Lower-income senior citizens would get help right away with routine and catastrophic prescription drug expenses under a Medicare reform measure outlined in late March by the Alexandria, Virginia-based Galen Institute.
Under the plan, eligible senior citizens would receive a Prescription Drug Security Card (PDS Card) that would provide them with financial help in purchasing routine drugs. At the same time, they would select an insurance policy to cover high-end expenses, with the government paying all or part of the premium.
The PDS Card would enable eligible seniors to buy their medications using a card similar to a debit card, drawing from an annual $600 deposit made on their behalf by the federal government. A similar program already is in place in 44 states for electronic processing of Food Stamps.
The proposed PDS Card has several advantages over other Medicare reform proposals, explained Grace-Marie Arnett, president of the Galen Institute.
“The PDS Card uses eligibility requirements that are already in place,” said Arnett, “so it can be implemented quickly to give help right away to the lower-income seniors who need prescription drug assistance the most.”
Further, she noted, the PDS Card “supports, rather than impedes, overall Medicare reform, and it makes federal expenditures on prescription drugs fixed and explicit—nothing is hidden, not from the taxpayers nor from beneficiaries themselves.”
Medicare Reform
Most observers agree a prescription drug benefit should be part of an overall Medicare reform package. Beneficiaries should be permitted to select from a number of competing Medicare plans that offer drug coverage, as 99 percent of the health plans for working Americans already do.
That vision drives the Medicare reform plan President Bush and Congressional leaders have put on a fast track. But the political process takes time, notes Arnett, and millions of lower-income seniors need help now. She says the PDS Card provides that immediate assistance, at the same time putting in place “the first cornerstone for overall Medicare reform.”
How a PDS Card Would Work
The Galen Institute proposal has two elements:
- the Prescription Drug Security Card, which would be used by senior citizens for most drug expenses; and
- protective coverage for catastrophic drug costs.
Each eligible Medicare beneficiary would receive a PDS Card enabling him or her to draw against a $600 annual deposit made with federal funds. When the cardholder purchases prescription medications, the pharmacist would swipe the card, like a Visa or ATM debit card, to pay the pharmacy.
Beneficiaries would be expected to contribute some of their own funds, either through deductibles or co-insurance payments or both, as they draw on the $600 deposit. Beneficiaries would be able to rollover unspent funds in their PDS Card account to the next year.
Low-income seniors would be the program’s top priority. About 4.3 million currently lack prescription drug coverage and have annual incomes below 135 percent of poverty ($11,150). Two federal programs—the Qualified Medicare Beneficiary Program (QMB) and Specified Low Income Medicare Beneficiary Program (SLMB)—are already in place to help these beneficiaries with their medical expenses.
While low-income seniors would be the program’s top priority, Medicare beneficiaries with higher incomes could be included in the plan as well. The amount of the deposit made into a beneficiary’s account could be reduced as the beneficiary’s income rises. The deposit could also vary according to a beneficiary’s health risks, although that would be a more difficult task than screening by income alone.
Catastrophic Coverage
To protect senior citizens against catastrophic drug expenses, the Galen proposal would earmark an additional subsidy for the purchase of high-end insurance coverage.
The average Medicare beneficiary without prescription drug coverage spent $550 for drug purchases in 1998, according to an article in the March/April 2001 issue of Health Affairs. But according to data provided by the Lewin Group for the consulting firm, Strategic Policy Management (SPM), nearly 400,000 seniors with incomes at or below 135 percent of poverty had drug expenses last year of $2,000 or more.
Another study for SPM, conducted by actuaries at Milliman & Robertson, estimates the premium for coverage of prescription drug expenses above $2,000 would be about $30 a month if all seniors were required to buy the coverage. At that rate, the cost for all 4.3 million low-income seniors without drug coverage would be about $1.5 billion a year. Costs could be higher for the more limited QMB and SLMB population, noted Arnett, but those figures are not yet available.
