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Incentives matter
Posted by: Jon Henke on Friday, November 30, 2007

The New York Times reports that the market works...
[The Medicare Prescription drug bill's "doughnut hole"] potentially forces a Medicare enrollee to pay more than $3,000 from his or her own pocket during the gap period, the hole is helping curb growth in the nation’s drug spending by pushing people toward low-cost generic drugs.

And because the cheaper generics generally work just as well, patients are incorporating them into their permanent drug regimen ... Some economists say that many Medicare enrollees, through carefully planned use of generics, can avoid reaching the doughnut hole altogether. ... And the popularity of generic drugs is cutting into the profit margins of branded drug companies...
So let's review:

  • Personal freedom and responsibility is leading people to make less costly, more efficient choices.

  • This is saving all of us a lot of money.

  • Drug manufacturers are losing their profit margins.

One more thing: Democrats opposed the doughnut hole.
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Previous Comments to this Post 

Paying during a gap period, increasing premiums, etc,etc.. MANY Medicare patients cant afford these thing, so many live on fixed income that they have to be given money by family just so they can have health care. This of course happens at the time in their life when they need medical attention more than ever. This is why AARP has set up so that we can all sign a petition to make our voice heard. While your there you can also read updated news, watch videos, and even e-mail your congressman to let him know how you feel. I’m working to help AARP promote better Medicare because this is an important issue that isn’t getting enough attention.

Written By: Jayne
Yes, Jayne, God forbid that people take care of themselves. If there is anything much more ridiculous than AARP (I’m eligible, but I’m not and will never be a member) barracking for more benefits for people just because they’re old I don’t want to see it. Were they only trying to secure benefits for needy elderly I might be supportive. They’re not. According to them, just being old is enough. I’ll be Mrs Sam Walton was really glad they were looking out for her.

Maybe someday the AARP members will figure out they’re putting the burden on their grandchildren. Oh. Wait. Many people don’t have children, so no grandchildren, so the burden will be put on *other* people’s grandchildren. It all starts to make sense.

Tell you what. Let me keep and invest my SS in my own account and my children and grandchildren do the same and we’ll take a pass on SS and Medicare. The people who want it should sign up and pay for it. Also, don’t redirect my tax dollars to your wealthy liberal friends (like Warren Buffet, Gov Corzine, the Clintons, and so on) and their supporters. Let them pay.
Written By: JorgXMcKie
URL: http://
Drug manufacturers are losing their profit margins.
I’m not so sure that is truly a desired effect. Companies who bring new drugs to market have to invent, obtain approval, advertise/educate, manufacture, setup distribution and risk liability.

Its like if I buy a CD and burn copies on my home computer. I can turn a profit from selling those CDs probably at about $2 or more. Someone else did all the work in creating the intellectual content of that CD and promoting the artist. Even with a more inefficient production process (my home computer), I can massively undercut them.

The problem is the apparent cost savings of switching to generics isn’t necessarily from efficiency. They save money because the inventing, approval, education and liability were mostly taken on by the non-generic company.

This results in two thing. The costs that generic maker doesn’t incur have to be concentrated on the non-generic makers. Basically those using non-generics pay more. This helps exaggerate the second effect. They just don’t take the risk on developing new drugs unless it is a home run and has a large volume.

I’m not saying its isn’t the right thing to do. But the cheapest drugs would cost is if we never spend another dime on developing new ones and only made what we currently make.
Written By: jpm100
URL: http://
jpm, that’s what patents are for, to give a time period where the invention is rewarded with high profits. After this time, generics become available, and the price goes down, to the benefit of consumers, who have both the improved medicine and the lower prices. Meanwhile, the drug companies have an incentive to create new drugs, because they will earn the higher (monopoly) prices on the new, better drugs.

Written By: Jeff Medcalf
The problem with the ’donut hole’ is the relative illogicality of it. It’s not a standard deductible, in which the insured person pays the first X number of dollars, and then the insurance plan takes over. As best I know, there is no reason Medicare part D could not have been made into a graduated tier plan, in which everyone pays the first three thousand dollars for their drugs, then pays a set percentage of the next twenty five hundred, and then the insurance plan pays almost all the costs over fifty five hundred (which, roughly, it does now, under the actual Part D). My only guess is that the politicians wanted everyone to think they were able to benefit from prescription drug coverage, and invented this flimflam for that purpose. But in its current form, it encourages people to splurge at the beginning on their prescriptions, only to leave them gasping when they reach the point of paying full fare.

Also, in true bureaucratic fashion, it’s described confusedly—the point of entry is defined different from the point of leaving. A reader who scans it too quickly might be decieved into thinking that the patient needs to spend only $1600 of his own money to get to the other side of the donut hole.
Written By: kishnevi
URL: http://

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