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Commentary

Markets and Medicare
Wall Street Journal, 10-4-06

Although the Journal continues to have reservations about the fiscal wisdom of the Medicare drug benefit, this editorial recognizes that the program—thanks to market–based competition—has helped to contain costs and offer more choice to seniors. After reviewing the program's victories, it goes on to suggest additional market–based Medicare reforms.

The average monthly premium that seniors pay is again $24, far lower than the $37 originally estimated by government actuaries. And while Democrats have hammered away at the idea that having seniors choose among competing drug plans is too "confusing," recent polls show satisfaction with the benefit in the 80% range.

All of this would also seem to rebut the current Democratic campaign theme that having drug prices "negotiated"—i.e., dictated—by government is an urgent priority. Democrats point to the drug coverage provided by the Veteran's Administration as a model. But the VA usually keeps costs down by refusing to pay for newer, more effective medicines. The VA drug formulary includes only 19% of the medicines approved by the FDA since 2000.

One of our fears about the drug program is that it will devolve into price controls, thus destroying incentives for research and development as European governments have done. It would be a cruel irony if the Medicare drug benefit were to have the effect of delaying the cure for, say, Alzheimer's. Yet this is where Democrats seem to want to go.

Which brings us to the private delivery of Medicare as a whole. For the moment, the bulk of such Medicare services as doctor and hospital visits are covered by a price–fixing bureaucracy no more efficient than any other system of socialized medicine. At some $600 billion, the Medicare budget is larger than the GDP of all but a few nations.

The better option is a so–called premium support model, in which the government would simply help seniors buy private insurance. Our main disappointment with the 2003 bill was the Republican failure to use the drug benefit carrot to reform Medicare along these lines. But at least the law did strengthen the existing private options in Medicare.



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