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POLICY: Joe Paduda explains what’s wrong with Part D’s economics

While we’ve been focused on what’s wrong with Part D’s implementation, Joe Paduda reminds us all about one of the other problems with Part D. It’s that by it’s nature a voluntary benefit is going to attract adverse selection. In other words, the only people signing up for it so far — and barring the dual eligibles who were involuntarily alloted into it there haven’t been too many, and DSS reports that there won’t be that many more — are the ones with big drug costs. So by definition eventually the plans will start losing money.

For now the PDPs are being covered against that risk, and the very generous taxpayer will make up the difference. But later on the taxpayer may not be so generous (as with Medicare Risk in the late 1990s) at which point the PDPs will start to exit.

This, by the way, is exactly the inverse of the problem with HSAs, where all the healthy people will leave the insurance pool, leaving those behind in a death spiral.

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  1. Well Dr. Newberry, I appreciate your comments but don’t quite understand how repealing Part D will help. If seniors are overmedicated with useless or worse drugs and are non-compliant to boot, that seems to me more a problem with the sacred doctor-patient relationship than with financing arrangements. I don’t think you really want to leave it to others (like state Medicaid directors) to decide which drugs are and are not necessary for your patients, but I do hope you can persuade your colleagues to be more circumspect about prescribing. Your background in medical education will surely be helpful towards this end. I can talk about it until I am blue in the face, but my coat’s the wrong color, so it does not matter what I say. It is entirely up to The Guild to solve these problems.
    John C. — I think there will be an adverse selection problem because enrollment is voluntary and my admittedly small sample of seniors apparently places no value on insurance. They who enroll today expect to spend at least the full amount of the premium this year anyway, and that is the very definition of adverse selection.

  2. It is not entirely about the money. Part D is bad medicine and bad government.
    Senior citizens in the US are the most overmedicated group of people in the world. Their lives and drugs are so intertwined that it is difficult to realize there is often no effect or adverse reaction. The course of life is changed by dependence on drugs and when not necessary it lowers the quality of life. Unfortunately, that situation happens commonly and Part D will aggravate the problem.
    It is bad government because the money could have been put into Medicaid with greater benefit to more people, including the senior citizens. Given the choice between Part D and nursing home care, my advice is to chose the nursing homes. Medicaid could cover the necessary drugs and doctors would be more circumspect about prescribing.
    I am a senior citizen and advocate repeal of Part D.

  3. Sometimes you UHC coverage guys (and some of the liberals too)lead me to believe you’re schizophrenic. On the one you bring up the elderly woman who doesn’t eat because she needs the money to pay for drugs. Lambasting the shortcomings of Medicare. A true travesty of its social mission to help to elderly and disabled.
    Now when a drug benefit is provided you eulogize with prejudice because it is going to cost too much?!
    Joe Paduda sites the 70% rule commercial insurers use as a proxy for measuring success of a social program is misleading. The problem is that insurers use the requirement in dealing with populations far smaller than the 3.6 million enrolled so far, and it’s only been 1 month! The 70% rule is protect against statsitcal biases. With the projected growth in this segment I seriously doubt there will be any adverse selections issue.
    All this yapping about the complexit of Part D is political spin. The same was said about Medicare A & B when it was introduced in ’65. The program covers medications for a population that previously had little, if not expensive options.
    A Republican President passes legislation on a social issue, and everyone is waiting for a disaster. Makes no sense to me.

  4. > Part D […] by it’s nature a voluntary benefit
    > is going to attract adverse selection.
    Yep. I have spoken with two seniors about it who said essentially this:
    “Well, the premium is about the same as what I’m spending now, so I think I’ll get it just for the insurance value.”
    Both of them said very nearly this.
    OK, what value do these two seniors place on insurance?
    ZERO!!!
    Why? I do not quite know. Maybe they think we will bail them out no matter what they do, but it might be a little more hassle if they don’t participate. Maybe for them an insurance plan is sort of like a discount warehouse club membership or something. If there is any value to the CDHP movement at all, it will be in overcoming this attitude. A Universal Coverage plan capitulates entirely to this attitude. It could be worse, but it could be much better…

  5. You talk about the lousy implementation and the adverse selection. How about Part D as an ill-conceived concept? Consider the people who get drugs and don’t need them, the ones who get the drugs and don’t take them, the situations where the drugs have no effect, the situations where the wrong drug is prescribed and the adverse reactions to the drugs. My guess is that represents about 50% or more. A lot of money to pay for a little love. But, that’s the story of modern medicine.

  6. Maybe the 1% (monthly) penalty will be waived eventually, and maybe not.
    There is a 10% (annual) late-enrollment penalty in Medicare and it’s been there for 40 years.

  7. What about the 1% penalty?
    My instinct is that the penalty will be waived eventually, because old folks are a powerful enough voting bloc that if enough of them haven’t signed up, there will be significant pressure. But I’m not sure it’ll acutally play out that way.
    Expect this “adverse selection preventer” will work?

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