SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 6264 words

COMMITTEE: HOUSE ENERGY AND COMMERCE

HEADLINE: PRESCRIPTION DRUG BENEFIT

TESTIMONY-BY: MARK MCCLELLAN M.D., PH.D., MEMBER

AFFILIATION: COUNCIL OF ECONOMIC ADVISERS

BODY:
Statement of Mark McClellan M.D., Ph.D. Member Council of Economic Advisers

Before the Subcommittee on Health

April 17, 2002

Chairman Bilirakis, Representative Brown, distinguished Committee members, thank you for inviting me to discuss the President's proposals for strengthening Medicare, including prescription drug coverage. The Administration also appreciates the opportunity to provide more details on our proposal for transitional low-income prescription drug assistance and other transitional proposals that we believe should be part of legislation to implement a Medicare prescription drug benefit for all beneficiaries. As you all well know, when Medicare's original legislation was enacted, President Johnson said: "No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime. "Thirty-seven years later, President Bush believes it is time for our Nation to come together and renew that commitment. The President believes that we have a moral obligation to fulfill Medicare's promise of health care security for America's seniors and people with disabilities, and that we must take action now to do so. Medicare has provided health security to millions of Americans since 1965. But lack of prescription drug coverage is a clear demonstration that Medicare is not keeping up with the rapid advances in medical care. Looking ahead, medical care holds the promise of improving and extending life through countless innovations. But as we enter the 21st century, Medicare's promise is threatened by: outdated benefits; limited financial protection against high medical costs; a system that has not delivered reliable health plan options; and a traditional government plan that often fails to deliver responsive services to beneficiaries or ensure high-quality care.

As we implement legislation to strengthen Medicare, we must remember that the 77 million Americans who will be entitled to Medicare in 2030 are counting on up-to-date benefits that will give them access to medical services that are scarcely imaginable today. Yet even Medicare's current, outdated benefits are not secure for the retirement of the Baby Boom generation. Medicare's fund for hospital insurance will face cash flow deficits beginning in about 15 years and is projected to become insolvent within 30 years. Medicare's fund for its other benefits will require nearly a doubling of beneficiary premiums and massive infusions of general revenues to remain solvent over the next 10 years. Medicare's accounting disguises the program's true fiscal health and makes it difficult to plan ahead.

STRENGTHENING MEDICARE

Recognizing these problems, 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. The President's framework includes the following eight principles:

First, all seniors should have the option of a subsidized prescription drug benefit as part of modernized Medicare. In particular:

Medicare's subsidized drug benefit should protect seniors against high drug expenses and should give seniors with limited means the additional assistance they need. The drug benefit should give all seniors the opportunity to choose among plans that use some or all of the tools widely used in private drug plans to lower drug costs and improve quality of care.

The drug benefit should support and encourage the continuation of the effective prescription drug coverage now available to many seniors through retiree plans and private health insurance plans.

The new drug benefit should also be available through Medigap plans and as a stand-alone drug plan for seniors who prefer these choices.

We believe it is critical for seniors to have a choice of drug plans so that they can pick the one that is best for their needs. This is not a decision the government should make for them, just as we should not be picking their doctor, determining their drug treatment, or giving them a one-size-fits-all health plan. As the members of this Committee know, both the independent CMS actuaries and the non-partisan Congressional Budget Office experts fully expect private drug plans to participate in this benefit. As CBO and many economists have also confirmed, giving private plans the proper incentives to deliver high-quality pharmaceutical services at a low price is the way to get the best deal for Medicare beneficiaries and the program - yielding lower drug spending and lower monthly premiums through competition. Of course, the government has important roles to play as well: making sure seniors can get the protection against catastrophic drug costs that they need - protection which is often lacking today; taking the steps necessary to ensure that all eligible seniors and disabled individuals get the benefits to which they will be entitled; and providing the information and support that all beneficiaries need to make informed choices.

