President Bush believes the Nation has a moral obligation to
fulfill Medicare's promise of health care security for America's
seniors and people with disabilities. Medicare has provided this
security to millions of Americans since 1965.
However, as Medicare's lack of prescription drug coverage
demonstrates, Medicare is not keeping up with the rapid advances in
medical care. Medical care this century holds the promise of
improving and extending life through countless innovations.
To ensure that Medicare continues to provide a secure entitlement
for access to modern health care, on July 12, 2001, President Bush
proposed a framework to strengthen Medicare and address its
financial security.
As the President continues to work with Congress to address the
threats to our Nation's security, he will also work with Congress to
enact legislation this year to address the problems facing Medicare.
In his budget and State of the Union address, the President will
renew his commitment to provide prescription drug coverage in
Medicare, based on the framework for bipartisan legislation that he
proposed in July 2001. The President's budget includes $190 billion
in net additional spending for improving Medicare.
Many improvements in Medicare, such as full implementation of a
prescription drug benefit, will take several years to set up. But
some needed improvements in Medicare benefits can begin to take
effect sooner, by building on existing programs.
The President's budget will include proposals which can be
implemented quickly as part of legislation to improve Medicare
benefits. The proposals are based on ideas that have been proposed
previously by Democrats and Republicans. They include:
Giving seniors access to two additional Medigap (supplemental
coverage) plans, with updated benefits that provide better
protection against high medical expenses and assistance with
prescription drugs at a more affordable cost than the current
standard Medigap plans.
I. PRESIDENT'S FRAMEWORK FOR STRENGTHENING MEDICARE
Medicare needs better benefits, including a prescription drug
benefit, like modern health insurance plans. Medicare's outdated
benefit package does not cover prescription drugs and does not
provide timely, consistent coverage for many modern technologies and
preventive treatments.
It does not protect beneficiaries against the high costs of
treating serious illnesses, and it imposes unnecessary regulatory
burdens on providers and patients.
As a result, seniors often do not receive appropriate, up-to-date
treatment for their health problems. Most other insurance programs,
including the program available to all Federal employees, provide
reliable options for getting modern health insurance benefits.
However, Medicare's options are actually becoming more limited.
The President believes that we must give seniors better options.
He also believes that any improvements in Medicare should not force
changes on today's seniors who are satisfied with their current
coverage.
Medicare is not financially secure for the retirement of the Baby
Boom. The 77 million Americans who will be in Medicare by 2030 are
counting on Medicare's promised benefits.
Yet Medicare's fund for hospital insurance will face cash flow
deficits beginning in 2016, and Medicare's fund for its other
benefits will likely require a doubling of beneficiary premiums and
of Medicare's claims on general revenues to remain solvent over the
next 10 years. Medicare's bifurcated accounting disguises the true
fiscal health of Medicare and makes it difficult to plan ahead.
President Bush has worked with members of Congress from both
parties to develop a framework for a modernized Medicare program and
for keeping Medicare's benefits secure. Modernized Medicare includes
an improved traditional fee-for-service plan, and improved health
insurance plan options. The President's framework for bipartisan
legislation includes the following principles:
- All seniors should have the option of a subsidized
prescription drug benefit as part of modernized Medicare.
- Modernized Medicare should provide better coverage for
preventive care and serious illnesses.
- Today's beneficiaries and those approaching retirement should
have the option of keeping the traditional plan with no changes.
- Medicare should provide better health insurance options, like
those available to all Federal employees.
- Medicare legislation should strengthen the program's long-term
financial security.
- The management of the government Medicare plan should be
strengthened so that it can provide better care for seniors.
- Medicare's regulations and administrative procedures should be
updated and streamlined, while the instances of fraud and abuse
should be reduced.
- Medicare should encourage high-quality health care for all
seniors.
For more information: www.whitehouse.gov/news/releases/2001/07/medicare.pdf
II. IMMEDIATE ASSISTANCE FOR SENIORS AS PART OF LEGISLATION TO
STRENGTHEN MEDICARE
Medicare Rx Drug Card Program
Approximately 10 million seniors and persons with disabilities
have no prescription drug coverage. As a result, even though they
are among the heaviest users of prescription drugs, seniors often
must pay full retail price for their prescriptions.
Most privately-insured Americans pay significantly lower prices,
because their private insurance plans allow them to use the
purchasing power of large groups to get discounts from
manufacturers.
The President believes that Medicare should help seniors get
access to these tools right away, even before a prescription drug
benefit is fully implemented. Using competitive tools to get lower
prices for drugs and better pharmacy services is a common feature of
major Democratic and Republican proposals to provide a prescription
drug benefit.
In conjunction with his framework for Medicare legislation, the
President announced an initiative to create a Medicare-endorsed Drug
Card Program, to help seniors get lower drug prices right away.
The Drug Card will not only provide some short-term relief for
seniors; it will also give the Medicare program needed experience in
administering a Medicare prescription drug benefit. Seniors' groups
such as the AARP support the Drug Card Program, calling it 'a
positive first step toward a prescription drug benefit.'
