Jacob Weisberg: Prescription for a healthcare fiasco

Jacob Weisberg: Prescription for a healthcare fiasco
By Jacob Weisberg Copyright by the Financial Times
Published: January 18 2006 20:26 | Last updated: January 18 2006 20:26

George W. Bush thought millions would welcome his intervention. But the effort has not gone as planned. Costs are spiraling out of control and many of the people the US president wanted to help protest that the situation is worse than ever. Three years later, the entire poorly conceived enterprise is in jeopardy.

I refer, of course, to the administration’s program to subsidize the cost of prescription drugs for the elderly. This plan, which went into effect on January 1, offers so many baffling options that only 1m of 21m eligible beneficiaries of Medicare, the healthcare system for over-65s, have signed up for it on their own. Many of these early adopters, along with millions of impoverished recipients of Medicaid (the federal-state program for low-income people) transferred into the new system automatically, have been unable to obtain their prescriptions at the promised discount. The specter of citizens going without medication has provoked action by several governors, some of whom have invoked emergency powers to pay for drugs. Meanwhile, the estimated cost of this plan that no one likes has already more than doubled, and is now projected at more than $1,000bn over the next decade.

It is tempting to conclude that “Medicare D” has flopped because of Republican disdain for government. That is indeed part of the problem. It is hard to think of a big federal program or initiative other than weapons procurement and domestic espionage that has thrived under Mr. Bush, who tends to tune out such specifics as design and implementation. With the Medicare drug bill, politically attuned but government-detesting conservatives resolved the inherent conflict between the interests of beneficiaries and the affected industries in favor of everyone. Crucial aspects of the plan were characteristically delegated to insurance and pharmaceutical companies, while the senior citizens’ lobby was appeased in various ways.

But, in fact, there is an even more basic problem that cannot be laid solely at the doorstep of Republicans. Over 25 years, governments the world over have moved from statist solutions and towards programs that rely to a greater degree on markets and incentives. This has been, by and large, positive. But the mixed public-private programs now in vogue are inherently more complex, sometimes so much so that they simply will not take. Whatever the advantages of Medicare D in theory, it has a drawback common to all recent presidential proposals for healthcare reform: it is too complicated.

It is ironic to hear Hillary Clinton, the senator, denouncing the failure of Mr. Bush’s plan, since her own effort suffered from a similar flaw. The Clintons in 1993 attempted to structure a market – in their case for comprehensive medical coverage as opposed to just drugs. Rather than provide medical benefits directly the way Britain and Canada do, the federal government under the Clinton plan would have required that private companies offer workers a menu of insurance options. For smaller employers and individuals, the government would create buying co-operatives known as “alliances”. There would be cost caps, subsidies of various kinds and a vast regulatory apparatus. It was easy for opponents to mischaracterize this plan as a government takeover of healthcare because proponents could never explain what it was supposed to be.

The Clintons were drawn to this hybrid system because they wanted to avoid being labeled as old-fashioned liberals. Mr. Bush’s motivation was to get the political credit for a new government benefit without having government much involved. Both believed that private-sector involvement would promote efficiency and help to control costs. But when it comes to healthcare, which is by nature not a transparent consumer market, this assumption is not necessarily justified. Government is well suited to pool risk and provide insurance. The insistence on writing private insurers into the equation buys off a powerful interest group but adds expense and complexity.

How much complexity? Under the Bush plan, a typical retiree pays a monthly premium averaging $32 a month. He or she pays the first $250 in drug costs, after which the insurer must cover 75 per cent of the next $2,000. The assistance then vanishes into the so-called “doughnut hole”, until total expenditure exceeds $5,100, at which point insurance kicks in again to cover 95 per cent of additional drug costs. A retiree who judges this proposition a good deal must choose between an integrated managed-care plan and free-standing drug plan. In the latter category, there are more than 40 choices available in most locales, each covering different drugs and offering different inducements. The only way to navigate the decision-making process is via the internet, which I am sorry to say some elderly people still have not learnt how to use.

The failure of Mr. Bush’s reform illustrates a point about psychology and economics – what the writer Barry Schwarz calls the “paradox of choice”. Given too many options, rational actors are more likely to be paralyzed than to pick wisely. But the Medicare D fiasco also offers a lesson about policymaking in an age of market consensus. Idealized schemes for distributing public goods that may work in theory are seldom simple in practice. And if they are not simple enough for average people to understand, they will not work at all.

The writer is editor of Slate.com