Some have argued that the criterion for designing a Medicare drug benefit should be whether most Medicare beneficiaries, many of whom have drug spending each year of $500 or less, are "better off" when taking into account the premiums they must pay and the additional assistance they will get beyond their existing coverage, based on their current drug spending. So, the argument goes, any kind of insurance protection against high medical costs that are rare today won't be popular. I believe this approach does a disservice to seniors who are counting on Congress enacting a drug benefit that will give them both health security and better care.

First, coverage that provides protection against high out-of- pocket expenses for a low premium is something that seniors want as we enter a new era of breakthroughs in drug design. In my own medical practice, I have treated many seniors who had serious illnesses or faced the risk of serious illnesses that might require costly treatments - more and more of them in recent years, as more such treatments have become available. The potential for the next 10 years is even greater, as treatments based on understanding a person's genetic predisposition to diseases become more prevalent. Seniors are very worried about the possibility of not being able to afford potentially lifesaving but very costly new treatments.

Second, the new Medicare drug benefit will get the most "bang for the buck"in improving coverage if it adds to rather than replaces the substantial private contributions already being made toward prescription drug coverage for Medicare beneficiaries. Many Medicare beneficiaries already have coverage for small to moderate drug expenses, through private plans, employer coverage, or (if they can afford it) Medigap plans. Providing protection against high drug expenses through a Medicare drug benefit not only is important for filling in the gaps in existing coverage, rather than simply replacing good coverage. It also makes generous insurance plans more affordable for all beneficiaries by reducing adverse selection. Right now, prescription drug coverage for seniors is subject to severe problems of adverse selection. Adverse selection occurs because beneficiaries who know for sure that they need such coverage buy it, driving up the premium, and then beneficiaries only think they might need coverage against high expenses don't buy it. By providing a large subsidy for drug coverage that protects seniors against high costs, Medicare would prevent persons with high costs from driving up the costs of the insurance premiums. This would reduce adverse selection, amounting to a premium subsidy for everyone to make comprehensive insurance more affordable. The potential for very high expenses would no longer drive up the costs of insurance that includes real protection against high out-of-pocket costs.

Second, modernized Medicare should provide better coverage for preventive care and serious illnesses. Medicare's current cost- sharing often imposes the highest costs on those who need the most care. Individuals who need hospital care currently face a payment of more than $800 for each spell - and they can have many spells in a year - and Medicare's coverage for hospitalizations can eventually run out altogether. And unlike most private insurance, Medicare does not provide "stop-loss"protection to limit the financial obligations imposed on beneficiaries.

At the same time, poor benefit design in Medicare itself - or in the first-dollar Medigap plans that seniors are required to buy to fill in Medicare's large coverage gaps - often gives seniors no choice other than paying high and rapidly rising Medigap premiums and other out-of-pocket payments, without yielding noticeable improvements in health. Thus we believe Medicare's coverage should be improved so that seniors can get better protection when serious illnesses occur, more affordable Medigap coverage, and better coverage to help prevent illnesses in the first place - like having zero co-payments on Medicare's preventive benefits. Because the improved benefits will encourage better use of preventive care and other services, a better Medicare coverage package will also help seniors and the Medicare program get the best value from the new drug benefit. The savings from lower out-of-pocket payments will also make all medical services, including drugs, more affordable for seniors.

Third, today's beneficiaries and those approaching retirement should have the option of keeping the traditional Medicare plan with no changes. The President strongly believes that no senior should be forced to accept sudden and significant changes they do not choose and are not prepared for. Although we believe that a modernized Medicare program will be attractive to many current beneficiaries, we believe the choice rightly rests with them on whether to move from the existing program to the modernized one.

