them to pay for whatever healthcare is required to keep them healthy. That’s a mission requirement. And the Army is working to cover National Guard and Reserve soldiers as well, as medical issues have had a serious impact on readiness. As for the rest of the world, I’m drafting a piece on health care now in which I’ll discuss some of the problems I see with universal care.
That kind of puts paid to the argument that universal health care is a bad thing, isn’t it?
I have no idea why you would say that. Please elaborate.
Andrew: And the Army is working to cover National Guard and Reserve soldiers as well, as medical issues have had a serious impact on readiness.
Yet a friend of mine who came back from Iraq with a back injury and with PTSD, had to spend considerable amounts of time and emotional energy convincing her local VA that both were a direct result of military service – because if it could be shown that they were not, neither back injury nor PTSD would have been treated for free.(Eventually, both were.) Whereas, if the US simply accepted that it is worthwhile keeping everyone in good health, not just soldiers and National Guardsmen injured on duty, she wouldn’t have had that problem.
Interesting, although I can’t help but note that the Institute of Medicine has certain incentives to make America’s health care crisis appear as dire as possible.
Given that the US has a worse health-care system than Cuba, I think you need to look at the institutions who have incentives to make it look like the US health care crisis isn’t really that bad. 18,000 avoidable deaths a year may strike you as just not that dire – after all, over 5 times that many Iraqis died as a result of the US invasion/occupation. That 40% of Americans have no health insurance, though, strikes me as pretty damn dire.
I have no idea why you would say that. Please elaborate.
If universal health care were a bad thing, you would not want it for yourself: you would reject what the army offers you on the grounds that this socialistic health care could not keep you in good health, and you would insist on paying for a good capitalistic health insurance program instead.
Or, put another way, Andrew: If it’s a good thing for people only to have the health care they can pay for themselves, then obviously, it’s a good thing for soldiers who are injured and can’t afford the treatment not to receive the treatment they need. That will impell soldiers to do better, get promoted/get paid more, and get themselves into a rank where they can afford to pay for healthcare if they’re injured. Without that motivation, why would any soldier want to do well in the army?
Alternatively, if it’s a good thing that people don’t have to worry about health care because they know that if they need it, they’ll get it, then it’s a good thing inside or outside the army.
If universal health care were a bad thing, you would not want it for yourself: you would reject what the army offers you on the grounds that this socialistic health care could not keep you in good health, and you would insist on paying for a good capitalistic health insurance program instead.
This is asinine. I have a health care plan, not ‘universal’ health care. That is part of the employment bargain for active military service. Suggesting that because my job happens to include medical care demonstrates, everyone’s should, is silly.
There are a lot of things in this world that are ‘good things.’ That doesn’t mean the government has an obligation to pay for them.
Andrew: I have a health care plan, not ‘universal’ health care. That is part of the employment bargain for active military service.
Sorry, I should have said: joining the military as a regular means you get, effectively, universal health care. (Providing you’re male. Servicewomen get a second-class health care plan for the usual religiously-inspired discriminatory reasons.)
Your argument seems to be that this is a bad thing – that it’s somehow better when 40% of the population don’t have access to health care plans, and that 18,000 deaths per year isn’t particularly dire. If this applies to the general population – that it’s better to have people skimp on health care and possibly die – why shouldn’t it apply to the army?
Andrew: There are a lot of things in this world that are ‘good things.’ That doesn’t mean the government has an obligation to pay for them.
Health care in the US costs twice as much as it should, and delivers less value. (That is: the proportion of GNP spent on health care in the US is double what is spent in similiarly-developed countries, and yet, 40% of the population can’t afford health insurance, and 18,000 people die each year as a result.)
It would be cheaper, as well as more effective, for the government simply to mandate a single-payer health insurance plan, universally available.
If this applies to the general population – that it’s better to have people skimp on health care and possibly die – why shouldn’t it apply to the army?
Um…because the Army serves a specific purpose, and in order to accomplish that purpose it needs healthy soldiers? Really, is this so hard to understand? There is a mission-related reason why the Army provides rather extensive health care to soldiers.
And please spare me the canard about 18,000 people dying a year isn’t dire. I’ll stipulate that’s a bad thing. But your assumption that universal health care will magically solve that problem without possibly causing as many or more problems as it solves is nothing but faith-based policy.
Andrew: Um…because the Army serves a specific purpose, and in order to accomplish that purpose it needs healthy soldiers?
So, there’s no specific purpose you can think of, outside the army, why the United States would need healthy citizens?
Andrew: < But your assumption that universal health care will magically solve that problem without possibly causing as many or more problems as it solves is nothing but faith-based policy.
Pot, kettle, black. You can (if you want to) look at other countries with universal health care and see that universal health care does not “cause as many or more problems as it solves”. Your idea that it might is nothing but faith-based policy: you want to believe what you want to believe.
I am not a health policy wonk, so I’m no expert on all this. However, I do know a few things: there are always unintended consequences, and when you increase costs, those costs have to come from somewhere.
