Sep 1 2003

Don’t Follow the Money

The self-destruct provision

In All the President’s Men, Carl Woodward and Bob Bernstein’s classic account of the Watergate scandal, their secret inside source, “Deep Throat,” repeatedly told them to “follow the money.” But when it came to reporting on the debate over a Medicare prescription drug benefit, the New York Times and Washington Post repeatedly told readers not to follow the money. In article after article, readers were told that politicians were motivated by ideological conviction, rather than the desire to please rich and powerful political backers.

For example, the New York Times (6/22/03) presented an overview of the Congressional debate in which it told readers that passing an acceptable bill involved an effort to “find a grand compromise on one of the longest-running divisions in American social policy: how much to trust the government and how much to trust the market.” Five days later (6/27/03), another article explained to readers that the differences in the bills before Congress are due to “fundamental disagreement over the proper role of government in Medicare.” Several other Times articles repeated this framing of the issue, telling readers that the dispute over the best way to design a prescription drug benefit was primarily a matter of philosophy: “Conservatives in the House and the liberals in the Senate have profoundly different visions of Medicare, of social welfare programs and of government in general,” one piece stated (7/20/03).

The Washington Post coverage generally put the debate within a similar framework, although its articles focused more narrowly on the assertion that Republicans believe that increased private sector involvement in Medicare is the best way to control costs. For example, one Post article (6/10/03) reported that George W. Bush’s proposal was motivated by the goal of “expanding the role of private health plans in Medicare in an attempt to save the program money in the long run.” Another piece (7/23/03) asserted that differences between Republicans and Democrats “revolve around how far the government should go to tilt the 1960s-era system from a federal entitlement to a program built on market competition.”

In framing this issue, Times and Post reporters seemed anxious to assert that politicians’ stated motives were in fact their true motives–as with a Times article (6/8/03) that described “the goal of conservatives” as being “to harness market forces to hold down healthcare costs.” The papers presented it as a matter of fact that politicians were acting out of their perception of the public good, rather than the need to satisfy important political backers–in this case, the pharmaceutical and insurance industries.

This is a rather strong claim for a reporter to make without any apparent supporting evidence. In fact, most of the evidence would seem to point in the opposite direction. For example, it is not clear why Republican members of Congress would believe that increasing the role of private insurers, through expanding the role of private HMOs, is the best way to reduce Medicare costs.

There has been extensive experimentation with HMOs in Medicare, and the results have not been impressive. Several studies, including one by the General Accounting Office (“Medicare+Choice: Payments Exceed Costs of Fee-for-Service Benefits, Adding Billions to Spending,” 8/23/00), have found that HMOs increase Medicare costs. This is due to the fact that while they receive a compensation payment which is close to the average paid for all Medicare beneficiaries, the typical Medicare HMO enrollee is healthier than average (due to selective enrollment practices by HMOs). Since these patients have considerably less than average expenses, the costs for Medicare increase when these people sign up with HMOs.

Furthermore, even though it costs Medicare more money to service people through HMOs than through the traditional program, HMOs have deserted the system en masse, claiming that they are unable to make a profit. Nearly 40 percent of the Medicare beneficiaries who were enrolled in HMOs have been forced to make alternative arrangements because their HMO left the program.

It is entirely possible that Republican members of Congress are completely ignorant of the evidence on the relative efficiency of the private sector and the traditional program. It is also possible that they believe that the private sector is more efficient in spite of the evidence to the contrary. But it is also possible that they couldn’t care less whether or not the private sector was more efficient, and that their main concern was designing a Medicare drug benefit that would be lucrative for the insurance and the pharmaceutical industry. While it would be inappropriate for reporters to impute such venal motives to politicians, it is also inappropriate to assure readers that politicians are not acting from such venal motives, as the Times and Post have repeatedly done.

The self-destruct provision

The insistence that powerful political backers did not influence Congressional votes is not the only issue worth noting about the coverage of a Medicare drug benefit in the Times and Post. The House bill includes an important provision that would virtually guarantee the destruction of the traditional Medicare program. It would have been almost impossible for readers of the Times and Post to recognize the significance of this provision, and the fact that it could be designed for no other purpose except to destroy the Medicare program, if they relied on these papers for their information.

The provision would link the government’s payments for the traditional program to the fees charged by private providers. Beneficiaries who stay in the traditional program would have to pay the difference themselves between the cost of the traditional system and the cost charged by private providers.

Private providers can design their programs so that they only attract the most healthy Medicare beneficiaries, who have much lower expenses than the average beneficiary. Under the system designed by House Republicans, seniors who chose to stay in the traditional program would have to pay the difference between the private sector’s cost of serving the healthiest beneficiaries and the cost to the traditional program of serving the less healthy group of beneficiaries who remained in the traditional program. Such a system would quickly make the cost of the traditional program prohibitively expensive for all but the wealthiest beneficiaries.

Unless the intention is to destroy Medicare, it is completely irrational to design a compensation system in this manner. (A rational system would link compensation to private insurers to the health of their beneficiaries–as is the case with the current system.)

Both papers ran numerous articles including assertions that the House plan includes a proposal to put the traditional Medicare program in direct price competition with private plans (e.g. New York Times, 6/28/03). This is at very best a half truth, since the traditional plan already faces competition from private sector plans. The big difference between the current system and House Republican proposal is the rigging of the deck to insure that the traditional system loses–as would Medicare beneficiaries, who would lose access to a public plan that they have already voted for with their feet over private sector alternatives.

In fact, it would be very difficult for a careful reader to even recognize the limited value of these prescription drug plans for seniors. Under either the House or Senate plan, seniors will be paying almost as much money (in inflation-adjusted dollars) when the plans are scheduled to take effect in 2006 as when President Bush promised seniors a prescription drug benefit in the 2000 election campaign. In 2013, the last year of the projection period, seniors will be spending nearly twice as much on drugs on average– with the prescription drug benefit–as they did in 2000 without a benefit. In other words, the CBO projections indicate that these plans will not provide much relief from high drug prices.

The fact that the projections show that the plans will provide relatively little relief to seniors did not prevent the Times and Post from touting them as big political gains to the 2004 Bush/Cheney campaign. Both papers ran numerous articles that asserted that the drug plans will give Bush an important political boost (e.g., “Medicare Drug Plan Could Be Painful for Democrats,” Washington Post, 6/21/03; “GOP May Get a Boost With Seniors,” Washington Post, 6/28/03; “GOP Steals Thunder,” New York Times, 6/28/03).

On its face, this claim would seem questionable; it is unlikely that many seniors will be thrilled with a benefit that will leave them no better off in paying for prescription drugs than when it first became an issue, and do nothing about controlling a path of exploding prescription drug prices that will make the problem considerably worse over time. Furthermore, since seniors will have seen none of the benefits by the 2004 election–a point at which the wealthy will have already have received hundreds of billions of dollars from Bush’s tax cuts–it is not clear that the promise of a benefit two years in the future will have very much political appeal. But these facts were not noted in the Times and Post coverage on the political implications of the Republican prescription drug bills.

Dean Baker is an economist and co-director of the Center for Economic and Policy Research. His weekly Economic Reporting Review appears on CEPR’s website.