01-20-2001

HEALTH: Prescription Drug Bill May Be a Quick Remedy

George W. Bush will need lots of luck, Democratic cooperation, and
economic prosperity to achieve three of his major campaign promises:
reforming Social Security, strengthening Medicare financing, and providing
prescription drug benefits to the elderly.


The new President's difficulties in addressing these issues could be
compounded by the conflicting financial demands of his No. 1 domestic
priority-providing at least $1.6 trillion over 10 years in tax cuts-and by
the possibility of diminishing budget surpluses. As a result, there may be
more talk than action on Capitol Hill on the big-ticket Social Security
and Medicare programs. A prescription drug plan is likely to take the
spotlight as a politically popular and less costly way to deliver on a
campaign pledge that Bush shared with many Democrats and Republicans in
Congress, although deep disagreements remain about how to structure such a
benefit.


Bush and some Republican leaders in Congress have suggested that special
commissions be appointed to explore solutions to the long-term financial
difficulties of Medicare and Social Security. Such commissions would
prompt much discussion and would probably lead to some preliminary
proposals on Capitol Hill, but legislative action seems unlikely this
year. The two parties are far apart on how to restructure either program,
and translating an independent panel's proposals into legislation would
require a lengthy round of hearings and deal-making that would no doubt
drag the process into 2002.


"A commission [on Social Security] is likely, and probably there will
be no specific proposal until the commission completes its work,"
said John Rother, policy chief of AARP, the giant organization for
seniors. "Any reform plan will be based on trade-offs of risk and
costs, and it would be a mistake to move until the public understands
these issues. And there is no compelling reason to do it soon, because in
the short term, the program is in good shape." According to current
estimates, Social Security will have enough funds to pay all benefits
until 2037.


Bush and many Republican lawmakers want to allow workers to invest part of
their Social Security payroll taxes in private stocks and bonds.
Supporters of this partial-privatization approach say it would produce
higher returns and larger retirement nest eggs than the current system can
generate.


Most congressional Democrats and organized labor, however, detest this
proposal, because they believe it would subject Americans' basic
retirement protection to unacceptable risk and force benefit cuts in the
traditional program. They also fear that partial privatization would
undermine the extra assistance provided to lower-income retirees and would
siphon off money needed to help pay benefits to those who have already
retired under the current system. "We consider Social Security our
program," said one Democratic aide, "and we're not going to let
them do this."


If legislation partially privatizing Social Security hits the Senate
floor, Democrats are expected to employ the chamber's rules that make it
difficult to pass controversial legislation without the 60 votes needed to
kill a filibuster. Following the retirements of Sens. Bob Kerrey, D-Neb.,
and Daniel Patrick Moynihan, D-N.Y., virtually all of the 50 Senate
Democrats-except Sen. John Breaux, D-La., and possibly one or two
others-oppose privatization, sources say.


Congressional Democrats might accept adding private-investment accounts on
top of Social Security-as Al Gore proposed during his presidential
campaign-which would perhaps include federal contributions from the budget
surplus. But Democrats do not support paying for such accounts with funds
carved out of the current Social Security tax. Likewise, Rother said that
AARP supports individual private-savings accounts for retirement that
would be added to, not carved out of, the traditional Social Security
program.


At bottom, Democrats tend to favor making a legislative commitment now to
use general revenues to help fund Social Security in the future, when its
costs will exceed its reserves after the huge generation of baby boomers
retires from 2010-30. Whether any version of a government-sponsored
private-investment plan can pass may depend on whether the economic
slowdown and stock market swoon of recent months deepens, and whether
currently projected budget surpluses fade.


Meanwhile, Medicare's hospital insurance trust fund, which is financed by
the Medicare portion of the Social Security payroll tax, is projected to
run out of money sooner, by 2025. In addition, costs for Medicare's Part B
program, which pays doctors' bills and is financed by general revenues and
retirees' premiums, are expected to grow dramatically as baby boomers
age.


