New Medicare Law: Billions for the Capitalists, Pennies for Seniors

December 1, 2003

At the end of November, Congress approved legislation which will dramatically change Medicare, the health insurance program covering 41 million senior citizens.

Some of the main provisions of the bill include:

- Beginning in 2006, the federal government will pay part of the cost of private insurance for prescription drugs for Medicare recipients but seniors will pay most of the costs.

Seniors who choose to enroll will pay co-premiums of $35/month or $420/year. In addition, seniors will pay the first $250 in prescription costs as an annual deductible. After that, insurance will cover 75% of a senior's next $2000 in prescription expenses. The next $2,850 in yearly costs, labelled the "doughnut hole," will be paid entirely by the seniors. Finally, insurance will pick up 95% of a senior's "catastrophic costs" in excess of $5,100/year. Altogether, out of the first $5,100 in prescription payments, seniors will pay $4,020 while insurance will pay only $1,080.

In fact, several million seniors will actually be worse off as a result of the new drug benefit. Nearly 3 million seniors are expected to lose their current employer-provided drug coverage and another 6 million seniors will lose their current Medicaid drug coverage. Both the Medicaid and company-sponsored plans are cheaper and provide better coverage than the new Medicare package.

- All the costs paid by seniors - the co-premiums, the deductible, the "doughnut hole" - are expected to increase every year as the companies will have a freehand in setting prices. In fact, the new legislation explicitly prohibits the government from using its purchasing power to lower drug costs. It also prohibits seniors from importing cheaper drugs from Canada and other countries. It is estimated that the new law will create an additional windfall of $140 billion in profits for the pharmaceutical companies.

- In addition to the fact that the new prescription drug insurance will be run by private insurers, the new law opens the door to further privatization. By 2010, private companies will be given special federal subsidies and encouraged to compete with Medicare to enroll seniors. Medicare premiums are expected to rise dramatically.

While the new Medicare law offers only pennies to seniors, it provides hundreds of billions in windfall profits for the pharmaceutical companies and big HMOs.

- The drug companies expect to gain $140 billion in extra profits as a result of the higher prices and expanded market created by the new law.

- Private insurance companies will be given $12 billion in federal monies as an "incentive" to administer the new program.

- Businesses will be given $70 billion in direct payments and $16 billion in tax credits to cover the costs of their current prescription drug insurance for retirees.

Already seniors, unions, community groups and others are organizing to overturn the new law. This struggle must be carried through. We cannot allow our senior citizens to continue to go without needed medications because they can't afford them. We cannot allow Medicare to be privatized. On the contrary. We must demand that every senior citizen - and every American - be guaranteed comprehensive and free prescription drug coverage.