Medicare Drug Plan May Deliver Less than Expected

Published September 1, 2001

A new Kaiser Family Foundation study has found that senior citizens experience “sticker shock” when drug benefit plans proposed by federal lawmakers are explained accurately to them. Focus group participants were “stunned” to learn the plans would offer much less coverage than imagined or hoped for, at a much higher price.

The study reveals seniors generally expect a co-pay of $10 or $15 per prescription. Proposals currently on the table, however, would require premium payments of roughly $50 a month, plus deductibles.

Diane Rowland, executive vice president of the Foundation, believes recent reports about the large budget surplus prompted seniors to expect lower premiums and co-pays. Health policy experts say “soaring” pharmaceutical costs and “limited” federal funding earmarked for a drug benefit are responsible for the “gap in expectations.”

The Congressional Budget Office has estimated that spending on prescription drugs for Medicare beneficiaries—including spending by beneficiaries themselves and spending by insurers—will total $1.3 trillion between 2004 and 2011. Lawmakers have set aside just $300 billion over 10 years for a drug benefit, which would cover about one-fourth of the Medicare population’s total anticipated drug spending.

Devil’s in the Details

How the elderly respond to details of proposed prescription drug benefit plans will be important in building political support for legislation and ensuring the eventual success or failure of such a benefit. Seniors are unlikely to enroll in a new drug benefit program if they think the premiums are too high.

To date, lawmakers have found it difficult to construct a viable, affordable plan. Sen. Bob Graham (D-Florida) has proposed a bill (S. 1153) that would establish a voluntary drug benefit for all Medicare beneficiaries; it includes a $53 per month premium and a $250 annual deductible. The plan would cover 50 percent of seniors’ prescription drug costs up to $3,500, 75 percent of costs between $3,500 and $4,000, and 100 percent of costs over $4,000.

Graham admits the $53 premium requirement has raised “concern across the board.” Democratic senators from rural states have said their senior citizen constituents could not afford “expensive” monthly premiums, “even with generous subsidies for the lowest-income people.”

Members of the Senate Finance Committee have discussed proposals that would reduce the premium to perhaps $30 or $35 per month, and cut the annual deductible to $100. To avoid busting the Medicare budget, however, such a plan likely would require seniors to pay between 60 and 65 percent out-of-pocket; the out-of-pocket cap would likely increase to $5,000 a year.

Political Obstacles, Too

A number of other obstacles will make it difficult for lawmakers to pass a drug benefit this year. Most Republicans and some Democrats, including Sen. John Breaux (D-Louisiana), have said they would not support a drug benefit without a broader Medicare overhaul, but many Democrats, including Sen. Edward Kennedy (D-Massachusetts), oppose the Medicare reforms that have been proposed to date.

Although the Senate Finance Committee had planned to vote in July on legislation that would revamp Medicare and add a drug benefit, committee members have not been able to reach agreement on a proposal. Finance Committee ranking member Charles Grassley (R-Iowa) said the panel would likely vote on the issue in mid-September.

For more information . . .

see the Kaiser Family Foundation’s Daily Health Policy Reports, on the Internet at