Fourth, Medicare should provide better health insurance options, like those available to all Federal employees and retirees. For too long, Medicare has been a "one size fits all"program. At a time when many other Americans have access to a range of private insurance coverage options to meet their needs, more and more seniors are finding that their only choice is a single, outdated fee-for-service plan. Medicare beneficiaries deserve better. They deserve access to the kind of innovative disease management programs and other benefits that Assistant Secretary Jindal described to your Subcommittee on Health last month. For example:

- A Medicare+Choice plan in Boston instituted a comprehensive disease management program for its enrollees with diabetes. The result has been significant increases in the share of enrollees who received annual retinal eye exams and are monitored for diabetic nephropathy and substantial improvements in the management of their Hemoglobin and cholesterol levels. Improvements in these measures through tight diabetes control have been shown to improve quality and length of life significantly.

- A Medicare+Choice plan in Florida instituted a comprehensive disease management program to monitor, facilitate, and coordinate care for enrollees stricken with cancer. As a result, the number of acute hospital days per cancer case dropped by about 15% over two years and the share of inpatient admissions for complications with cancer has declined by 10 percent.

- Research has shown that individuals who receive after-care following hospital stays for mental illness are more likely to be compliant with their treatment regimens and less likely to be readmitted to the hospital. One Medicare+Choice plan in New York instituted a case management program for those hospitalized for mental health disorders and nearly doubled the share of its enrollees who received follow-up care within 7 days of their hospital discharge.

All of these disease management programs, and many other programs to prevent diseases and improve quality of care through better coordination and integration of services, are immensely valuable to seniors. These innovative benefits help seniors manage their prescription drug costs and get the most value from the drugs they use. This greater efficiency has helped permit most private plans in Medicare to provide prescription drug coverage today, and to offer much lower cost sharing for many of Medicare's required benefits. Programs like these are the reason that private plans have long been the preferred choice of millions of Medicare beneficiaries.

Unfortunately, the quality of care enjoyed by millions of seniors enrolled in these plans is threatened today by years of underpayments to the plans. The President's framework for strengthening Medicare calls for replacing the dysfunctional Medicare+Choice payment system with 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 are a critical source of drug coverage and countless other innovative benefits for millions of seniors, and they should remain so.

Fifth, Medicare legislation should strengthen the program's long- term financial security. In light of the recent Trustees' Report on Medicare one could conclude that our guiding principle should be "first, do not harm."The President's budget recognized that strengthening Medicare would require substantial new resources and proposed $190 billion for this important purpose. Despite the unprecedented and unique challenges facing our nation today, the President and Congress have clearly demonstrated their commitment to meeting the needs of seniors. Of course we are more than willing to work with Congress this year to enact this long- overdue legislation, and we understand that there are a range of views regarding how much new spending needs to be allocated for this purpose. We believe an effective program for strengthening Medicare and including a prescription drug benefit can be accomplished within the amount the President has allocated in his Budget. Without strong measures to make the program more efficient being incorporated along with new benefits, Medicare's current benefits will become less secure under some proposals.

At the same time, it is important to recognize risks to the long- term security of Medicare's promised benefits. For example, some have proposed a drug benefit as large as $750 billion, financed using surpluses generated over the next 10 years by the Medicare Part A Trust Fund. If the Part A surpluses literally were directed to augmenting prescription drug coverage, the consequences for Medicare's ability to provide benefits for the Baby Boom would be severe. According to the nonpartisan CMS Actuaries, the redirection of Medicare Part A funds could cut the life of this trust fund in half - the trust fund would lose money beginning in 2008, and would become insolvent by 2016. Some might instead propose to use the accounting gimmicks that Medicare's bifurcated trust fund system encourages, by creating yet another trust fund for the drug benefit and leaving it to future generations to figure out how to pay for it. But no accounting gimmicks can hide the fact that such a drug benefit would increase the program's long-term financing challenges by 50 to 100 percent. The excess costs of $400 billion in the first 10 years would balloon to $1.2 trillion in the next ten, just when the Baby Boomers are counting on Medicare. The government's Medicare spending for current benefits (even after subtracting beneficiary premiums) is already expected to grow from 2% of GDP today to 4% by 2030. This new drug benefit would increase that share to almost 6% - a tax increase or reductions in government programs for future Americans amounting to almost 2% of our entire national product, and equivalent to a tax of $2,170 (in today's dollars) on every working American.

