Republicans are thrilled they have pushed through a drug benefit -– something the Democrats, who championed the issue in years past, failed to do. Democrats are left the fallback position of picking out problems with the legislation in hopes of getting bragging rights for changes that make the measure more stable and less expensive for seniors.
GOP and Democratic lawmakers will be able to work through some of these problems during the upcoming floor debate, but the bill could pass and still contain uncertainty about how well it will work, particularly in rural areas.
Many lawmakers, mostly Democrats such as Sen. Tom Daschle of South Dakota -- but even some Republicans -- consider the bill a starting point. The new program would not take effect until 2006, which gives Congress and the staff and regulatory experts at the Centers for Medicare and Medicaid Services time to work out the kinks.
"The fact is there are significant shortcomings here," said Sen. Kent Conrad, D-N.D., but he acknowledged the bill is a new start after years of partisan fighting and deadlock.
One of the shortcomings is the drug benefit itself. It would be available to all seniors but not all seniors would benefit by selecting it. A person would have to incur $1,200 in annual, out-of-pocket prescription drug costs to reach the break even point -– the cost to them for premiums, co-pays and deductibles in a private insurance policy operating under Medicare. An estimated 35 percent of seniors would not meet that threshold.
Legislation pending in both the Senate and the House would allow preferred provider organizations in Medicare and require them to offer a drug package. Most likely, that package would be brokered through some type of pharmacy benefit management company.
A second shortcoming, which has caused confusion among senators, concerns the variability in premiums and out-of-pocket costs charged by the PPOs.
The legislation calls for seniors to pay a monthly premium of about $35, plus a $275 deductible and 50 percent of drug costs. The benefits end, temporarily, when drug costs reach $4,500. At that level, and continuing to $5,800, seniors must pay 100 percent, or up to $1,300. Then, above $5,800, the program kicks in again and the government pays 90 percent. CMS said seniors pay an average of $3,155 for drugs annually so most would not be affected by the gap in coverage.
The House version does not specify a monthly premium but its cost calculations are similar to the Senate's. The House bill deductible is $250 and the plan covers 80 percent of drug costs up to $2,000. It has an even larger gap -- up to $5,100 -- before the government starts providing 90 percent coverage.
CMS staffers said they do not think there would be much variation in premium costs to seniors and they expect most PPOs to offer much the same drug benefits. However, the plans could be tiered so seniors would pay better rates if they selected drugs from a set formula and pay more if they choose more expensive medications.
Sen. Charles Grassley, R-Iowa, the Finance Committee chairman, staved off Democratic amendments aimed at creating a stable premium. He agreed that language could be worked into the bill on the Senate floor giving the government more discretion to level out premiums over geographic areas.
Seniors who do not want to enter a managed care arm of Medicare could remain in the traditional fee-for-service program, which also would contract with private insurers to offer drug-only plans.
As senators were heard to say during debate this week, "This type of plan does not exist in nature." There are no drug-only insurance plans.
The insurance industry does not want to offer them. Insurers need to level their financial risk by enrolling a wide range of people. They make money when healthy, young people pay premiums but do not need to use health care services, which helps pay the higher cost of providing care to the chronically or seriously ill. The Medicare population is mainly over age 65 -- a group more at risk of needing health care services and prescription drugs. The program does not contain young, robust people to level out the financial picture.
President Bush's 2000 election campaign strategy included a program called Helping Hand, which proposed drug-only plans for seniors. The idea was dead on arrival on Capitol Hill after Bush's election because the insurance industry refused to buy into it.
The new Medicare bill's fallback position is if private plans do not bid in any or all of the 10 geographic regions of the United States that encompass the federal system, the government would find a plan and contract with it –- presumably for a higher rate -- for one or two years to provide coverage for seniors in that area. The hope would be that private plans would later bid for Medicare business.
Lawmakers are worried either the private plans will not submit Medicare drug program bids or test the concept and pull out quickly if it becomes financially too risky, creating instability for seniors who would be forced to bounce from insurer to insurer.
Sen. Jay Rockefeller, D-W.Va., called the drug plan an "artificial construction," adding it was "very unstable and seniors are going to be very confused."
The new PPO option, combined with the current Medicare+Choice HMO option in Medicare, is not expected to draw the majority of seniors from the traditional Medicare program, which is extremely popular among beneficiaries despite the fact it lacks coverage for many of the perks offered in managed care -– including to date drugs, extensive preventive care and catastrophic illness protections.
"We really ought to be looking at the vision of where we want to be in 15 to 20 years," Sen. Craig Thomas, R-Wyo., told the Finance Committee. "There is relatively little reform here unless we can make this alternative package attractive."
Senators from both parties worry PPOs will not be interested in bidding for Medicare business in rural states. They contend there are few if any PPOs there now and the government might not be able to afford the incentives required to lure PPOs into rural areas under its $400 billion limit.
Grassley said for PPOs to be attractive, they must function similarly to the federal employee health plans and therefore "closer to what most baby boomers have at workplace; whereas current Medicare is not close to what boomers have at the workplace."
PPOs and HMOs have administrative costs of around 10 percent to 12 percent, while traditional Medicare runs about 3 percent, making the managed care arm more expensive to operate. There is $13 billion in the legislation for incentives to encourage PPOs and HMOs to offer coverage but some senators are opposed to paying private plans more than what traditional Medicare costs.
Even after incentives, by 2008 CMS predicts only 28 percent of beneficiaries will be in Medicare PPOs and 15 percent in HMOs. At present, less than 13 percent are in Medicare+Choice. The Congressional Budget Office's estimate -– the one lawmakers are obliged to follow –- shows from zero percent to 1 percent of beneficiaries will be in PPOs by 2008.
Most seniors are expected to remain in traditional Medicare, but that program still is expected to become insolvent by 2026.
Marilyn Moon, a senior analyst at the Urban Institute in Washington, D.C., told lawmakers in April that from 2002 to 2030, when the baby boomers retire and raise the number of Medicare beneficiaries to 79 million, the ratio of workers who subsidize Medicare via payroll taxes to Medicare beneficiaries will fall from 3.9 to 2.4.
"This measure does signal the need for more revenues per worker -- a legitimate issue for debate," she testified to a House committee.
The Medicare payroll tax -- at 2.45 percent for employers and employees each -- has not increased since 1986 and lawmakers have been loath to even bring it up for discussion. Yet they could be forced to consider it as Medicare spending rises, as expected, from 2.56 to 4.75 of the Gross Domestic Product by 2030.
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