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Jared Bernstein

No Mo’ YOYOs! A Case Study of Market Ideologues in Action

So, you want to be a conservative policy maker? Repeat after me: Government bad. Markets good.

Say it again. Louder.

Government bad. Markets good!

I CAN'T HEAR YOU!

GOVERNMENT BAD. MARKETS GOOD!

OK, that's slightly over the top, but an article in yesterday's New York Times tells a compelling story of what happens when market ideologues take the reins. The piece describes the huge cash windfall the drug companies are reaping thanks to the new Medicare prescription drug bill.

First, a bit of context within which to place the sad tale told by this article.

When it comes to the big economic challenges we face today, the message from the folks running the government comes down to this: You're on your own, or YOYO.

The YOYOs want you to forget about government solutions and start fending for yourself. They'll give you a tax cut and a private account, but then you're on your own. Don't look to us for retirement security - that's between you and the stock market. You want affordable health coverage? Here's a "health saving account." Now go out there and become better "health care consumers."

The ultimate goal of their agenda is to shift economic risks from the government and corporations onto individuals and their families. Market forces are the solution to whatever ails us, and for the YOYOs, the point of public policy is to turn up the market wattage. If you can't take the heat, go to France.

In describing these developments in my recent book, I used the new Medicare prescription drug (Part D) as a classic microcosm (if you can call something that costs half-a-trillion over ten years "micro"):

In true YOYO fashion - always try to wedge the market in there somewhere - the act does not provide prescription drug insurance through the traditional Medicare program, but insists that such policies must be purchased from HMOs or private insurers (the insurance industry lobbyists liked this part a lot, too). Thus, the act introduced a myriad of plans for seniors to choose from...and note again the millions of silos as everyone negotiates a different deal. For prescription drugs, this is just crazy. You are sacrificing the massive bargaining clout that would result from pooling the millions of Medicare participants to negotiate truly deep savings. In fact, in a sop to the drug companies, the act explicitly prohibits such a pool.
The early reports show these fears to have been well founded. According to Milt Freudenheim's piece in the NYT, the shift of 6.5 million low-income patients from Medicaid to Medicare for drug coverage is generating a windfall for the drug companies which could be as high as $2 billion this year alone.

The mechanism by which this occurs is pure YOYO. Medicaid uses its massive buying clout to insist on the best prices. In fact, it's the law: you sell drugs to Medicaid, you do so at the lowest prices in the state. Freudenheim: "But in creating the federal Part D program, Congress...barred the government from having a negotiating role." Instead, the drug companies negotiate with the insurers and the taxpayers pay the difference.

Nice plan...if you're a drug company.

Such risk shifting is not just bad social policy, it's bad economic policy. There are cases - and medical care is one of them - when pooling risk is far more efficient then creating individual, risk-bearing silos. Which is why every other advanced economy provides universal coverage, spends about two-thirds of what we spend (as a share of GDP), and has distinctly better health outcomes.

The lesson from the Part D debacle is that we can no longer afford to be led by those whose blinders prevent them from recognizing the critically important role that government has to play in meeting the challenges we face now and in years to come. When we lose the YOYOs, we gain the ability to work together to promote solutions that are both more efficient and more secure.

Here's the bumper sticker: No mo' YOYOs.

The author is a senior economist at the Economic Policy Institute and the author of the book "All Together Now: Common Sense for a Fair Economy."

Jared Bernstein: Author Bio | Other Posts
Posted at 4:06 PM, Jul 19, 2006 in Economy
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