Thus, while we will work closely with Congress to enact a Medicare drug benefit this year, we also want to work closely with Congress to make sure that the benefits we promise today will be there for beneficiaries tomorrow. This is also why we support changes in Medicare's Trust Fund accounting to provide a plain and straightforward picture of Medicare's financial outlook. We have all seen clear examples of how poor accounting practices can lead to poor planning, with devastating consequences for many Americans. It is critically important that we avoid such practices in a program that is so important to all Americans.

In this context it is also important to consider the issue of provider payment reforms. Although certain provider payments may benefit from adjustment, we believe such adjustments can be accomplished without using new funds that are even more urgently needed for improving Medicare benefits. Indeed, the Administration believes that the first priority in Congress should be enacting legislation that improves Medicare benefits, not legislation that focuses on provider payments. As we move forward to achieve our shared goal of modernizing and strengthening Medicare, the Administration is willing to work with Congress to consider limited modifications to provider payment systems in order to address payment issues. In doing so, we must be systematic: all provider payment updates must be considered and any package must be budget neutral in the short and long term.. As we consider these changes, we need to focus on the adequacy of payment systems for providing access to care for beneficiaries, and recall that any increases in spending will be borne in part by beneficiaries, and will also have long-term implications for the security of Medicare's benefits.

Sixth, the management of the government Medicare plan should be strengthened so that it can provide better care for seniors. Secretary Thompson and Administrator Scully have taken many administrative actions to improve and streamline management at CMS. But legislation is required for further needed actions that have strong bipartisan support, such as competitive bidding so that Medicare and its beneficiaries can get better, market-based prices for the medical products it purchases while ensuring high quality, and Medicare contracting reform, to improve the cost- effectiveness of Medicare contractor operations and create an open marketplace for potential contracting partners.

Seventh, Medicare's regulations and administrative procedures should be updated and streamlined, while the instances of fraud and abuse should be reduced. Here too Secretary Thompson and Administrator Scully have moved aggressively, but the Administration now needs help from Congress. Any Medicare legislation this year should include the kind of sensible improvements that this Committee led through the House of Representatives with unanimous bipartisan support. Regulatory reforms and simplifications are needed to reduce burdens on providers and on CMS, a critically important goal at a time when we need to direct attention to implementing new benefits in Medicare.

Eighth, Medicare should encourage high-quality health care for all seniors. Recent reports from the Institute of Medicine and others have made clear that serious and widespread opportunities for improving patient care exist. These opportunities are especially likely to benefit seniors and persons with disabilities, because they tend to use more and more complex care. Many of the opportunities for quality improvement involve drugs - including the use of inappropriate and costly prescriptions when less costly treatments are available, and failures to use medications that could avoid complications. The reports provide compelling evidence that we need to change the environment for medical practice to one that encourages systematic and continuous improvements in care by dedicated professionals, not an environment that subjects them to endless and costly litigation.

Looking ahead, we will continue to have a healthy debate about how we should meet these principles. The key, however, is to take action this year, we intend to continue to work closely with Congress to implement a prescription drug benefit that Republicans and Democrats can support, that achieves the President's principles for Medicare legislation, and that begins to bring relief to seniors next year.

IMMEDIATE STEPS TOWARD IMPROVED BENEFITS AS PART OF MEDICARE LEGISLATION

The President recognizes that, under all Democratic and Republican proposals, it will take several years to implement the comprehensive improvements that Medicare needs. He also strongly believes that seniors have already waited too long for action to update their Medicare benefits, and that they need assistance now. Therefore the President's Budget also proposes urgently needed steps that should be incorporated into Medicare legislation: Medicare-endorsed prescription drug cards, transitional low-income drug assistance, more affordable Medigap options, and immediate steps to help make sure that seniors who prefer private health insurance coverage through the Medicare+Choice program in Medicare can continue to get it. These changes will both pave the way for a modernized Medicare program, and provide immediate relief including drug coverage for millions of Medicare beneficiaries before the full drug benefit can be implemented at least three years from now.

