Flawed Drug Benefit Bill Heads to Senate Floor

Published June 13, 2003

Senate Finance Committee Chair Charles Grassley (R-Iowa) and Senator Max Baucus (D-Montana), the committee’s ranking Democrat, have reached agreement on a $400 billion, 10-year Medicare reform proposal. The Committee met in executive session on June 12, approving the bill late in the day by a 16-5 vote. The full Senate is expected to begin debate on June 16.

The “Prescription Drug and Medicare Improvement Act of 2003” would give beneficiaries access to private health insurance plans but allow them to remain in government-run Medicare if they prefer. All Medicare beneficiaries would be offered an identical prescription drug benefit, regardless of which coverage they selected.

President George W. Bush emphasized the need for Medicare reform in his June 7 weekly radio address and during a June 11 trip to Chicago. “Time and time again,” Bush told members of the Illinois State Medical Society, “Medicare’s failure to pay for drugs leaves our seniors at risk of serious illnesses, disease and injuries, all of which Medicare would pay to treat after the fact.

“Medicine is changing,” Bush said, referring to the increasing use prescription drugs to address ailments before they become life-threatening or require hospitalization. “Medicare is not.” Bush is urging Congress to have a reform package complete before its Fourth of July break.

But reform experts warn the agreement is disturbingly short on details. “On Tuesday night [two days before the Finance Committee vote], the Senate received a 70-page outline of the bipartisan compromise Medicare prescription drug plan,” writes Jane Orient MD, president of the Association of American Physicians and Surgeons (AAPS). “But let me emphasize outline, because the specific language of the bill has not been finalized.”

“It is an utter disaster,” says Stuart Butler, vice president for domestic and economic policy studies at The Heritage Foundation.

“Despite the rhetoric, it is not reform,” he warned. “It does not create new private plans and choice–it will reduce existing private plans and choice. This legislation will undermine the health system and impose trillions of dollars in financial burdens on future generations to solve a short-term political problem and a very limited health need that could be addressed easily and inexpensively.”

The National Association of Health Underwriters, representing more than 18,000 professional health insurance agents and brokers disagreed, praising the bill in a June 10 news release. “The Prescription Drug and Medicare Improvement Act of 2003 will provide seniors with more health care choices, better benefits, and better access to the latest innovative medical practices and treatments,” it noted.

Prescription Drug Coverage

The centerpiece of the measure–“and the thing they most want to pass,” notes Merrill Matthews Jr., Ph.D., director of the Council for Affordable Health Insurance (CAHI)–is the prescription drug benefit.

Under the measure, beneficiaries who remain in government-run Medicare would pay a $275 deductible and $35 monthly premium for the drug benefit. Participating private health plans could set premiums higher or lower than $35 per month, but the prescription drug coverage they offer must be equivalent to that offered under Medicare.

Beneficiaries would be required to pay half of their annual prescription drug costs between $276 and $3,450, and all drug costs between $3,451 and $5,300. After $5,300, beneficiaries would be required to cover 10 percent, and Medicare would cover the rest.

The new plan would take effect in 2006. Until then, the federal government would authorize the use of drug discount cards in 2004 to help Medicare beneficiaries save money, and low-income beneficiaries would be eligible for a $600-a-year drug benefit in 2004 and 2005.

While the proposal may sound attractive, warns Matthews, it’s not workable. “The Senate plan envisions private insurers offering the prescription drug insurance policies. But currently there is virtually no stand-alone prescription drug coverage being sold in the country, because insurers have always lost money on these plans. The Senate is passing legislation so that seniors can choose from plans that don’t exist.”

Twila Brase, president of the Citizens’ Council on Health Care, warns seniors they “should not rush to embrace” the Finance Committee’s proposal.

“This is drug coverage by committee. A bureaucratic process will determine which drugs are available and who gets them. Not every medication will be covered, covered medications can be denied, and private drug coverage may no longer be available,” she notes.

Medicare Advantage

The committee’s plan also calls for a new type of insurance coverage, called “Medicare Advantage.” Private plans would offer coverage for catastrophic health expenses and preventive care, giving beneficiaries an incentive to move out of traditional Medicare and into a private plan.

Janet Trautwein, vice president of government affairs for the National Association of Health Underwriters, expressed the group’s support for the bill. “We’re pleased that the legislation removes some of the disincentives for carriers to participate in the program and encourages new private plans, which will bolster plan participation, providing better coverage to more seniors.”

