Medicare Overhaul Takes a Turn

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Medicare Overhaul Takes a Turn

The Approach on Drug Coverage Grows
More Conservative, Counters Senate's Plan

By David Rogers and Sarah Lueck, The Wall Street Journal

October 22, 2003

[medicare] Low-income Medicare beneficiaries would receive smaller subsidies for prescription drugs and face tougher asset tests under the plan emerging from negotiations in Congress than under the bill the Senate adopted.

As many as three million low-income people could be affected; $10,000 or more in savings would disqualify a low-income person from receiving extra aid intended to help poor beneficiaries meet their drug co-payments.

The approach is in line with the more conservative House Medicare bill, but runs counter to the Senate version, which would apply asset tests to reduce the amount of extra aid a low-income person should receive but not to cut off all help. Medicare offers health insurance to about 40 million elderly and disabled Americans.

Negotiations are accelerating, as lawmakers try to finalize a framework so a bill can be brought to the floor next month. Senate Democrats began to brief colleagues Tuesday to gauge their reaction. House Ways and Means Committee Chairman Bill Thomas (R., Calif.) laid out a four-to-five-page suggested agreement to a core group of negotiators at a private meeting Tuesday afternoon.

Sen. Max Baucus of Montana , one of the two Democrats involved in the House-Senate negotiations, said the "biggest bugaboo" is the House's insistence on putting government-run Medicare in direct competition with private health plans in future years. "The perception is that it does begin to undermine traditional Medicare," Mr. Baucus said, and senators are nervous because the agreement also anticipates asking higher income retirees to pay a greater share for their coverage.

Mr. Thomas is trying to encourage a potential compromise that would condition the competition on private plans first establishing a greater market penetration than previously required. But the issue is immensely divisive, and House Speaker Dennis Hastert (R., Ill.) and Senate Majority Leader Bill Frist (R., Tenn.) met Tuesday night to assess the situation.

The proposed asset test for low-income beneficiaries is a second Democratic concern. Sen. Edward Kennedy of Massachusetts, whose vote for the Senate bill pressured other Democrats to back it, said the Senate stand on the asset test "was a very, very powerful factor."

The main function of subsidies is to reduce the costs that low-income beneficiaries would have to pay. Final adjustments to the payment formula are still being made, but negotiators are focusing on a package that would have the government pay 75% of drug costs to as much as $2,200 per year, then nothing until catastrophic coverage kicks in when a beneficiary has spent a total of $3,600 out-of-pocket.

This still leaves a substantial burden for the poor, and the Senate proposed assistance for individuals with incomes as much as 160% of the federal poverty level -- or about $14,000 -- to help reduce their costs. The compromise now would cut off the extra subsidy at 150% of poverty, excluding an estimated one million elderly .

The cutbacks reflect the pressure on negotiators to craft a compromise that meets the $400 billion, 10-year limit imposed by the spring budget resolution. But the reduced subsidies are also the result of earlier decisions by negotiators to shift money elsewhere in the plan -- to help absorb state Medicaid costs and encourage employers not to cancel the drug coverage they now provide their retirees.

This represents a fundamental shift in the direction of the Medicare overhaul. Lawmakers set out to expand coverage, but now they must spend money to substitute for existing coverage -- in the case of the states -- or mitigate declining coverage, in the case of employers.