Medicare-Endorsed Prescription Drug Cards

About 9 million Medicare beneficiaries have no prescription drug coverage at all. About thirty-five percent of these beneficiaries had incomes below 150 percent of poverty, or an annual income of about $18,000 for a family of two. These Medicare beneficiaries and the uninsured are just about the only people in America today that commonly have to pay full price for prescription drugs. Last year, the Administration took the first important step to provide price relief for seniors who need it when it proposed the creation of a new Medicare-endorsed drug card program. The drug card is not a drug benefit and it is not a substitute for one. It is, however, an important first step toward helping seniors afford the drugs they need today, and in helping them receive other valuable pharmacy services.

The Medicare-endorsed drug card is a pooling mechanism modeled on private health insurance programs, where consumers routinely benefit from discounts of 10 to 35 percent. Private insurers, with their large numbers of customers, use their market power to secure significant rebates and discounts from manufacturers. This is exactly the kind of pooling envisioned as a source of lower drug prices in both Democratic and Republican drug benefit proposals. Under the President's proposal, Medicare would endorse private drug cards that met minimum standards, including a requirement of securing manufacturer discounts, allowing seniors to get the information they need to find the card that provides the best manufacturer discounts and other valuable pharmacy services for their needs. These third-party plans will negotiate discounts and rebates directly from drug manufacturers and pass the savings on to Medicare beneficiaries who choose to participate.

As we continue to work to implement the drug card program, the private sector has already responded. The recently-announced discount cards developed by McKesson, the National Association of Chain Drug Stores, drug manufacturers, and other private organizations provide opportunities to make manufacturer discounts more widely available to seniors, especially those with low incomes. We applaud these private market approaches. They can provide significant help for seniors now and for keeping down the costs of a Medicare drug benefit in the future. Conversely, as the Kaiser Foundation and others have shown, some existing cards provide small if any actual discounts, and it can be very difficult for experts - let alone seniors - to compare cards and identify the program that is best for them. By helping seniors pool together and choose among cards that would have to compete directly on manufacturer discounts and high-quality pharmacy services, the Medicare-endorsed card program could give all seniors access to 15 percent savings on drugs - and, through innovative new programs like the McKesson TogetherRx Card, seniors with modest incomes could get savings of 20 to 40 percent, according to card sponsors.

The drug card has another important aspect: experience. As AARP and other senior advocates have noted, seniors, drug benefit managers, and the Medicare program would all get valuable experience with implementing a choice-based drug benefit. This will be a significant advantage as CMS moves to implement a comprehensive Medicare prescription drug benefit, since all major Democratic and Republican proposals envision a competitive approach like this to providing drug coverage. And as I will describe in more detail next, the Medicare-endorsed drug cards can provide the infrastructure needed for rapid expansion of low- income assistance and other prescription benefit assistance.

Transitional Medicare Low-Income Drug Assistance Program

After many years without Congressional action to implement a Medicare prescription drug benefit, states have acted themselves to assist seniors with the greatest needs. The lowest-income seniors have received prescription drug coverage under the Medicaid program. In addition, 30 states have set up additional prescription drug assistance programs for seniors, and more states are considering such programs. Yet millions of lower- income seniors still get no help. The President believes that comprehensive Medicare legislation should take advantage of existing state infrastructure to identify and provide assistance to low-income seniors right away, and to support the integration of existing state low-income programs into the new Medicare drug benefit, by helping states provide transitional drug coverage for low-income seniors as part of comprehensive Medicare legislation.