Under the plan, beneficiaries opting for private coverage would pay a $400 deductible for hospital and doctor visits, compared with $840 for hospital stays and $100 for doctor visits for beneficiaries remaining in traditional Medicare.

“Medicare must change,” writes Tom Miller, director of health policy studies at the Cato Institute. “Opening up its coverage options to emphasize a greater role for private sector health plans could offer at least a flicker of market-based candlelight to help lead us out of the fiscal tunnel ahead.”

AAPS’s Orient, however, doubts the plan will attract Medicare beneficiaries into private coverage.

“Since we don’t know the details yet,” she writes, “we can’t comment on the merits.

“But what we do know so far is that the bill would create a universal government plan that would act as a floor, rather than ceiling, for private plans. That means lower-cost private plans that offer basic coverage would no longer be allowed to do so–they would have to match the government plan, giving seniors little or no choice of type of plans to choose.

“This means we can expect a massive exodus as people bail out of private coverage they now hold and run to the taxpayer-funded entitlement instead.”

Cato Institute Senior Fellow Alan Reynolds agrees. “Both Republicans and Democrats are threatening to ‘reform’ Medicare by greatly increasing future subsidies, and thus increasing future Medicare taxes,” he wrote in March. “The problem … is that its 10-year cost is $400 billion, which is $400 billion too much.”

Administration Expected to Compromise

Although Bush and other Republicans would prefer a reform proposal offering a bigger drug benefit in the private plan option, in order to encourage seniors to join such plans, an administration official told Health Care News the Finance Committee plan represents “breakthrough” progress and should attract bipartisan support in the Senate.

CAHI’s Matthews expressed dismay at the administration’s eagerness to compromise on a failed bill.

“The administration had it exactly right in its original Medicare outline program, covering only the lowest-income and highest-cost users for those who remained in traditional Medicare. But the administration doesn’t want to be opposing the efforts of a good Senate Republican, Sen. Grassley.”

The New York Times has suggested Bush would sign “almost any bill that emerges from the Republican-controlled Congress.” That’s unfortunate, notes Matthews, because “the Senate bill is almost completely a result of political compromise rather than trying to craft good policy.”

Stumbling Blocks Remain

Senate Minority Leader Tom Daschle (D-South Dakota) said the Finance Committee’s plan “falls significantly short” of Democrats’ goals for Medicare reform. Daschle said Democrats do not favor a plan that has a gap in drug coverage, allows insurance companies to set prices, or does not guarantee equal access for beneficiaries in rural areas.

Some Democrats said the Finance Committee proposal does not include enough details for them to offer their support. Senator Kent Conrad (D-North Dakota) told CongressDaily/AM, “It’s appalling–this would be one of the most important bills we could vote on, and the Finance Committee is playing hide-the-ball.”

Nevertheless, writes Morton Kondracke in his “Pennsylvania Avenue” column in Roll Call, it appears “the long war” between Democrats and Republicans over a Medicare drug benefit might be coming to a close.

“Although there are still ‘stumbling blocks’ to an agreement–particularly the Bush administration’s insistence on offering more extensive drug benefits to those beneficiaries who join private plans–it appears as if Democrats and Republicans are nearing a deal under which Republicans could craft reforms based on private coverage as long as all beneficiaries receive the same drug benefit.”

Kondracke cautions, “The danger would be in delay. The nearer Congress gets to an election year without passing [a Medicare drug] benefit, the more politicians will be tempted to exploit it as a [campaign] issue one last time.”

Matthews of CAHI, however, sees little reason to move quickly on such a flawed proposal.

“The administration’s initial goal was to fundamentally restructure the culture of Medicare–which is convoluted, hard-to-understand health insurance in a system that is going bankrupt–but to use the prescription drug benefit as the bargaining chip to get Democrats to agree.

“I think the process is perilously close to dropping all of the reform and restructure portions and settling for a prescription drug benefit. That may be good politics in the short run, but terrible policy in the long run.”

Cato’s Miller agrees. “This year’s Medicare debate promises us only the appearance of ‘MINO’ reform–that is, Market-based In Name Only. It tastes bad, and it’s certainly not filling.”

Conrad F. Meier is managing editor, and Diane Carol Bast is editor, of Health Care News. Meier’s email address is [email protected].