Allocating the Funds
President Bush has set aside $12 billion a year for the next four years to provide a prescription drug benefit to seniors without coverage.
Under the Galen Institute proposal, at least $1.5 billion of the Bush allocation would purchase catastrophic prescription drug coverage for the nation’s 4.3 million low-income senior citizens currently without prescription drug coverage. Another $2.6 billion would be spent to make the $600 deposit to PDS Card accounts.
The remaining money, Arnett said, could be used to expand coverage to other populations. For example, higher-income beneficiaries could be allowed to open their own PDS Card accounts to which they would make a tax-deductible contribution. In exchange, they would be required to purchase the high-end catastrophic coverage.
The Galen Institute noted policymakers may wish to consider other options for the PDS benefit as well:
- increase the size of the deposit for the PDS Cards;
- increase the income threshold for PDS Card eligibility to 200 percent of poverty;
- allow higher-income seniors to establish PDS Card accounts into which they can make tax-deductible contributions, giving them an easy way to get a tax deduction for drug costs;
- create PDS Card accounts for all seniors with incomes under 135 percent of poverty, not just those currently without coverage;
- purchase umbrella catastrophic coverage for still more Medicare beneficiaries.
Purchasing Prescription Drugs
Galen’s Arnett is confident the market would respond favorably to PDS Cardholders.
“Pharmacies, drug store chains, prescription drug management companies (PDMs), and even other organizations like the AARP would compete to attract participants with a guaranteed and simple means of paying for their medications,” she predicted. “Because paperwork would be minimized and payment expedited through PDS Cards, pharmacies would be able to pass savings along to consumers in the form of discounts.”
She warned the PDS Card program should not be burdened with the Medicare program’s price controls and regulatory and paperwork requirements. “Going this route would tie up the drug benefit in bureaucracy and red tape and would quickly lead to restrictions on the drugs that seniors could purchase,” she noted.
Instead, policymakers should allow the competitive marketplace to offer a variety of plans to attract seniors with different options, just as a reformed Medicare would do for overall health coverage. Such competition would would give pharmacies an incentive to publish the price of prescription drugs, giving seniors an opportunity to shop by price-comparison for their medications.
Cost Sharing and Administration
The Galen Institute proposal would require some form of cost-sharing by seniors participating in the plan. Arnett notes the majority of prescription drug plans today require some form of cost-sharing, such as co-insurance, co-payments, or deductibles.
Co-insurance requires the consumer to pay a percentage of the cost of each prescription purchased; co-payments require from the consumer a fixed amount for each prescription. Co-payments are more easily made adjustable, by the total cost of the prescription ($3 co-pay for a prescription under $20, $5 for prescriptions under $35, etc.) or by the type of drugs being purchased (lower co-pay for generics, for example).
The deductible method of cost-sharing would require consumers to pay a certain amount out-of-pocket before the PDS Card deposit could be drawn upon.
Cost-sharing makes consumers aware of the full price of the prescription purchase they are making and gives them an incentive to spend carefully by making the most economical purchase they can for the medicines they need.
The Galen proposal says the PDS Card program could be administered by a new or existing federal agency . . . but not the Health Care Financing Administration, which, Arnett says, “has neither the skills, the expertise, the time, the orientation, nor the attitude to make this program a success.”
Attracting Attention
The PDS Card plan has generated considerable interest since it was first proposed in March, according to Arnett. Members of Congress, state legislators, senior citizen groups, and several firms in the health sector have recognized advantages in the concept.
For example, some members of Congress believe a more limited plan has a better chance of passage than overall Medicare reform. They like the plan’s use of existing eligibility criteria through QMB and SLMB, and they are particularly attracted to the feature that would give seniors choice in purchasing prescription medicines and selecting their own insurance coverage.
Galen analysts report they are developing cost estimates for the plan, while continuing to meet daily with policymakers at the federal and state level to refine the idea.
Diane Carol Bast is a former member of The Heartland Institute’s board of directors.
