Incidence of the Prescription Drug Benefit & Dean Baker’s Conservative Nanny State

Dean Baker’s subtitle for The Conservative Nanny State is How the Wealthy Use the Government to Stay Rich and Get Richer. My attempt to explain why the prescription drug benefit is so massively expensive relative to the benefits it brings seniors has to do with titling the incidence of this subsidy toward suppliers. But how did this law do this, you may ask?

Dean brings us a story by Robert Pear noting that (Dean’s summary):

some of the insurance companies in the Medicare drug plan failed to notify seniors of changes in their plan. These changes often involve higher prices and the dropping of some drugs from the plan.

Dean continues:

The brave men and women who occupy Congress say that the insurance and drug industry have too much power to allow for a Medicare sponsored drug plan. So, we compromise. We put in place an efficient user-friendly system and then cut the insurance and pharmaceutical industries checks for the amount of profit that they would have made off the taxpayers under the current system. The system is called “Temporary Assistance for Needy Corporations (TANC).” The companies that are unable to compete in the market will get checks for their lost profits from the government for 10 years. This will allow their CEOs to still get multi-million dollar compensation packages and their shareholders will still get big dividends, the big benefit for the public will be that seniors won’t have to deal with so much nonsense when trying to get the health care that they need.

A few principled conservatives objected to expanding transfer payments in this way. Some of us on the left also objected to the nature of this program which allowed for much of the taxpayer funded subsidy to be captured by suppliers. Of course, President Bush is trying to tell us that we can have the new subsidy and not raise taxes on anyone. My real objection comes from such free lunch dishonesty. Someone in the future will be responsible for paying taxes on all these goodies.