Critics Warn Gore's Drug Plan No Help to Seniors, May Mean Price Fixing

July 7, 2008 - 8:02 PM

( - Democratic presidential candidate Al Gore is touting a prescription drug plan for Medicare as his vision of the program's future. But John Calfee, resident scholar at the American Enterprise Institute, says in the real world, Gore's plan will not save senior citizens much money.

Calfee's analysis, which he presented Monday at a speech in Washington, D.C., comes on the heels of a Boston Globe report that revealed Gore may have wildly exaggerated the cost of some prescription drugs in an August speech to Florida seniors.

At that time, Gore reportedly claimed that his mother-in-law and dog were taking the same arthritis medicine, but that his mother-in-law was paying three times more for her drug than it was costing to medicate the dog.

According to the Globe, Gore used retail and wholesale prices of the brand-name arthritis drug Lodine in order to make his claim of the large price disparity. Gore also neglected to mention that there is a much cheaper, widely used generic version of Lodine on the market, according to the Globe.

Much of the current health care debate revolves around the true cost of prescription drugs. A centerpiece of Gore's health care agenda is adding a prescription drug benefit to Medicare, based on his claim that seniors are paying too much for their medication.

But John Calfee warns that the Gore plan could produce little savings and possibly even price controls that stifle research and innovation in pharmaceuticals.

"The way that the plan is set up, seniors would not get much of a savings on the first several thousand dollars of drugs," said Calfee.

Gore's plan would give seniors one chance at buying into a $25-a-month prescription drug plan that would give them a 50 percent discount on drugs, up to $2,000 annually. There would be no deductible. Low-income seniors (those with incomes below 135 percent of the poverty level) would have all of their costs and premiums covered by Uncle Sam.

"So, if a senior bought $2,000 of drugs, their total savings would only be $700, which isn't very much for an insurance plan," Calfee said. "And they wouldn't save anything on the next $2,000, so, out of the first $4,000, they only save $700."

Under the Gore plan, if a senior reached $4,000 in annual drug costs, Medicare would consider it catastrophic care and pick up the tab after $4,000.

Under current law, health care providers are prohibited from offering senior citizens stand-alone drug benefit insurance. Such insurance can only be included as part of a deluxe package of supplemental Medicare coverage that includes other provisions as well. That larger insurance package is also the most costly for seniors.

Gore estimates his plan would cost taxpayers $253 billion over 10 years, which is about $100 billion more than the plan offered by Republican presidential candidate George W. Bush.

The Gore plan is almost identical to an earlier plan drafted by the Clinton Administration, calling for the creation of a government organization to serve as a regional purchaser for drugs.

"My fear is that once they get into the business of negotiating prices, and once Congress is setting budgets, in order to keep expenditures down, they'll start putting a ceiling on the prices for drugs," said Calfee. "So I'm afraid it will get into price controls."

"I understand that concern," said Henry Aaron, senior fellow in economic studies at the Brookings Institution. "Calfee could be right; this is an area of judgment call."

Unlike Calfee, however, Aaron believes the greater bargaining power enjoyed by a regional negotiator may be a way to avoid price controls. "I do think the (Gore approach) give us a mechanism that offers us a good chance of avoiding it. As long as the drug companies don't engage in patently abusive practices, I think they are going to be in a good position to win that debate" on price controls, he said.

Looming large over the prescription drug debate is the uncertain future of the Medicare program itself. According to government estimates, Medicare will be unable to pay all benefits starting in 2010 without raising taxes, cutting benefits, or initiating reforms to pre-fund health care.