News Analysis

Although the Medicare bill that squeezed through Congress purports to provide relief to some seniors, it also gives big pharmaceutical companies nearly free reign to fleece taxpayers with exorbitantly priced drugs.

The AFL-CIO said the measure, which cleared the Senate by a vote of 54-44 on Nov. 25, “moves Medicare toward privatization, forces 32.5 million beneficiaries to pay higher out of pocket costs, opens the door for $139 billion in additional profits for the pharmaceutical industry, prohibits the government from negotiating lower drug prices and does nothing to rein in soaring drug prices.”

A beneficiary would be responsible for the first $250 in drug costs each year. Of the next $2,000, Medicare would cover 75 percent and the beneficiary would pay $500. The beneficiary would then be responsible for all of the next $2,850 in drug costs.

A provision that would have allowed seniors to buy drugs from Canada was stricken, meaning that Medicare beneficiaries will be forced to pay – and the government will be forced to subsidize – whatever the companies charge. The Congressional Budget Office says annual spending of the new benefit would start at $26 billion in 2006, rising to $73 billion in 2013.

An analysis of the bill shows that 50 percent of the over-65 population would face pharmaceutical expenses too low to reap any benefits from the program in 2006, the first year of the new program.

Take, for instance, individuals who expect to need $700 in prescription drugs in 2006. If these persons buy into the proposed drug benefit plan, they will first pay a total of $670 for the plan premium ($420) and the deductible ($250). For expenditures exceeding the deductible but below $2,250, the new Medicare Part D covers 75 percent of the costs – meaning these enrollees would spend about $112.50 in co-payments for their $700 worth of medication. Ultimately, those under Medicare Part D would shoulder a total cost of $782.50 ($112.50 co-pay plus $670 in premium and deductible), while those without the plan would have simply spent $700 on their drugs.

Interviews with seniors as reported in the press showed little enthusiasm for the legislation. Under the new legislation insurance companies could offer variations of the standing drug benefit, meaning that many beneficiaries fear they would need lawyers to figure out the new benefits.

Many fear the Republican bill will harm senior citizens, and they say the AARP – the nation’s most influential retiree lobby, with 35 million members – sold them out.

The bill “destroys one of the most successful programs in the history of this country,” Isaac Ben Ezra, president of the Massachusetts Senior Action Council, said as he led a demonstration of about 40 people against the bill. “Shame, AARP,” the marchers chanted.

AARP CEO William Novelli said between 10,000 and 15,000 members have quit the group over the bill.

The law sets up competition between traditional Medicare and private plans, beginning in 2010. Activists worry that could lead to the privatization of Medicare and place the elderly in the hands of “insurance sharks” more concerned about profits than quality medical care. Elderly people have also questioned the AARP’s motives, because it has a for-profit arm that earns royalties from the sale of health insurance.

Sam Oser, a 77-year-old retiree in West Palm Beach, Fla., organized a protest in his retirement community and burned his AARP card. “The more we thought about the Republican plan – the more we thought about it, the angrier we got and we felt the AARP was really selling us out,” he said.

Ed Coyle, executive director of the Alliance of Retired Americans, charged the Bush administration and Congress with callously using a much needed and long awaited prescription drug program to privatize Medicare. “They may say they are looking out for seniors but seniors won’t be fooled. They know a lemon when they see it and the GOP is offering seniors a lemon of a bill.”

Paul Krugman, an economist who writes for the New York Times, points out that drug company stocks have soared since the bill’s details became public.

Sen. Edward Kennedy (D-Mass.) called the document a “partisan effort that embodies the [Bush] administration’s right wing ideology and its desire to fuel the profits of the rich and powerful. … The bill is a calculated program to unravel Medicare, to privatize it and to force senior citizens into the cold arms of HMOs.”

The legislation becomes fully effective in 2010, meaning that nothing is yet set in stone. The fight over its implementation faces three national elections – 2004, 2006 and 2008 – and there are certainly opportunities to repeal its worst features. The time to get started is now.

The author can be reached at


Fred Gaboury
Fred Gaboury

Fred Gaboury was a member of the Editorial Board of the print edition of  People’s Weekly World/Nuestro Mundo and wrote frequently on economic, labor and political issues. Gaboury died in 2004. Here is a small selection of Fred’s significant writings: Eight days in May Birmingham and the struggle for civil rights; Remembering the Rev. James Orange; Memphis 1968: We remember; June 19, 1953: The murder of the Rosenbergs; World Bank and International Monetary Fund strangle economies of Third World countries