Medicare Part D and the market

IT WAS of interest to me to read the article "Menino calls for Humana inquiry" (Business, Jan. 3) since I just had a personal experience with Medicare Part D and the Humana drug plan. When I visited Michigan over the holidays, my mother-in-law and her friend, both in their 80s, were anxious about their plans. They had signed on with Humana in May 2006, and had just been notified that their monthly premiums were being increased from about $66 per month to $88. They were daunted by the task of evaluating Michigan's 52 Medicare drug plans. Neither had access to computers or the knowledge of how to use them. So I went to www.medicare.gov, and though I found the website useful, I was appalled as a registered nurse by what I learned about Medicare Part D.

I discovered that my mother-in-law could save $900 dollars a year by switching to a new plan. Her friend could save even more by staying with Humana but switching to a cheaper plan . Had we not checked this website before the end of the year, both of these women would have spent much more money for exactly the same drugs. How can the price difference be so large? This should be a warning to all seniors to check the website every year to reevaluate their plans.

SHARON HUCUL
Boston

FOR HARVARD'S econ 101 students, Humana Inc.'s huge premium increase for Medicare prescription coverage provides a marvelous natural experiment on the concept of "consumers' surplus" ("Insurer hits millions of consumers with drug cost hike," Page A1, Dec. 31).

That is what economists mean by the difference between the maximum price consumers would have been willing to pay for a thing and the price they actually have to pay. For most buyers and most goods and services, the former price exceeds the latter, yielding consumers a form of psychic profit, so to speak. By their decisions on switching to lower-cost drug plans after Humana's huge premium hike, we shall see how much "consumers' surplus" Medicare beneficiaries are willing to surrender to Humana.

Americans must realize that, in any market system, the supply side will always seek to minimize the consumers' surplus left on the table for consumers to enjoy. It is part of the suppliers' natural instinct to maximize their profits and must be judged perfectly fair under the ethics ruling the marketplace. If Americans find that ethic unsuitable for healthcare, they question the suitability of the market approach for healthcare.

UWE E. REINHARDT
Princeton, N.J.

The writer is a professor of political economy at Princeton University.