Medicare Drug Benefit Update

Reading Today’s Daily Howler, I see that the NYT has a new story on the Medicare drug benefit. The Problem? The NYT’s figures and analysis exclude the $420 annual premium, grossly overstating the true benefits provided under the plan.

To illustrate the distortion, I took the data from an earlier post on the Medicare Drug Benefit and divided the out-of-pocket expense by total drug costs to derive the percentage of drug costs paid by the enrollee. Then I repeated the analysis with the enrollee’s premium costs excluded. As you can see, excluding those costs changes the picture substantially, particularly when expenses are in the non-catastrophic range. For example, $810 is the break-even number, meaning that if an enrollee’s total drug costs are $810 then total out-of-pocket expenses are exactly $810. If drug costs are less than that, the enrollee is paying more than she would without coverage, and vice-versa. While in reality a senior with $810 in drug costs pays an amount equal to 100% of their drug costs, the Times’ error makes it incorrectly appear that the government is paying a bit more than 50% of that senior’s drug costs (and the senior a bit less than 50%).

Note that the problem is not that seniors with less than $810 in drug costs will pay more under the plan than they would otherwise. That’s the nature of insurance and risk-sharing. Everybody puts some money into a pool at the start of the year. Those who are unlucky and need a lot of prescription drugs withdraw money; the fortunate ones are healthy and do not take money out of the pool. (One difference in this case is that seniors put only a portion of the money into the pool. Taxpayers add the rest.)

The problem is that by excluding the deductible the NYT — either out of ignorance or malevolence — grossly overstates the value of the just-signed plan. Left as an exercise for the reader is why the allegedly Liberal New York Times would distort thusly.