The implementation of the drug card has been blocked temporarily
by an injunction from United States District Court for the District
of Columbia. However, the Court has stayed the injunction while the
Department of Health and Human Services submits a revised drug card
proposal for public comment.
The improved proposal reflects comments and creative new ideas
that followed the initial announcement of the card. For example,
several drug manufacturers have announced new programs that provide
drug discounts for low-income seniors, illustrating the kind of
assistance that the drug card will help make more widely available.
The formal 'notice and comment' process on the proposed drug card
will permit further improvements in the program before it is
implemented.
Seniors today have some access to voluntary discount cards that
provide pharmacy discounts of about 10 percent on average.
Privately-insured Americans regularly achieve additional savings of
between 2 percent to 35 percent on brand name drugs through
manufacturer discounts.
We expect that the Medicare Drug Card will help seniors get
access to some of the manufacturer discounts achieved by insured
drug card programs, and the discounts will increase as prescription
drug coverage is phased in, for the following reasons:
- The initiative proposes that card sponsors secure manufacturer
rebates, and pass them through to pharmacies and beneficiaries,
resulting in lower prices.
- The initiative would provide education programs targeted to
Medicare beneficiaries about generic substitution, drug
utilization, pharmacist services and other ways to lower
prescription drug spending and get higher-quality pharmacy
services.
- The initiative would allow Medicare beneficiaries to pool
together to use their buying power to get better prices from drug
manufacturers. Drug Coverage for Low-Income Seniors through
Pharmacy Plus Model Waiver Program
A number of states have asked for Federal approval to use the
Medicaid program to extend drug-only coverage to senior citizens and
people with disabilities who are not otherwise eligible for
Medicaid.
States are also concerned about rising drug costs in Medicaid and
have been exploring common private-sector cost-control mechanisms,
like preferred drug lists, as a way of moderating drug spending.
Medicaid law and federal regulations, however, have discouraged the
use of these management tools.
The Administration has developed a model Pharmacy Plus drug
waiver that states can use to provide drug-only coverage to
low-income Medicare beneficiaries through Medicaid.
These waivers will permit states to provide drug coverage and
implement private-sector benefit management techniques in their
Medicaid drug programs. Although it will incur costs for a new
population of individuals, the model waiver program is budget
neutral because it will provide more cost-effective drug coverage
for persons with Medicare and other coverage who might otherwise
have periods of eligibility for Medicaid.
Details depend on the characteristics of state Medicaid programs,
with states usually able to extend drug coverage up to around 200%
of poverty.
A newly-approved waiver for Illinois will now provide drug
coverage to 365,000 Medicare beneficiaries in the state, indicating
the potential for this program to provide assistance now to seniors
who most need it.
Medicare Low-Income Drug Assistance
The President's Medicare Low-Income Drug Assistance proposal
would make it possible to quickly phase in comprehensive drug
coverage for Medicare beneficiaries up to 150 percent of poverty as
part of Medicare drug benefit legislation, even before the Medicare
benefit is fully phased in.
States have the option to expand comprehensive drug coverage to
Medicare beneficiaries up to 100 percent of poverty at current
Medicaid matching rates. As an incentive to states to further expand
coverage to 150 percent of poverty (approximately $17,000 for a
family of two), the Federal government would pay 90 percent of the
cost of expanding drug benefits from 100 to 150 percent of poverty.
States would be responsible for the remaining 10 percent of the
cost. This proposal is expected to lead to coverage for up to 3
million Medicare beneficiaries who would otherwise not receive
coverage until the Medicare drug benefit is fully implemented, which
will require several years.
In addition, states that already provide comprehensive drug
coverage to low-income beneficiaries would be eligible for the
Federal funding, easing the fiscal pressures on states that provide
these benefits.
Federal support for comprehensive drug coverage for low-income
beneficiaries is a part of all major Democratic and Republican drug
benefit proposals, and is part of the President's framework for
strengthening Medicare.
Because states already have mechanisms in place to provide
assistance to low-income Medicare beneficiaries, this proposal
permits relatively quick implementation of drug coverage for the
beneficiaries who need help the most.
States would also have the flexibility to provide the
comprehensive drug benefit using the infrastructure of the
Medicare-endorsed prescription drug card program and any other
Medicare infrastructure for drug assistance as soon as it is
available.
The budgetary cost of this program is approximately $1.2 billion
in FY 2003 and $8 billion in fiscal years 2003-2005. Federal support
for comprehensive drug coverage for low-income beneficiaries would
continue even after the Medicare drug benefit is fully implemented,
and would be integrated with it.
Essential Additional Funding to Sustain Private Health
Insurance Plans
The President's framework for strengthening Medicare calls for a
fair payment system for private plan options for Medicare
beneficiaries, like the system that provides reliable health
insurance options to all Federal employees in the Federal Employees
Health Benefits program.
Private plans have long been the preferred choice of 6 million
Medicare beneficiaries. This is not surprising, because the private
plans allow beneficiaries to receive more up-to-date benefits than
are available under traditional Medicare.
