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Congressional Testimony
May 1, 2002 Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4328 words
COMMITTEE:
HOUSE ENERGY AND COMMERCE
SUBCOMMITTEE: HEALTH
HEADLINE:
PRESCRIPTION DRUG BENEFIT
TESTIMONY-BY: DR. BEATRICE
BRAUN, BOARD OF DIRECTORS
AFFILIATION: AMERICAN
ASSOCIATION OF RETIRED PERSONS
BODY: Testimony The
Committee on House Energy and Commerce W.J. "Billy" Tauzin, Chairman
Creating a
Medicare Prescription Drug Benefit:
Assessing Efforts to Help America's Low-Income Seniors
Subcommittee on
Health
April 17, 2002
Dr. Beatrice Braun Board of Directors
American Association of Retired Persons
Mr. Chairman and members of the
Committee, I am Bea Braun, a member of AARP's Board of Directors. On behalf of
our organization and its 35 million members, I want to thank you for convening
this hearing and for continuing your efforts to consider approaches for adding a
much needed prescription drug benefit to the Medicare program.
As AARP
looks toward building retirement security for today's older Americans and the
baby boom population, we believe no person is economically secure without
adequate medical insurance. The structure of retirement security is no longer
simply the "three-legged stool" of Social Security, private pensions, and
personal savings, but rather four pillars consisting of: Social Security,
pensions and savings, earnings, and, importantly, stable, affordable and
adequate health insurance.
Consequently, now more than ever, Americans
of all ages are looking to Medicare's guarantee of affordable health care
coverage as part of the foundation of their retirement planning. But there is a
serious gap in Medicare's protection - the absence of reliable prescription drug
coverage. While modern medicine increasingly relies on drug therapies, the
benefits of these prescription drugs elude more Medicare beneficiaries every
day. Drug costs continue to rise unabated. Employer-based retiree health
coverage is eroding. Managed care plans in Medicare have scaled back their drug
benefits. The cost of private coverage is increasingly unaffordable. State
programs provide only a limited safety net. Therefore, the need for a Medicare
drug benefit for all beneficiaries will only continue to grow.
Given the
prominence of drug therapies in the practice of medicine, if Medicare were being
designed today - rather than in 1965 - not including a prescription drug benefit
would be as absurd as not covering doctor visits or hospital stays. That is one
of the reasons why ensuring that prescription drug coverage is included in
Medicare's defined benefit package is AARP's number one legislative priority
this year. Our members and their families need and expect a meaningful benefit
that is affordable and available to all beneficiaries. They expect us to be
their champion on this issue, and we will be.
We are pleased to be here
today to discuss the need for a
Medicare prescription drug
benefit, some of our recommendations for moving forward, and some initial
findings of the public's reaction to prescription drug proposals as well as
comment on the President's prescription drug proposal.
The Need for a
Medicare Prescription Drug Benefit
Increasing need,
high drug prices, and inadequate insurance coverage pose serious problems for
today's Medicare beneficiaries. A chronic health problem necessitating new and
expensive prescription drugs can quickly deplete a retiree's financial
resources. Even a beneficiary who has planned well for his or her retirement may
not be prepared for drug bills that exceed several hundred dollars a month.
Further, it is important to note that support for making a prescription drug
benefit part of Medicare is overwhelmingly high for all of our members.
Americans of all ages recognize the value of prescription drug coverage. In
recent polling conducted for AARP, eight in ten Americans age 45 and over favor
making prescription drug coverage part of Medicare. Support was, in fact,
greatest among the younger age brackets.
The majority of Medicare
beneficiaries - not just those with low incomes - need drug coverage. While AARP
strongly supports additional financial assistance in Medicare for low-income
individuals, low-income assistance is not a substitute for a prescription drug
benefit in Medicare. It will not solve the problem for millions of people with
Medicare who are unable to afford their medications. Further, because AARP
opposes means- testing within the Medicare program, we could not support a low-
income-only drug benefit unless it were outside of Medicare.
