Bush May Link Drug Benefit in Medicare to Private Plans

By ROBERT PEAR,  NY Times

 January 23, 2003

WASHINGTON, Jan. 23 — The Bush administration is considering a proposal that would require Medicare beneficiaries to join some type of government-subsidized private health insurance plan to obtain coverage of prescription drugs, administration officials said today.

The private plans would include health maintenance organizations and loose networks of doctors and hospitals known as preferred provider organizations.

Under the proposal, the traditional fee-for-service Medicare program, which provides virtually no coverage for prescription drugs, would still be available to current beneficiaries and those nearing retirement.

A recent description of the proposal, set forth in government documents, envisions "no prescription drug coverage" for people in traditional fee-for-service Medicare.

Most Republicans in Congress share President Bush's desire to increase the role of private health plans in Medicare. But Democrats, some influential Republicans and lobbyists for the elderly insist that people in the original fee-for-service Medicare program should have access to drug coverage through that program.

The issue is important for practical and political reasons. More than 85 percent of the 40 million Medicare beneficiaries are in the fee-for-service program, despite nearly a decade of federal efforts to encourage enrollment in H.M.O.'s.

John C. Rother, policy director of AARP, an advocacy group for older Americans, said: "Drug benefits must be available to all beneficiaries, including those who want to stay in the traditional Medicare program. We don't contend that the benefit has to be exactly the same for everyone, and we can understand using more generous drug benefits as a carrot to induce people to join a new Medicare program."

Some details of the proposal are still in flux and may not be final when Mr. Bush delivers his State of the Union address on Tuesday.

But the heart of the proposal is clear, administration officials said. Starting in January 2006, Medicare beneficiaries would have three options, the existing fee-for-service benefits, H.M.O.'s with drug benefits and private plans offering "enhanced fee-for-service benefits," including drug coverage.

The third option, unlike H.M.O.'s, would be available nationwide, administration officials said. There would be no co-payments or other charges for preventive health benefits. The government would provide new protection for people with catastrophic illnesses, covering 90 percent of costs over $6,000 a year. But Medicare would also, for the first time since 1981, charge co-payments for home health care.

Lobbyists for the elderly and for home care companies have opposed co-payments for home care, saying they amount to a tax on some of the oldest, sickest beneficiaries.

Prescription drug coverage is expected to be a major issue in next year's presidential election. Republicans, who control both houses of Congress, have promised to add drug benefits to Medicare. Politicians and lobbyists say they will gauge the seriousness of Mr. Bush's proposal by how much he proposes to spend.

Administration officials said preliminary estimates indicated that the drug benefits in their proposal would cost $388 billion over 10 years, and they predicted that 77 percent of Medicare beneficiaries would voluntarily sign up for coverage. That sum is twice what Mr. Bush proposed last year and about 20 percent more than the cost of drug benefits in a Republican bill passed by the House last June.

Scott McClellan, a White House spokesman, and Doug Badger, the president's health policy coordinator, refused tonight to discuss the Bush proposal. "These are announcements for the president to make," Mr. McClellan said.

The Bush plan seeks to inject competition into Medicare, on the premise that market forces will hold down costs.

Private health plans would submit bids each year, specifying the price they would charge for the package of goods and services covered by Medicare. The government would choose three of the lowest bidders in each of 10 geographic regions.

Beneficiaries who enrolled in the most expensive of the three plans would have to pay extra premiums. But those in the least expensive plan could keep 75 percent of the savings.

Under the administration proposal, the government would set standards for drug coverage. Private plans could offer drug coverage with different benefits and co-payments if the value was the same.

Under the standard coverage, a beneficiary would pay a deductible of $275 a year, plus half the cost of prescription drugs up to $3,050 a year. Coverage would then stop, except for people with high drug expenses. Medicare would pay 90 percent of any drug costs after the patient had spent $5,500 on medicines.

The administration has also considered a more generous proposal, under which drug benefits would be provided through a "modernized government-run fee-for-service Medicare" program. Administration officials said they believed that 98 percent of beneficiaries would sign up for such coverage.

But the officials said they were leaning against this approach, because the cost, $466 billion over 10 years, was too high, and the proposal would not do enough to overhaul Medicare. Conservatives have said they cannot accept a major expansion of Medicare, to provide drug coverage, without fundamental changes in the program.

In the last five years, 2.4 million beneficiaries have been dropped by H.M.O.'s. Administration officials said they would again propose increases in Medicare payments to such plans, in the hope they would stay in the program.

Thomas A. Scully, administrator of the federal Centers for Medicare and Medicaid Services, said on Wednesday that more of the elderly would eventually enroll in private plans, especially preferred provider organizations.

"People want more flexibility — hybrid health plans, like P.P.O.'s," Mr. Scully said.

More than half of American workers with health insurance have coverage through preferred provider organizations. Patients can typically see any doctor, but receive discounts if they use "preferred providers."