The enhanced benefits can include prescription drugs, disease
management programs, and better preventive care services - benefits
widely available to the nonelderly and to members of Congress.
Frequently, private plans have provided much lower cost sharing for
required Medicare benefits as well.
Action is needed now to ensure that these benefits remain
available to Medicare beneficiaries, because the current
'Medicare+Choice' system for paying private plans is not giving
beneficiaries the options they deserve.
Since the new payment system was implemented in 1998, hundreds of
Medicare+Choice organizations have left the program or reduced their
service areas, adversely affecting coverage for hundreds of
thousands of beneficiaries - reversing what had been an upward trend
in private plan availability and enrollment.
In addition, the remaining plans are offering less generous drug
benefits and other coverage. Moreover, 'open network' plans like
Preferred Provider Organizations (PPOs) and 'point of service' plans
have become popular among privately covered individuals, yet only
two PPOs participate in a few counties in the entire Medicare
program.
Annual increases in Medicare+Choice funding have failed to
reflect rising health care costs, leading to unreliable options and
reduced benefits for seniors.
Specifically, between 1998-2002, Medicare+Choice rates increased
at 2 or 3 percent per year, or only 11.5 percent overall, in
counties where the majority of Medicare+Choice enrollees live.
This compares with increases in Medicare fee-for-service
(government) plan spending by over 21 percent and medical cost
inflation of 9 to 10 percent per year and the same time period.
Because payments to private plans do not reflect conditions in
Medicare and the health care marketplace, private health plans
cannot meet beneficiaries' needs.
The President's budget proposes to take urgently needed steps
toward the equitable payment system for private plans proposed in
the President's framework for strengthening Medicare. The proposal
will modify the Medicare+Choice (M+C) payment formula to better
reflect actual healthcare cost increase and allocate additional
resources in 2003 to counties that have received only minimum
updates over the last few years.
This would make it possible for more private plans to remain in
Medicare until the new payment system is phased in. Proposals to
help sustain private plans in Medicare are supported by both
Democrats and Republicans.
Under the President's proposal, all plans will receive payment
increases equivalent to national fee-for-service cost growth minus
0.5 percent.
For 2003, plans in counties that have been receiving the minimum
updates (2 to 3 percent) in the last 4 years will receive a 6.5
percent increase in payments. The budget also proposes incentive
payments for new types of plans that enter Medicare+Choice to
encourage a variety of new managed care plans (e.g., PPOs) to
participate in Medicare+Choice.
The augmented payments to improve beneficiaries' options would
cost $3.7 billion between 2003-05 and would permit about 7 percent
more Medicare beneficiaries to join Medicare+Choice plans.
Additional Medigap Options for Affordable Protection Against
High Out-of-Pocket Costs
Medicare's statutory benefits have enormous gaps - copayments as
high as 50% on many services, poor coverage for preventive care, and
no limits on out-of-pocket spending.
For this reason, nearly all seniors in the fee-for-service
(government) plan have supplemental insurance, mainly through
Medigap. But the cost of supplemental coverage is rising much more
rapidly than the cost of Medicare, and the 'standard' Medigap plans
have barely been updated in more than a decade. As a result, seniors
face important problems in getting the coverage they need:
- Limited drug coverage: The three existing Medigap plans that
cover prescription drugs offer an unattractive drug benefit
coupled with a rich package of medical benefits. The richness of
the non-drug package and the cost of drugs make the plans
prohibitively expensive to most beneficiaries. Fewer than 500,000
beneficiaries receive a Medigap drug benefit today.
- First dollar coverage: All of the existing Medigap plans pay
the up front costs of care for beneficiaries, including the first
dollar spent on care. Research has demonstrated that first dollar
coverage, defined as the absence of any upfront copays,
coinsurances, or deductibles paid by the beneficiary, results in
increased utilization and higher costs.
- Antiquated benefit packages: The plans have been the same
since 1990 and have not kept up with the evolution in the Medicare
program over the last decade. The concentration of enrollment in
only three to four plans suggests that the other available plans
are not providing the range of options that beneficiaries need.
The President's framework for strengthening Medicare includes
updated, more affordable Medigap options for beneficiaries who
choose the improved Medicare benefit package. Beneficiaries who wish
to keep their current benefits with no changes would be able to do
so.
To provide more affordable Medigap options before the improved
benefit package becomes available, the President's Budget proposes
the addition of two new Medigap plans to the existing ten
standardized plans.
The new plans will include prescription drug assistance,
protection against high out-of-pocket costs, and buydown of most of
the cost of Medicare deductibles and copays. The idea of making
updated Medigap plans available has long had bipartisan support.
For example, President Clinton proposed to update Medigap with
supplemental coverage that included reasonable limits on cost
sharing. The new plans will provide new opportunities for savings
for beneficiaries, with a one-time opt in for current beneficiaries.
The new plans would also provide modest budgetary savings, due to
the elimination of first-dollar coverage.