Because of
Medicare's current lack of prescription drug coverage, many beneficiaries must
pay for all or some of their prescription drugs out-of-pocket. Although about
two-thirds of Medicare beneficiaries have some type of coverage for prescription
drugs, this figure can be very misleading. The principal sources of coverage
that offer a prescription drug benefit - employer-based retiree coverage,
private supplemental coverage, or Medicare HMOs - are often inadequate, limited,
expensive, and unstable. Moreover, many Medicare beneficiaries do not have
continuous prescription drug coverage. A Commonwealth study released earlier
this year reported that nearly 42 percent of beneficiaries lacked drug coverage
at some point in 1998. More recently, a new study published by Health Affairs
reports that nearly 40 percent of Medicare beneficiaries had no drug coverage in
the fall of 1999. It is also important to understand that those Medicare
beneficiaries without coverage pay top dollar for their prescriptions because
they do not benefit from discounts negotiated by third party payers. Most of
those currently covered by insurance, including most workers, benefit from such
discounted prices.
Let me give you some illustrative examples of how
middle income people have difficulty in obtaining access to affordable and
dependable drug coverage:
A retired couple has significantly saved for
retirement and have an income of $
40,000 a year. Both take
prescription drugs for heart disease and high cholesterol and the wife also
needs medication for breast cancer and osteoporosis. They do not have access to
retiree health benefits through a former employer, there are no Medicare+Choice
plans available in their area, and a Medigap plan offering some drug coverage
would cost them $
260 a month each.
A retired couple
have an income of $
30,000 a year, significantly above the
threshold for Medicaid and most state and private pharmacy assistance programs.
They have prescription drug coverage through a Medicare HMO. This year they
learn, however, that their HMO plans to terminate its contract with Medicare,
effective December 31. There are no other Medicare HMOs in their area, and while
they can afford supplemental insurance and are guaranteed access to certain
Medigap plans (A,B,C, and F), none of these plans include drug coverage.
A 75-year old widow is enrolled in a Medicare HMO that offers drug
coverage. She currently has prescriptions for a cholesterol- lowering medication
at $
97.51 a month and an allergy medication at
$
46.94 a month. While initially her drug coverage was quite
generous, this year her drug benefit is capped at $
300 a year.
As a result, she basically has no drug coverage for three-quarters of the year.
As the Committee moves forward with a prescription drug proposal, it
will be critical to judge the proposal on not only whether it could improve the
situation for people illustrated in the examples above, but also if it is both
affordable and attractive enough to yield a broad risk pool and viable program.
What Older Americans Need
Affordable Drug Coverage - Older
Americans need affordable drug coverage. A voluntary drug benefit needs to be
affordable to assure enough participation to avoid the dangers of risk
selection. The government contribution will need to be sufficient to yield a
beneficiary premium that is affordable and a benefit design that is attractive
to the majority of beneficiaries. If the benefit is not set at an affordable
level, only those beneficiaries who have high risk will want to purchase it.
This will lead to a risk pool composed only of those with high drug costs, and
program costs will escalate rapidly into what is often referred to as an
"insurance death spiral." This is not simply a matter of what beneficiaries
would like to pay, it is an issue of how to assure fiscal viability of the risk
pool. Medicare Part B is a model in this regard.
The Part B benefit is
voluntary on its face, but Medicare's contribution toward the cost of the
benefit elicits virtually universal participation. Actuarial work done for AARP
last year by the William M. Mercer Company that we shared with the Committee
identified the keys to success for a
Medicare prescription drug
benefit:
u develop a benefit design that will encourage participation by
a broad range of beneficiaries in order to spread risk;
u ensure clear
and concise communication to improve participation;
u balance the
breadth of coverage and beneficiary premium;
u implement
cost-containment techniques; and
u limit the enrollment period.
Dependable Drug Coverage - Older Americans also need dependable drug
coverage. Current prescription drug coverage options are not reliable. For
example, beneficiaries who obtain prescription drug coverage from their former
employer are finding that coverage to be unstable. Retiree health benefits that
include prescription drug coverage are becoming more scarce. While an estimated
40 percent of employers with 500 or more employees offered retiree medical
coverage in 1993, only 23 percent did so in 2001. Of those employers who offered
retiree medical benefits, 21 percent did not offer drug coverage to Medicare
eligible retirees.
