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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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John C.Tom Leithmarcus newberrybourne2ytheorajones Recent comment authors
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Tom Leith
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Tom Leith

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… Read more »

marcus newberry
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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… Read more »

John C.
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John C.

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… Read more »

Tom Leith
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Tom Leith

> 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… Read more »

marcus newberry
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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.

bourne2y
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bourne2y

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.

theorajones
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theorajones

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?