The Administration has proposed to provide immediate support for comprehensive drug coverage for Medicare beneficiaries up to 150% of poverty - about $18,000 for a family of two. This proposal, called the Transitional Medicare Low-Income Drug Assistance Program, would use the existing administrative structure operated by the states to identify and assist low-income seniors, and would also encourage states to use the new Medicare drug card infrastructure or similar competitive approaches to provide expanded low-income assistance. For Medicare beneficiaries up to 100% of poverty, the program would provide new Federal matching funds at the Medicaid matching rate for expansions of drug coverage. As an added incentive for States to expand coverage up to 150% percent of poverty, Medicare would pay 90% of the States' cost of drug-only coverage expansion above 100% of poverty, leaving states responsible for covering the remaining 10%. This proposal is projected to expand drug coverage for up to 3 million beneficiaries who currently do not have prescription drug assistance. It would be fully integrated with the Medicare drug benefit once the reform Medicare program is implemented, as envisioned in all major Medicare drug benefit proposals.

The Administration is ready to work with Congress to implement transitional low-income assistance effectively, considering both the short-term goal to expand drug coverage and the long-term goal of getting all beneficiaries into the Medicare drug benefit as quickly as possible. For example, using the transitional Federal funding, states could contract with one or more Medicare- endorsed drug cards to identify low-income residents and provide additional prescription drug assistance beyond manufacturer discounts for them. The drug cards also provide a convenient mechanism for keeping track of out-of-pocket expenses, so that states can work with the drug card administrators to provide assistance with catastrophic expenses for medically needy individuals. When the Medicare benefit is set up, the drug card providers would have a clearer idea about the utilization habits and profiles of their beneficiaries, so they would not have to start from scratch in setting up efficient universal drug benefit programs. Low-income populations would even have a head start on getting a competitive, privately-provided drug benefit through a Medicare drug assistance infrastructure.

In addition, to make expanded drug coverage immediately available even before the enactment of the Transitional Low-Income Drug Assistance Program, states can immediately participate in a model drug waiver program called Pharmacy Plus that can cover Medicare beneficiaries up to 200% of poverty. In Illinois, for example, 368,000 additional low-income Medicare beneficiaries, up to 200% of poverty, will receive drug coverage under the waiver we approved last month. These waivers must be budget neutral to the federal government. A principal mechanism that states can use to provide this expanded coverage in a budget-neutral way is the adoption of private-sector drug benefit management tools. States like Nevada are already applying such tools to provide mainstream private drug benefits for lower-income seniors. The savings generated from these tools in states' existing populations can be used to finance additional drug coverage.

Reliable, Affordable Health Insurance Coverage Options In Medicare

As I have already noted, the President believes that a critical issue for modernizing Medicare is to replace the failing Medicare+Choice system for paying private plans with a fair payment system that gives beneficiaries the innovative coverage options they deserve - options that have long been available to millions of Americans under 65 and all Federal workers. After years of inadequate payment updates, action is needed now to ensure that the valuable and innovative benefits offered by Medicare+Choice plans remain available to Medicare beneficiaries. Since the Medicare+Choice payment system was implemented in 1998, hundreds of private plans have left the program or reduced their service areas and benefits, adversely affecting coverage for millions of beneficiaries - reversing what had been an upward trend in private plan availability, benefits, and enrollment.

The benefits offered by the plans that remain still provide a better deal for many seniors than fee-for-service Medicare plus an increasingly costly Medigap policy. But the remaining valuable benefits provided by private plans are threatened, and the trend away from the availability of affordable and innovative benefits in Medicare has made millions of seniors worse off. Without immediate corrective legislation this situation will only get worse - just at the time when rapid advances in care will make it even more important for seniors to have these options. Indeed, based on the latest projections of the Congressional Budget Office, enrollment in Medicare+Choice will fall by more than a million over the next 10 years as a result of inadequate payment updates. 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.

We seek to address these problems both through legislation and administrative action. For example, the Department of Health and Human Services just announced a demonstration project to expand health plan options in Medicare + Choice. Preferred Provider Organizations (PPOs) have been successful in non-Medicare markets and CMS is conducting the demonstration to test ways to provide more health plan options to people with Medicare. We hope to award demonstrations later this year in up to 12 geographic areas that will be available to enroll beneficiaries during the Fall open enrollment period and begin to serve enrollees next January. This demonstration program will test changes in methods of payment for Medicare services that may be more efficient and cost effective while improving the quality of services available to beneficiaries. The demonstration plans will be considered Medicare+Choice (M+C) plans and must offer all of Medicare's required benefits, but will also have the flexibility to offer greater access to drug benefits.