In addition, beneficiaries who have drug coverage
through Medicare HMOs cannot depend on having this coverage from year to year,
as plans can change benefits on an annual basis or even terminate participation
in Medicare. For example, this year many beneficiaries in Medicare+Choice plans
are living through abrupt changes in their prescription drug coverage that they
did not foresee when they enrolled. Some of the most visible of these changes
include:
Increasing premiums. Over the past few years, more and more
Medicare+Choice plans have been charging premiums for their coverage, and those
premiums are escalating. For example, between 2001 and 2002, the percentage of
Medicare HMO enrollees with zero premiums declined from 47 to 39 percent. This
year, nearly one- third of Medicare HMO enrollees (32 percent) will have basic
premiums over $
50 compared to 14 percent in 2001.
Higher cost-sharing - Unlike the 1990s, all Medicare HMOs that offer
prescription drugs are charging copays for prescription drugs and the average
beneficiary copay has increased significantly.
Decreasing benefit - More
plans are lowering the annual cap on the typical Medicare+Choice drug benefit.
While in 1999 10.6 percent of Medicare HMOs had an annual cap of
$
500 or less on their drug benefit, 20.6 percent of plans had a
$
500 cap in 2000.
Loss of benefit - Over the last few
years, several Medicare+Choice plans have dropped their prescription drug
benefit entirely. While 88 percent of Medicare HMOs offered some drug coverage
in 1999, that number declined to 63 percent in 2001. Although Medicare+Choice
has provided beneficiaries with an opportunity for drug coverage, the volatility
of the Medicare+Choice market has made that coverage unpredictable and unstable
from year to year.
AARP Recommendations
Adequate Funding - AARP
knows that to craft the kind of prescription drug coverage that beneficiaries
will find affordable and reliable - and will thus voluntarily choose to sign up
for - will require a sizable commitment of federal dollars. We also recognize
that budget constraints are greater than last year. But while the budget
situation changes from year to year, the situation facing millions of older and
disabled persons who cannot afford the drugs they need continues to worsen, and
constitutes a health care and financial emergency that cannot continue to be
ignored.
We do not, at this point, have an estimate of what an adequate
drug benefit will cost. We know the plans costing $
300 billion
offered last year did not find public acceptance. However, we believe the new
CBO estimates for drug proposals that include beneficiary monthly premiums
starting in the $
50, $
60, and
$
70 range will not yield an acceptable benefit. We believe
Congress and this Committee should focus on the design of a sustainable benefit
that will work for beneficiaries and remain flexible as to the projected cost.
That is why in our budget recommendation we asked Congress to renew its
commitment from last year, adjust it for inflation and another year of coverage,
and earmark $
350 billion for prescription drugs and reforms
that strengthen the program. However, because we believe that even this level of
funding is inadequate to pay for what our members would consider an adequate and
affordable benefit, we also recommended that Congress create a reserve fund of
about $
400 billion, or an amount roughly equal to the amount of
the 10-year surplus in the Medicare Hospital Insurance (HI) Trust Fund. A
majority of the respondents to our recent poll favored borrowing from the
Medicare surplus to pay for a prescription drug benefit. The range created by
the $
350 billion commitment based on last year, plus the
roughly $
400 billion reserve fund, will give the Congress the
flexibility it needs to craft a prescription drug benefit that beneficiaries
will perceive as having real value.
Priority for drugs - In addition to
our prescription drug recommendation, we also have said that it would be
inappropriate to use Medicare or Social Security surplus dollars to increase
provider payments without first ensuring that older Americans get the
prescription drug coverage they need. Our members would not understand why
Congress could find money to help providers but not to meet their increasing
prescription drug needs. Further, every dollar for a "givebacks" package means
one less available dollar for a
Medicare prescription drug
benefit. And any giveback package that increases Medicare Part B spending will
increase beneficiary premiums because monthly premiums represent 25 percent of
Part B costs. We, therefore, would strongly oppose funding for a givebacks
package before agreement is reached on a
Medicare prescription
drug benefit.
Cost Containment - We recognize that strong and
effective cost containment measures are a necessary part of a
Medicare
prescription drug benefit. In order for a drug benefit to be
sustainable over the long run, mechanisms must be in place to control the rising
costs of prescription drugs. AARP actively supports solid cost containment
methods as long as patient safety and well-being is not compromised and access
to needed prescription drugs is not impeded. Therefore, we support the use of
formularies, such as a 3-tiered approach, as long as they are developed in a
responsible manner and include an exceptions process.
