Industry profits on your pain

The plan to create a Medicare prescription drug benefit could actually reduce coverage for millions.

The root of the prescription drug crisis is the aggressive marketing and political clout of pharmaceutical companies, whose soaring prices and excessive profits come at the expense of consumers.

Among the hardest hit are seniors. Most live on fixed incomes and — unlike DC 37 retirees — have no drug coverage at all.

But if you are looking for Washington politicians to solve the problem with a Medicare prescription drug benefit, forget about it. The Medicare privatization schemes backed by the Bush administration don’t even try to control skyrocketing drug prices, and critics say they could actually lead to cuts in the benefits now enjoyed by millions of retirees.

“The drug companies will make out like bandits if the new Medicare benefit is approved,” said Rosaria R. Esperon, administrator of the DC 37 Health and Security Plan. “The legislation would preserve the industry’s unique niche in the economy, guaranteeing its favorable tax status and super profits.”

Pills for profit
Rising prices, greater use of medication and new drugs have fueled drug spending in recent years. Between 1981 and 1999, drug prices rose 306 percent, while the cost of living rose 99 percent. Prescription spending is expected to triple to $366 billion in 2010, according to “The Profit in Pills,” a report by the AFL-CIO’s Alliance for Retired Americans.

Between 1992 and 1998, drug sales increased by 37 percent. To promote their products, manufacturers use expensive television and other ads and a network of peddlers, who dole out free samples to doctors and hospitals. The industry spent $13.9 billion on promotion in 1999, pushing prices still higher.

Pharmaceuticals constitute the most profitable industry in the country. Among Fortune Magazine’s top 500 companies, the drug makers took home after-tax median profits of 18.6 percent, compared with 4.9 percent for all other businesses.

Drug companies also pay lower taxes than other industries. The tax rate for drug companies was 16.2 percent in 1993, compared with the rate of 27.3 percent for all industries, according to the federal Congressional Research Service.

Last year, drug firms contributed more than $20 million — 80 percent on Republicans — to Congressional campaigns. They spent $91.4 million on 675 lobbyists, including 26 former members of Congress, according to Public Citizen’s Congress Watch. With their allies in the White House and Congress controlling the content of the legislation, the drug industry is backing the Medicare legislation.

Ending Medicare as we know it
The Medicare legislation would do nothing to curb the drug industry’s excessive profits or control prices. In fact, the House and Senate proposals prohibit the government from participating in drug price negotiations. That task would be left up to the insurance companies that provide the prescription drug benefit, which wouldn’t be included in the traditional Medicare program, except in rural areas where private coverage is unavailable.

The benefit would provide less help than many of the plans offered by employers and unions. In fact, it is worse than the federal employees’ plan, which covers the senators and representatives who wrote the Medicare drug legislation.

Both bills call for annual deductibles of $250 or more, contain high co-payments and permit substantial gaps before catastrophic coverage kicks in. “It is estimated that over the next decade seniors will spend more than $1 trillion for their medication,” said Stuart Leibowitz, president of the DC 37 Retirees Association. “The Medicare legislation proposes to allocate only $400 billion in 10 years for the prescription benefit. That means there clearly will be a shortfall, and it will be left to people like us to pick up the tab.”

A major problem with the proposals is that companies would be encouraged to drop their retiree drug plans because of inadequate subsidies for continued coverage. The Congressional Budget office estimates that 4.4 million retirees would lose coverage from their former employers.

The House bill would require Medicare to compete with HMOs and managed care programs that establish benefits and services. “President Bush is trying to use this tremendous crisis in prescription drugs as a Trojan horse to privatize Medicare itself, not just the drug program. His plan won’t help control prices and will lead to a deterioration of benefits for millions,” Mr. Leibowitz said.