Now They Tell Us--Tasty Donut Edition: WaPo, which before the election was running stories about the"'devastating'" effect of the Bush Medicare drug benefit "doughnut hole," now reports that the program "has proven cheaper and more popular than anyone imagined."
The cost of the program has been lower than expected, about $26 billion in 2006, according to the nonpartisan Congressional Budget Office. The cost was projected to rise to $45 billion next year, but Medicare has received new bids indicating that its average per-person subsidy could drop by 15 percent in 2007, to $79.90 a month.
Urban Institute President Robert D. Reischauer, a former director of the Congressional Budget Office, called that a remarkable record for a new federal program.
Initially, he said, people were worried no private plans would participate. "Then too many plans came forward," Reischauer said. "Then people said it's going to cost a fortune. And the price came in lower than anybody thought. Then people like me said they're low-balling the prices the first year and they'll jack up the rates down the line. And, lo and behold, the prices fell again. And the reaction was, 'We've got to have the government negotiate lower prices.' At some point you have to ask: What are we looking for here?" [Emphasis added]
Reischauer has a deserved reputation for straight-shooting. WaPo couldn't have gotten that paragraph out of him before November 7? 6:44 P.M.
Kaus spends his time marveling that the Medicare drug benefit is proven "cheaper and more popular than anyone imagined." Which really would be marvelous if it were true. I suspect it isn't. I'm pretty sure there was one group that imagined it being cheaper, the congressional representatives who voted on it:
So is the plan really cheaper than congress thought when they were voting on it? I can't really tell without the new 10 year forecast but from the numbers I'm seeing it doesn't look like it is.
WASHINGTON, Feb. 8 - The Bush administration offered a new estimate of the cost of the Medicare drug benefit on Tuesday, saying it would cost $720 billion in the next 10 years.
That is much more than the $400 billion Congress assumed when it passed legislation creating the benefit in late 2003.
Meanwhile Dean Baker reads the very same article and has some very different thoughts:
I read the article and wonder why the Washington Post felt the need to play up the "Democrats are screwed" angle. The article wants to make it sound like the Dem plan of allowing negotiation won't work. But when you read closer you discover that to the WaPo, "won't work" doesn't mean "won't save money" it means "won't save enough money to completely pay for the benefit donut hole ". If true it is a pity but it doesn't seem to be some fatal Achilles heal.
Lobbyists and politicians often try to obscure issues when they advocate positions favored only by relatively small special interest groups. They did their job well in helping to frame a Washington Post piece on the Medicare drug benefit.
The article discusses the possibility of having Medicare negotiate drug prices directly with the industry, a position strongly opposed by the Washington Post editorial board. One would be hard-pressed to figure out what is at issue after reading this piece.
For example, the article raises the possibility that if Medicare negotiated prices directly with the industry, it “could drive prices higher.” Yes, this must be why the industry is lobbying so hard against having Medicare negotiate prices. They are worried that it would cause them to charge higher prices and get higher profits.
The article then raises the other potential downside of negotiated drug prices “it could significantly lower drug-company profits and discourage medical innovation.” Okay, let’s check reality here. Absolutely every person I know who supports having Medicare negotiate prices with the drug industry believes and hopes that such negotiation will lower industry profits. This is not a negative side effect of the policy – it is the point.
Adding: Granted the article explains that the Democrats hoped the savings would be enough to fill in the donut hole during the campaign, but really, was that some kind of foundational promise that won them congress? A much more accurate reading is that some Dems said they could fill in the donut hole without raising taxes and - though it looked like a good bet at the time - it looks like there might not be quite enough. Not exactly a giant blow.