We also support
the responsible promotion of generic drugs as one effective cost containment
tool in a Medicare benefit. In fact, because we believe both the government and
the consumer have an important role to play in helping to control costs, AARP is
rolling out a national public education campaign, beginning this month, to
educate our members and the public at large about the wise use of medications -
including generic drugs. We will encourage our members to talk with their
doctors and pharmacists to reduce unnecessary costs associated with use of
medications.
In addition to these cost containment methods, we also
would like to work with the Committee in other efforts to control drug costs,
including correcting the current AWP pricing structure and stopping abuse of
current drug patent laws. AARP has already begun to pursue the need to correct
abuse of drug patents through the courts. AARP intends to be involved in
litigation against certain brand and generic companies that made agreements that
delayed the entry of a generic drug into the market and in litigation against a
brand name drug company that unfairly extended its patents to forestall its
generic competition.
Initial Reactions to Drug Proposals
We have
asked our members and the general public what kind of benefit package would
generate the kind of high level of participation necessary for a viable benefit,
and we have learned the following thus far:
Beneficiaries will generally
perform what we call the "kitchen table test" in determining whether they would
purchase a new voluntary drug benefit. That is, they will likely calculate their
current prescription drug costs, their Medicare premium ( $
54 a
month in 2002 and rising to $
104.90 in 2012), any drug coverage
they might have, and their present financial situation, to determine whether a
proposed benefit is a real value for them. Medicare beneficiaries are willing to
pay their fair share for a solid prescription drug benefit, but the premium and
coinsurance must be reasonable. We know, for instance, that beneficiaries would
not be likely to enroll in a prescription drug plan with a premium of
$
50 a month.
While the amount of the beneficiary
premium drives the equation, our members also look at the program design
features in combination with one another. This means it is difficult to simply
assess a single component of a package. For instance, some beneficiaries might
look more favorably on a higher level of coinsurance if the premium was lower,
or vice versa. In a recent poll conducted for AARP of 885 individuals age 45 and
over, only one-third of those 65 and over would be likely to participate in a
prescription drug plan that included: a $
35 monthly premium,
50% coinsurance, a $
200 annual deductible, and a
$
4,000 stop loss. Clearly, this low level of voluntary
participation is not enough to create a broad risk pool and sustainable program.
Most Medicare beneficiaries are concerned about the unpredictability of
health care costs and want to know what they will be expected to pay
out-of-pocket. This makes real catastrophic stop-loss protection that limits
out-of-pocket costs an important component of any package. We know from past
experience that a $
6,000 catastrophic stop-loss is viewed by
beneficiaries as too high, and even a $
4,000 cap is not viewed
as providing meaningful benefit protection. For example, if there were a
$
4,000 cap included in a benefit that also imposed 50 percent
beneficiary co-insurance, a beneficiary would have to incur
$
8,000 (and a couple $
16,000) in prescription
drug costs before the stop-loss protection would kick in. With the majority of
beneficiaries earning less than $
25,000 a year, those figures
are not seen as providing realistic protection.
We realize that some on
the Committee may believe that we are asking for a "Cadillac plan," however, we
emphasize we are bringing to you what our members are telling us they need and
expect to join a voluntary drug benefit. We will continue to try to educate our
members about what is realistic and seek the views of current and future members
on specific design packages. We will be happy to work with the Committee as your
proposals are developed to test our members' reactions.
As for the
President's FY 2003 budget request and proposal to modernize Medicare that was
released at the start of the year, AARP is pleased that the President continues
to make
Medicare prescription drug coverage a priority for his
Administration and has indicated his willingness to work with the Congress on
this issue, but we believe that the dollar amount proposed is insufficient to
provide an affordable and meaningful drug benefit for all Medicare
beneficiaries. We also have raised several questions about how the various
components of the proposal would help people with Medicare.
In
particular, we have raised questions about $
77 billion
earmarked for low-income drug coverage. The budget proposes an enhanced federal
match to enable states to cover drug costs for Medicare beneficiaries between
100 and 150 percent of poverty.
However, the Administration's proposal
does not provide details on how the proposed targeted low-income assistance
would be used (e.g., in Medicaid expansions or state pharmacy assistance
programs), how this effort would improve the current patchwork of drug
assistance available, and how many people would actually be helped. Further, the
Administration's budget leaves open the question of whether states that could
not raise their Medicaid thresholds would be eligible for the new enhanced
federal match between 100 to 150 percent of poverty.
