Medicare-Drug Deal Faces Dual Critiques

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Medicare-Drug Deal Faces Dual Critiques

By Sarah Lueck

THE WALL STREET JOURNAL, June 9, 2003

WASHINGTON - Senate leaders reached what many see as a landmark agreement to provide prescription-drug benefits under Medicare, but it could unravel if conservatives decide the deal doesn't do enough to rein in the program's increasing expenses or liberals see the coverage as too stingy.

The Senate Finance Committee is set to begin refining the package this week, as disagreements remain over the extent of the drug benefit, how much it should cost and whether it should be used to encourage Medicare enrollees to migrate to private health plans. Last night, Finance panel aides were expecting to receive a Congressional Budget Office cost estimate of the bill, which besides the drug benefit would create a new private health-plan option for Medicare beneficiaries that would provide comprehensive medical coverage. They planned to make adjustments in the bill based on that cost assessment.

In the run-up to next year's elections, political pressure is growing to pass a Medicare bill this year, and the Senate proposal has some Democratic and Republican support. But members of both parties have reservations about the details, which fall into several categories:

Public vs. Private

In the view of the White House and some Republican lawmakers, the more that can be done to overhaul Medicare by moving beneficiaries to private-sector health plans, the better. The Senate proposal, they say, doesn't do enough because it provides a drug benefit to seniors in the traditional fee-for-service program, rather than requiring them to switch to the private option to get it. But while administration officials have expressed reservations about the Senate deal, they are reluctant to disrupt progress on what so far is the best chance at action this year.

[Image] "We don't think it's the right way to go," said Thomas Scully, head of the Centers for Medicare and Medicaid Services and a Bush appointee. "We aren't for the package ... We haven't decided where we are."

Bush administration officials say private health plans, which would get federal subsidies for covering Medicare transfers, will save the government money in the long run and more efficiently control the medical expenses of Medicare beneficiaries. But success of the new option depends on a large-enough contingent of beneficiaries choosing it and bolstering their bargaining power, which administration officials argue will lead to lower prices. Drug coverage would be a powerful incentive to lure them to the new plans, though Mr. Scully said the administration is discussing with the Finance panel "other ways" to encourage seniors to opt for private plans; he didn't elaborate. Some conservative members of the Finance committee hinted they could vote for the current plan in order to move it to the Senate floor, and work out their concerns later.

But many others in Congress believe seniors are comfortable with Medicare in its current form, and offering drug coverage only through private plans creates too many uncertainties, they say. Some Democrats charge that the Senate proposal is an ill-advised step toward privatizing Medicare, a federal health program that covers 40 million elderly and disabled people.

Preliminary CBO analyses showed private plans wouldn't necessarily save money and may turn out to be more costly than Medicare. Administrative expenses are one reason; another is that Medicare has proven to be an effective negotiator on what it will pay health-care providers. The Bush administration contends there would be a small amount of savings from the most-efficient private plans and that overall health coverage would be better because the drug benefit would be integrated with other medical care.

Coverage Gap

An interruption in reimbursements -- known on Capitol Hill as the "doughnut hole" -- was incorporated into the deal to keep down costs. Under the proposal's initial numbers, after a $275 deductible the prescription benefit would cover 50% of a beneficiary's annual drug outlays up to $3,450, but then would be interrupted. Coverage kicks back in after a person spends about $1,840 more out of pocket on prescription drugs, and only on the portion of expenses above the $1,840 threshold. At that point, the insurance would cover 90% of drug costs. In focus groups, AARP, the advocacy group formerly known as the American Association of Retired Persons, found a coverage gap might prevent many seniors from buying such a plan.

"They don't understand why coverage would end just at the point when they need it the most," said AARP's John Rother. "They interpret it as some kind of trick."

AARP estimates that about one-quarter of Medicare beneficiaries -- 10 million people -- would fall into this gap at some point during a year, while still paying the $35 monthly premium for coverage. Some will hit the level where the government pays most of their costs, many won't. A possible result: only seniors with high drug costs will think the plan is worth it.

Another concern about the Senate's proposal, particularly among labor unions, is that it could encourage employers to drop health coverage for retired workers. About 12 million Medicare beneficiaries get drug coverage through their former employers. In the Senate plan, while beneficiaries are in the doughnut hole, contributions from retiree coverage wouldn't count toward the $1,840 threshold, so it would be difficult -- perhaps impossible -- for them to spend enough out of pocket to trigger 90% coverage. Employer plans, then, would remain on the hook for those costs.

"Employers who are doing this are going to say, 'Now that our employees can get a government benefit, we're going to drop coverage,' " says Kate Sullivan, director of health-care policy at the U.S. Chamber of Commerce. Senate drafters of the legislation were trying to avoid picking up the drug costs of people who already have coverage. But employers are demanding some government incentive to continue offering such insurance.

Price-Tag Politics

Spending more than the $400 billion over 10 years allocated in the 2004 budget could fill the coverage gap. But it also would trigger Senate rules that require 60 votes -- rather than 51 -- to pass legislation that surpasses the budget ceiling. In the closely divided Senate, it is difficult to get 60 votes. Even if the legislation does stay within the $400 billion mark, a filibuster by opponents would require 60 votes to pass the bill.

In addition, $400 billion is more than some Republicans, including the White House, were willing to spend last year. Going much beyond that amount could cost Republican votes.

State Needs

Governors dealing with budget deficits are clamoring for the federal government to pick up the drug costs of so-called dual-eligibles: low-income seniors who are covered by Medicare and by Medicaid, the state-federal program for the poor. Unlike Medicare, Medicaid covers prescription drugs. States on average pay half the cost, with the federal government picking up the rest. But the Senate plan leaves dual-eligibles in the Medicaid program and offers unspecified financial help to states for the costs that Medicare doesn't cover. Increasing help for low-income people is one point of negotiation, as moderates try to attract more Democratic support.