The President's budget also proposes to take urgently needed transitional steps toward the equitable payment system for private plans proposed in the President's framework for strengthening Medicare. These proposals would modify the Medicare+Choice payment formula to better reflect actual healthcare cost increases, allocate additional resources in 2003 to counties that have received only minimum updates, and provide incentive payments for new types of plans to participate in Medicare+Choice, including PPOs. Together these augmented payments would address the problem of persistently low payment updates to most Medicare+Choice plans, making more plan choices available and improving benefits for millions of seniors. Because these proposals would allow many plans to provide or at least maintain drug coverage in their benefit package, they also provide another means of giving seniors prompt help with their drug costs.

New Medigap Options

Because of the major gaps in the benefit package in the fee-for- service program, supplemental coverage - often called Medigap - is an essential part of Medicare coverage for millions of our nation's elderly and disabled. The Administration shares the concerns some have expressed regarding the rapid increases in Medigap premiums in recent years: most seniors now pay much more for Medigap than they pay in Medicare premiums. We also agree with the leaders on this Committee that we can better design both Medicare and Medigap so that seniors and people with disabilities can get more affordable coverage, and get the most for the health care dollars they spend. Clearly the existing set of options, which require beneficiaries to purchase "first-dollar"coverage for hospitalizations and even basic services like doctor's visits before they can obtain any drug coverage, has become outdated.

To improve beneficiaries' Medigap options during the several years it will take to make a better benefit package with prescription drug coverage available, we have also proposed that two new affordable Medigap plans be added to improve beneficiaries' options quickly. They would substantially reduce cost-sharing for beneficiaries and provide much better protection against high costs. And they would increase the number of seniors with drug coverage. If we provide a one-time opt-in for current beneficiaries, we estimate that up to one and a half million beneficiaries would choose these new policies once they are available - and that nearly half of these enrollees would be beneficiaries who do not have drug coverage now. Moreover, we can achieve this significant increase in drug coverage among seniors right away, not several years down the road, while saving money for beneficiaries and the Medicare program. Of course, as the President has made clear, seniors should be able to keep their existing Medigap coverage with no changes if they prefer it.

CONCLUSION

We are committed to working constructively with Congress to enact legislation consistent with the President's principles - so that we can get started on putting a prescription drug benefit into place this year. We all know that failing to act to meet these unavoidable challenges may lead to more extreme changes later, including government controls on prescription drugs and stricter coverage limits in Medicare. These changes would reduce access to needed treatments and slow the development of new technologies, such as promising new drugs for common cancers and other diseases. Instead, we must come together now to take the sound, careful, and deliberate steps needed to improve the Medicare program for today's seniors and tomorrow's. And we must take action now. These issues have been debated for years. Seniors cannot afford to wait any longer. Including the transitional steps that the President has suggested would begin to provide relief as soon as later this year - not off in the future. Millions of Medicare beneficiaries could get drug coverage, and all beneficiaries could benefit from lower drug prices and spending, well before the full prescription drug benefit is implemented.

Finally, we must take action that preserves Medicare's promise for the future. Medicare's promise should enable seniors today and tomorrow to benefit from the tremendous potential of our health care system. Through private-sector innovation and flexibility to adopt new technologies, our health care system leads the world in giving patients access to medical treatments that improve their lives. Through action now to update Medicare's benefits and to keep them financially secure, the promise of secure health care coverage that President Johnson made thirty- seven years ago can be renewed for seniors and persons with disabilities in the twenty-first century. I thank you for the opportunity to discuss this very important topic with you today, and I look forward to answering your questions.



LOAD-DATE: April 22, 2002