Prescription Drug Proposal Gets Lukewarm Reception

Published April 1, 2001

The Democrats’ reception for President George W. Bush’s prescription drug benefit plan was about as warm as their reception of the nomination of now-Attorney General John Ashcroft.

Bush has proposed a $48 billion block grant to provide prescription drugs to low-income seniors and others with very high drug costs. Democrats believe the Bush plan doesn’t go far enough. They would prefer to create a new Medicare entitlement that would provide first-dollar coverage for every senior, including the wealthiest.

Even some Republicans seem to have doubts about Bush’s plan, appearing more interested in adopting the Democrats’ approach than their own President’s. Others want any prescription drug benefit to be part of fundamental Medicare reform. While they are right that the 35-year-old Medicare program needs reforming from the ground up, that’s a debate that will take time—perhaps a year or more.

Democrats aren’t willing to wait. They think the prescription drug issue is too politically potent for them to pass by, and they want to do something now.

Best Plan Out There

The irony in all this is that Bush’s plan is the best one out there. Yet no one seems to recognize that: not even the administration, which has had little good to say about its own plan.

Although more attention needs to be given to the catastrophic provision meant to cover those with high costs, properly done, the President’s plan would provide a safety net for those most in need without creating a new entitlement that could bankrupt Medicare.

The Bush plan calls for a $6,000 limit on seniors’ out-of-pocket costs. However, he provides few details on how that provision would work. Moreover, it may be too high a limit to gain much political support. For example, Democrats propose a $4,000 deductible in their catastrophic provision, and that’s after helping seniors pay half of all drug costs up to the first $2,000.

The President might consider lowering the deductible to $3,000, so that seniors would cover the first $3,000 in drug costs out-of-pocket or with other insurance coverage. Those with comprehensive drug benefits—such as that provided by an employer—would likely not participate.

Is even a $3,000 deductible too high? Critics will claim it is unaffordable for most seniors. However, the National Academy of Social Science (NASS) says only 6 percent of seniors spent $3,000 or more on prescription drugs in 1999, and only 1 percent spent that much out-of-pocket. Thus, only 1 percent of seniors would have to pay the deductible out of their own pocket. The rest would have insurance—private, Medicaid, Medicare HMO, employer, and Bush’s block grant money for low-income seniors—to cover the deductible.

Any Medicare-eligible senior who is faced with catastrophic drug expenses could join, and they would leave if and when they no longer have high drug costs.

Seniors would likely have to pay a premium to join, say $50 a month. They could also be required to make a copayment, or the program could pay 100 percent above the deductible.

States Would Manage the Plan

Under Bush’s proposal, the federal government would block-grant the money to the states with minimal guidelines, and the states would create the safety net. Many states already have what’s known as high-risk pools, which exist to cover those who are medically uninsurable. Where appropriate, the prescription drug benefit could be run out of that program. Alternatively, it could be run by the same department that distributes Bush’s block-grant money to low-income seniors.

Bush’s prescription drug block grant is expected to cost $48 billion over four years, or $12 billion a year. The catastrophic provision for seniors with especially high prescription drug costs could be added for between $2 billion and $3 billion a year.

Benefits of Bush Plan

The Bush proposal has a number of benefits:

  • It meets the needs of those who need help most: low-income seniors and those with the highest drug expenses. Only 1 percent of seniors currently spend $3,000 or more out-of-pocket. If they are poor, the Bush block grant would help them meet that deductible.
  • It doesn’t destroy the market for private or employer-provided prescription drug insurance for retirees.
  • It doesn’t create a new Medicare entitlement program. Ideally, the Bush program would be state-run.
  • It would be a lot less expensive than what Congressional Republicans and Democrats are considering.
  • It would help those in need immediately while Congress debates needed structural changes to Medicare (a debate that will likely take some time).
  • It would encourage doctors and patients to choose the most effective therapy—drugs or surgery—without regard to which one is subsidized by Medicare and which one must be paid for out-of-pocket.
  • Most important, it would keep the government out of the drug business—and out of most seniors’ medicine cabinets.

Do we really want to strap a financially struggling Medicare program with a prescription drug benefit that would pay half the cost of a $10 prescription for the wealthiest Americans? That approach provides government money for those who don’t need help. Surely it would be better to meet the needs of seniors in need.

Merrill Matthews Jr., Ph.D. is a visiting scholar with the Institute for Policy Innovation and policy director of the American Conservative Network, a project of the American Conservative Union.