Mmmmm... Doughnuts
The Hidden Columnists--Paul Krugman Edition (11 Nov)

In which Mr. Krugman explains the wonderfully easy-to-use and very helpful Medicare drug benefit that's just about to go into effect (for Times Select subscribers, here's the link):

Before we turn to the larger issue, let's look at how the Medicare drug benefit will work over the course of next year.

At first, the benefit will look like a normal insurance plan, with a deductible and co-payments.

But if your cumulative drug expenses reach $2,250, a very strange thing will happen: you'll suddenly be on your own. The Medicare benefit won't kick in again unless your costs reach $5,100. This gap in coverage has come to be known as the "doughnut hole." (Did you think I was talking about Krispy Kremes?)

One way to see the bizarre effect of this hole is to notice that if you are a retiree and spend $2,000 on drugs next year, Medicare will cover 66 percent of your expenses. But if you spend $5,000 - which means that you're much more likely to need help paying those expenses - Medicare will cover only 30 percent of your bills.

A study in the July/August issue of Health Affairs points out that this will place many retirees on a financial "roller coaster."

A study in the July/August issue of Health Affairs points out that this will place many retirees on a financial "roller coaster."

People with high drug costs will have relatively low out-of-pocket expenses for part of the year - say, until next summer. Then, suddenly, they'll enter the doughnut hole, and their personal expenses will soar. And because the same people tend to have high drug costs year after year, the roller-coaster ride will repeat in 2007.

Well, this sounds like a great government program. Wonder what you might be able to do to help minimize this doughnut effect?

The smart thing to do, for those who could afford it, would be to buy supplemental insurance that would cover the doughnut hole. But guess what: the bill that established the drug benefit specifically prohibits you from buying insurance to cover the gap. That's why many retirees who already have prescription drug insurance are being advised not to sign up for the Medicare benefit.

Krugman then gets to the heart of the matter:

Why is this bill so bad?

The probable answer is that the Republican Congressional leaders who rammed the bill through in 2003 weren't actually trying to protect retired Americans against the risk of high drug expenses. In fact, they're fundamentally hostile to the idea of social insurance, of public programs that reduce private risk.

Their purpose was purely political: to be able to say that President Bush had honored his 2000 campaign promise to provide prescription drug coverage by passing a drug bill, any drug bill.

Once you recognize that the drug benefit is a purely political exercise that wasn't supposed to serve its ostensible purpose, the absurdities in the program make sense.