The Bush Administration wants countries holding large amounts of Iraqi debt to consider forgiving much of what is owed. As the President has explained, massive national debt is incompatible with economic growth.
The Bush Administration wants countries holding large amounts of Iraqi debt to consider forgiving much of what is owed. As the President has explained, massive national debt is incompatible with economic growth.
The President’s recognition that high debt levels are bad for Iraq has led some of his supporters to wonder why he doesn’t seem to understand that huge deficits are also bad for America. As the Cato Institute’s David Boaz recently wrote in a Washington Post op-ed entitled “Bush’s Betrayal,” they are now wondering just which candidate won the presidency in 2000. As Boaz noted, since Bush took office, non-defense spending has risen by 20.8%.
Which brings us to the recent Medicare bill. While Congress certainly bears much of the blame, the President is claiming credit for this legislation, and must be held accountable for it.
The new law was supposed to address a genuine problem. Many elderly Americans simply cannot afford needed medications, and Medicare did not include coverage for those prescriptions. We are told that this legislation will fix that problem. Because the bill is so complicated, I asked a colleague who teaches Health Economics to comment on the Administration’s claims about the new law. Those claims, and her comments, follow.
Claim: the discount card to be provided to seniors will reduce their costs for medicine by 15%.
Analysis: Fifteen percent of what? The plan’s design reduces the government’s market power, and thus its ability to negotiate lower prices. The program itself is likely to increase demand. Increased demand normally increases prices. A “discount” calculated on higher prices won’t help seniors buy medicine.
Claim: Subsidies to private companies willing to offer insurance will encourage competition and keep costs down.
Analysis: When insurance plans compete, they engage in cream-skimming, leaving the poor risks (i.e. high-cost patients) either uninsured or covered by Medicare. We could easily end up with the same situation we have with high-risk pools that now operate in many states. Average costs become so high that only desperate cases will pay the premium—if they can afford to. The rest go uninsured. If I worked for a large insurance company, I’d be picking out low-risk Medicare beneficiaries and buying dinner in an expensive restaurant.
Claim: The law will speed generic drugs to market.
Analysis: True, but without incentives to compete on price, a big step backward. If you are a drug company with a choice between making a cheaper version of an existing drug, priced at $100 (for which you will be paid $85) or developing a brand-new drug that you can price at $200 (for which you’ll be paid $170), what would you do? If I worked at a major pharmaceutical firm, I’d be partying tonight.
Claim: This bill helps older Americans.
Analysis: This bill was supposed to add a prescription drug benefit. It really provides billions of dollars in subsidies to drug and insurance companies, begins the privatization of Medicare, and adds billions to an already massive public debt.
We can’t afford much more compassion.