Andrew: However, I do know a few things: there are always unintended consequences, and when you increase costs, those costs have to come from somewhere.
Yes indeed: but how is this relevant? Universal health care in the US would cut costs: what makes health care in the US so expensive is that it’s entirely profit-driven.
Andrew: see my comment on your health care post for some places that the money might come from.
Green!
I assume you’d agree that it’s better than having an immediate $1500 deductible (or whatever number would work out to generate the same cost estimates).
Not necesarily. Clearly, this whole problem of making the patient cost-conscious is not new. Private insurers typically deal with it by some combination of deductibles and copays. Why it was necessary to reinvent the wheel (and make it square) is not clear to me.
If you want people to use generics, or older, lower-cost medications, you can change the copayment scheme to encourage this, for example. Does Part D do this, in the pre-doughnut stage?
Purple!
I was wondering who’d bite first. 🙂
I’m hurt you didn’t expect it to be me. That’s my superpower: I have an incredible memory for pop culture.
“Who draws purple is purple, follows purple leader. Who draws green is green, follows green leader.”
“Who draws purple is purple, follows purple leader. Who draws green is green, follows green leader.”
Who draws the short straw buys the next drink.
Who draws the short straw buys the next drink.
ROFL. But you lose points for not having a B5 tie-in. 😉
Why it was necessary to reinvent the wheel (and make it square) is not clear to me.
Well, I imagine they were negotiating between making the plan popular and keeping it under a certain cost, and the doughnut hole seemed to give them the best compromise.
But can you explain what you consider the problem(s) with the doughnut hole itself? The two objections that were offered in the original post would both apply to any deductible.
ROFL. But you lose points for not having a B5 tie-in. 😉
What, you’ve never been to Redemption?
Never even been to the UK, sad to say. The only convention I’ve ever been to that had any B5 tie-ins was one in Colorado that had Pat Tallman and the guy who played Byron as quests. Tallman’s a very nice lady, or at least she fakes it very well.
I actually don’t go to many conventions; that one was back in 1998. IIRC, they had filmed the final episode only a day or two prior.
I had breakfast with Damian London at Redemption 2001.
(Me and half a dozen others: he was a very sociable guy.)
Actually, it must have been 2003 – I just googled. *blushes* I was there in 2001 and 2003, and they tend to run together after a while.
That sounds like it would be fun. He had a tough role. He did a good job of communicating the situation on Centauri Prime, both under Cartagia and under the Shadow minions.
There was always the possibility that somebody else might read what I’d posted before you did, after all. As for what Jes had to say, well, rules change is still being discussed by committee. 🙂
But can you explain what you consider the problem(s) with the doughnut hole itself? The two objections that were offered in the original post would both apply to any deductible.
KenB,
Good question. Your implied accusation that I hadn’t thought carefully about the doughnut has merit. Having thought a bit let me respond.
Part of the problem is with the whole notion of a deductible on a prescription drug plan, as opposed to just copays. One advantage of a deductible on, say, car insurance, is that it avoids the cost of dealing with small claims. If someone dings my car while it’s parked the insurer doesn’t have to get involved. I just take care of it (and of course my premium is less than it would be otherwise). But with medications it’s generally lots of relatively small transactions anyway. If you are a Part D participant in the doughnut hole, someone has to keep track of the prescriptions anyway (and you better do it yourself), to figure out when you’ve gone through the $2850. So the administrative savings are reduced.
There is another problem with the doughnut, though, that is suggested in Kleiman’s post. It makes the catastrophic coverage aspect of the plan more expensive than it need be. Suppose you flipped the plan, so it had a $2850 deductible and then a 25% copay up to $5100. This would be less expensive, for Medicare, than the actual plan. (No difference for those who reach $5100, cheaper for others). What this means is that, at the same cost, Medicare could offer a plan with less than a $2850 deductible. Under that arrangement it would cost participants with large bills less to reach full coverage than it does with the doughnut hole. So participants with major problems would be better off at a somewhat higher cost to some people whose drug bills are smaller.
I suppose we could view this as simply a policy tradeoff – deciding which group to tilt toward, and feel like the actual choice doesn’t deserve harsh criticism. But think about two things. First, the decision to use the doughnut rather than a straight deductible favors those with small bills at the expense of those with larger ones. Second, by making it more costly to the individual to get to full coverage, it imposes a larger than necessary burden precisely on the people who are hit hardest by medical bills, and actually puts some in the position of not being able to take advantage of the plan. I don’t think those are good features.
“The only convention I’ve ever been to that had any B5 tie-ins was one in Colorado that had Pat Tallman and the guy who played Byron as quests. Tallman’s a very nice lady, or at least she fakes it very well.”
I’m not sure which one you mean, but I strongly suspect that it wasn’t an actual sf convention (volunteer fan-run, non-profit), but one of the many for-profit shows that these days masquerades as a convention. I could be wrong, of course.