The
Administration's proposal also does not prevent "dollar trading" by the states
that already have higher thresholds. The end result for $
77
billion in federal funding could be little or no extension of prescription drug
protections for more needy seniors than are being served now.
The
President's budget also includes the Administration's proposal to implement a
Medicare drug discount card that would give beneficiaries immediate access to
drug discounts and other pharmacy services.
AARP is working with the
Administration as it continues to refine its drug discount card proposal. There
are several issues that we will try to clarify and some consumer protections we
will try to add, including: defining what constitutes a "substantial" discount,
obtaining firm details on how manufacturer discounts will be disclosed and
passed on to consumers, assuring that consumers can compare drug card discount
rates to actual retail prices, and making sure drug cards help consumers get
generic drugs whenever they are medically appropriate and the least costly
option.
However, AARP is encouraged that - unlike current industry card
proposals - the President's proposed discount card is designed to establish the
drug card program as a building block for a full Medicare drug benefit. We
emphasize, however, that neither the Administration's discount card nor the
current industry cards are a substitute for a real drug benefit.
We also
believe that while the actual discounts would be relatively modest, the
President's discount card program would provide at least some help to
beneficiaries in buying the drugs they need. It could provide important
safeguards to improve the appropriate use of prescription drugs, and this could
help avoid unnecessary health care costs due to drug interactions, mis-
medications, or poor compliance. It also, importantly, would help the federal
government learn valuable lessons about the pharmacy benefit managers (PBMs)
that run discount card programs and are included as the delivery system in
virtually every drug benefit proposal before Congress. As a result, it will help
the Medicare program become more familiar with how PBMs and drug benefit
programs work.
Finally, we are concerned that the limited amount of
funding in the Administration budget for both drug coverage and other program
changes is insufficient to add a meaningful drug benefit and strengthen the
program for current and future beneficiaries.
AARP supports efforts to
modernize the Medicare program. Clearly, the creation of a prescription drug
benefit that is available in all Medicare options is the most significant
improvement, but other changes are also important and would serve beneficiaries
and the program well. For instance, most private health insurance plans offer a
cap on out-of-pocket expenses, yet there is no such limit in the Medicare
program. Creating an out-of-pocket cap for services currently covered by
Medicare Parts A and B would not only bring Medicare more in line with what
individuals under the age of 65 currently have, but would also make the program
more affordable for beneficiaries.
AARP also remains open to the
possibility of combining the Part A and B deductible, provided it is structured
to be affordable and does not produce beneficiary "sticker shock." Since most
beneficiaries meet the annual $
100 Part B deductible but
significantly less meet the Part A hospital deductible, a combined and increased
deductible will affect the majority of beneficiaries. We are opposed, however,
to merging the Part A and B Trust Funds. The new solvency measure included in
the President's budget, and suggested in the recent Medicare Trustees' Report,
appears to indicate that Medicare should be financed wholly from its Trust
Funds. That is, its financing should come predominantly, if not exclusively,
from payroll taxes and beneficiary contributions, with little or no contribution
from general revenues. This would represent a radical shift in funding for the
Medicare program. The impact of such a shift would be to significantly increase
beneficiaries' costs for Medicare, reduce provider payments, or a combination of
both.
Conclusion
AARP is pleased that the Committee is examing
the issue of a
Medicare prescription drug benefit and is
developing a proposal. The work you are embarking upon is extremely challenging;
it is also immensely important to millions of Americans who take prescription
medications. It is our hope that today's hearing will help focus attention on
the need for an affordable and dependable
Medicare prescription
drug benefit for all beneficiaries.
Our members believe that
Congress should be able to work across party lines to enact and begin to
implement an affordable Medicare drug benefit. We pledge to you that we will
provide assistance in every way we can to work with members on both sides of the
aisle and to promote a meaningful and broadly supported
Medicare
prescription drug benefit. We also know that our members will not
accept failure or delay. The needs of older and disabled Americans who lack
adequate drug coverage can no longer go unheeded. We call on Congress to act
now. A prescription drug benefit in Medicare is an urgent priority for our
members and for the American people.
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May 8, 2002