How quickly do you
think big Michigan companies like Ford and GM would jump at the chance to save
$50 million each year — or $150 million?
If Congress passes
its plan to add a prescription drug benefit to Medicare, which is just about
ready to be reported out of a House-Senate conference committee, it will give
all companies that provide prescription drug plans for their retirees the chance
to save multi-millions of dollars, totaling into the tens of billions.
the plan enable companies to achieve such savings? By offering the prescription
drug benefit not just to those 10 million seniors on Medicare who don’t
currently have one — but to all 40 million seniors on Medicare,
regardless of whether they need it or not. This presents companies with an
economically irresistible enticement: Dump retirees into the government plan,
and save boatloads of money.
The $50 million and $150 million annual savings
estimates for Ford and GM, respectively, were supplied by Goldman Sachs
economist Gary Lapidus for the Detroit Free Press, and are almost certainly
even think companies will hesitate to take advantage of such savings by dumping
retirees from their rolls. They’ll do it so fast that Congress is already
figuring out how to offer them incentives not to — before the legislation has
even been finalized. The amount of this incentive: reportedly around $80
billion per year, the same ballpark figure lawmakers are prepared to spend to
rebuild Iraq, as was noted recently by Heritage Foundation researcher Derek
Hunter. On top of that, Hunter says the incentive won’t work because dumping
retirees or scaling back their coverage still works out better for companies.
would you do if you were an executive at GM, operating on ever-thinner profit
margins, and your company had a chance to cut down on spending $924 million
annually on prescription drugs for retirees, an expense that is increasing at
upwards of 13 percent per year? You would dump as many retirees as possible
immediately, excepting those whose benefits are part of legally binding
contracts, such as UAW workers. But union contracts run out. In three or four
years, you could dump them too, and with the union’s approval. The UAW has been
lobbying for such an across-the-board drug plan for seniors over age 65 for
The Congressional Budget
Office estimates that if the drug benefit passes, between 32 and 37 percent of
senior citizens with employer-provided drug plans will lose those plans, just as
quickly as their former employers can dump them. That amounts to around 4
million seniors who will lose their private drug insurance and be dumped into
the already overburdened Medicare bureaucracy outright, along with far greater
numbers of people who will see their drug coverage significantly scaled back
from what it is today.
analysts have been warning for years that Medicare is like a train whose
conductor knows it’s going to crash somewhere down the tracks, but who won’t put
on the brakes, no matter how many times he is warned. The crash will occur when
the Baby Boom generation begins retiring in large numbers. And that was true
before the new prescription drug plan was factored in.
simply won’t believe the new, unfunded liability some policy analysts project
U.S. taxpayers will be taking on as a result of this plan. Medicare Trustee Tom
Saving places it at $2.6 trillion, nearly a
two-thirds increase in America’s $3.8 trillion federal debt. Heritage
Foundation health policy expert Robert Moffit predicts that because the drug
plan is virtually an unlimited entitlement, within a short period of time costs
Although no price controls are included in the
current legislation, Moffit believes they will be imposed. He says he and his
colleagues have "shouted from the housetops" to lawmakers that "you can’t have
an unlimited entitlement and control costs without price controls." And of
course, since price controls decrease the supply of any good or service to a
level below what the market demands, elderly Americans, like their counterparts
in Canada and elsewhere, will be standing in line for prescription drugs,
receiving them too late, or not receiving them at all.
policy outfits have advised lawmakers to focus any new prescription drug policy
only on those 10 million senior citizens who don’t currently have coverage.
This, rather than an open-ended benefit regardless of need, would make a lot
more sense. But elderly Americans vote in higher percentages than any other
interest group, and they’re angry about the high cost of prescription drugs.
In 1988, America’s senior citizens
woke up to the economic disaster Congress had cobbled together for them in the
Medicare Catastrophic Coverage Act, and forced lawmakers to scrap it.
Hopefully, something similar will happen to the prescription drug bill —
before U.S. companies dump 4 million senior citizens from their current drug
Walker is a communications specialist with the Mackinac Center for Public
Policy, a research and educational institute headquartered in Midland, Mich.