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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Doc Bones who wrote (6620)	6/28/2002 1:05:36 PM
From: RCMac	Read Replies (1) \| Respond to of 52153

G.O.P. Drug Plan for Elderly Nears Passage in House . . . . . Under the Republican bill, the government would pay subsidies to insurance companies to induce them to offer insurance covering drug costs. Such "drug only" insurance does not exist, but Republicans say that private companies could devise and market it better than Medicare's lumbering bureaucracy. Doc, A version of this bill passed the House earlier today, with the same fundamental structure: the government pays insurance companies to subsidize prescription drug coverage to Medicare beneficiaries. Here's the link to today's article: nytimes.com I suspect that this is just electoral politics, and a manifestation of Republican theology, rather than a plan that, under any reasonable economic analysis, has any chance of working. Better than I could say it, Paul Krugman (NYT op-ed columnist, Professor of Economics at Princeton) has analyzed the problem in his June 18 column, "Politicians on Drugs": " . . . the House Republican plan has an even bigger flaw: instead of providing insurance directly, it will subsidize insurance companies to provide the coverage. The theory, apparently, is that competition among private insurance providers would somehow lead to lower costs. In fact, the almost certain result would be an embarrassing fiasco, because the subsidy would have few if any takers. The trouble with drug insurance, from a private insurer's point of view, is that some people have much higher drug expenses than the average, while others have expenses that are much lower — and both sets of people know who they are. This means that any company that tries to offer drug insurance will find that if it tries to offer a plan whose premiums reflect average drug costs, the only takers will be those who have above-average drug costs. A similar problem of "adverse selection" affects all insurance, but in the case of ordinary health insurance the differences in predictable expenses among individuals are narrow enough that companies can still design policies that both protect individuals and pay their way. In the case of prescription drug coverage for the elderly, insurance companies have decided that there is no viable business model — and there is no reason to believe that the House Republicans have found a way to change their minds. So that's the situation. Senate Democrats have a plan that is sensible and workable, but House Republicans surely won't agree to anything resembling that plan. Senate Democrats might be bullied into something resembling the House Republican plan, but since that plan is completely unworkable, that's the same as getting no drug plan at all — which, I suspect, is what the Republican leaders really want in any case. Some retired Americans may still think that they'll soon be getting prescription drug coverage under Medicare. They should live so long." nytimes.com What effect all this may have on prescription drug prices or biotech investment prospects I don't know -- my skeptical and underinformed guess is that probably there will be no agreement on a bill this year, the parties will campaign on these issues in this year's congressional elections, and we find out in November if the Republicans have a majority in the Senate to pass something like this next year (if they still want to in a non-election year). --RCM