Last week saw the launch of the enrollment period for the new Medicare prescription drug plan. Judging by the initial reception by beneficiaries, Congress and the market alike, the Medicare drug benefit is off to a rocky start. That should come as a surprise to no one for a program that was designed to fail.
All over the country, overwhelmed seniors wrestled with over 40 competing plans featuring conflicting formulary lists and dramatic geographic variations in premiums. Beneficiaries' confusion was magnified by ambiguous Federal income eligibility requirements for different programs and by the infamous coverage "donut." Conceived as a mechanism to control the program's costs while providing both basic and catastrophic prescription coverage, the "donut" is a gap in the drug plan whereby Medicare pays nothing between $2,250 and $2,850 in annual spending.
It's no wonder more than 6 in 10 seniors said they understood the plan "not too well" or "not too well at all" even though 74% received information about it. And only about a fifth of seniors surveyed by the Kaiser Family Foundation and the Harvard School of Public Health said they'd enroll, participation levels so low as to potentially threaten the program.

Beyond its disappointing reception by American seniors is the apparent failure of the new Medicare Rx plan to deliver lower costs to consumers. A report released by Democratic staff on the House Government Reform Committee showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department, 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com. The report concluded that:

"The prices offered by the Medicare drug plans are higher than all four benchmarks, in some cases significantly so. This increases costs to seniors and federal taxpayers and makes it doubtful that the complicated design of Medicare Part D provides any tangible benefit to anyone but drug manufacturers and insurers."

These ominous signs for the new Medicare prescription benefit should come as no surprise to the Bush administration. After all, President Bush initially opposed the program. In January 2003, CBS News reported that "a recent description of the proposal in government documents envisions 'no prescription drug coverage' for people in traditional fee-for-service Medicare." Instead, the Bush White House in 2003 wanted Medicare beneficiaries seeking prescription drug coverage to join some type of government-subsidized private health insurance program.
Ultimately, though, President Bush caved to overwhelming public pressure - and the demands of reelection in 2004 - for a prescription benefit as part of the traditional fee-for-service Medicare program. His support, however, came at a steep price.
For starters, the White House insisted that the final December 2003 Medicare Drug bill prohibit the government from negotiating prices directly with drug companies, a key demand of the pharmaceutical lobby. The same price leverage enjoyed by the Veterans Affairs Department and its program beneficiaries was surrendered by Medicare, with the predictable results described in the House report this week. In another poison pill added by the insurance and pharmaceutical lobbies, the Medicare Prescription Drug Modernization Act beginning in 2010 provides subsidies to private insurers to compete with traditional Medicare.
Perhaps even worse, a White House desperate for an election year win on Medicare deliberately misrepresented the program's costs in order to ensure passage. On December 8, 2003, President Bush rolled out a program he claimed would cost $400 billion over 10 years. Within two months, however, the White House notified Congress that the real price tag would approach $550 billion. When Medicare actuary Richard Foster sought to present the true price tag to Congress in late 2003, then agency chief Thomas Scully threatened to fire him. (As it was, then House Majority Leader Tom Delay twisted arms and extended debate on the bill by hours to coerce recalcitrant Republicans, a move for which he was later admonished by a House Ethics panel.) Fast forward two years and the estimated 10 year price tag for the Medicare prescription plan now exceeds $720 billion for its 43 million beneficiaries.
The result for American seniors and taxpayers is a Medicare prescription fiasco. Too expensive for its lukewarm Republican supporters and underfunded by Democratic assessments, the Medicare drug program is a budget nightmare almost certain to fail in its central objective of helping elderly Americans dramatically reduce their prescription drug costs.
But then again, for President Bush and his Republican allies in Congress, that was never really part of the plan.