A proposal sponsored by Breaux and Sen. Bill Frist, R-Tenn., and favored
by many Republicans would give all Medicare patients the chance either to
enroll in competitive private health care plans or to continue in the
traditional fee-for-service program with a prescription drug option that
would be offered by private insurers. The government would pay 88 percent
of the national weighted-average premium charged by the plans. The theory
is that competition among such plans would foster efficiency of services
and help hold Medicare costs down.


The Breaux-Frist proposal was based on a report by the 17-member National
Bipartisan Commission on the Future of Medicare, created by Congress in
1997. Bush has said his legislative proposals will have the same general
structure, but he has still suggested another Medicare commission to work
out the details.


Many Democrats and policy analysts contend that recent experience with
existing Medicare HMOs-some of which have been pulling out of the federal
program because, they say, they can't make enough money-suggests that the
Breaux-Frist plan could shift large premium increases to seniors who are
unable to pay for them.


The Urban Institute's Marilyn Moon, a health care policy specialist who
has been a public trustee of the Medicare system, said at a Jan. 2 seminar
that some beneficiaries are already paying a very large proportion of
their incomes to cover out-of-pocket health costs, and that these seniors
can ill afford increases in either premiums or out-of-pocket
costs.


But former Medicare Administrator Gail R. Wilensky noted in an interview
that Bush has said he would include a catastrophic-cost protection plan in
his proposal. Such a provision would require Medicare to pick up a
beneficiary's covered medical costs that exceed $6,000 in annual
out-of-pocket expenses. She said this catastrophic protection plan would
mitigate concerns about the excessive financial burdens that elderly
patients face.


Rother said he feared some proposals could "shift some of the costs
to the beneficiaries-we're worried about that." He said that instead
of "one big fix" to solve Medicare's serious financing problems,
it might be better to work "one step at a time" and keep the
program in a state of constant refinement, because "no one has a
perfect answer so far" to Medicare's cost problems.


In that vein, optimism exists that prescription drug benefits could be
added to Medicare this year, even if there are no other structural reforms
to the program. During the 2000 legislative session and in their election
campaigns, members of both parties supported proposals for prescription
drug benefits. Adding these benefits, moreover, would be less expensive
and politically easier than a major overhaul of Medicare.


Bush promised during his campaign to support a $12 billion-a-year program
that would help the states pay for prescription drugs for low-income
seniors. Last year, the House approved Republican legislation offering
prescription drug benefits through private insurers, although Democrats
wanted the program to be incorporated directly into the Medicare system. A
compromise might be reached this year that would at least provide benefits
for low- and modest-income seniors. "There will certainly be a big
push to do it," Wilensky said.


Another holdover issue very likely to receive attention this year is
patients' rights legislation, which is designed to protect people against
unwarranted service denials by their health care plans. In 1999, the House
passed a far-reaching patients' rights bill-sponsored by Reps. Charlie
Norwood, R-Ga., John D. Dingell, D-Mich., and Greg Ganske, R-Iowa-over the
objections of GOP leaders and largely with Democratic votes. But that bill
died in conference committee with a less-stringent Senate bill sponsored
by Senate Republican Whip Don Nickles of Oklahoma.


The House-passed bill guaranteed a patient's rights to see specialists,
obtain complete information about treatment options, and appeal denials of
care to an impartial group. The most controversial provision allowed
patients to sue in state courts and to receive compensatory and punitive
damages if an HMO's misconduct resulted in death or serious
injury.


Massive opposition from health care plans, particularly HMOs, and from
employers who feared unwarranted lawsuits, red tape, and cost increases,
played a key role in the bill's defeat. But John Stone, a Norwood
spokesman, said the coalition that pushed the measure through the House in
1999 is intact and ready to go again this year.


Texas already has a somewhat similar law, and Bush has indicated he favors
some kind of action. "I don't think they're going to get [the]
Norwood-Dingell [bill] as originally crafted," Wilensky said.
"Among other things, Bush is concerned not to undo what the states
have done."


Separately, tax legislation may become the vehicle for providing
incentives to purchase health and long-term- care insurance, as well as
for enacting popular reforms to expand retirement savings, several of
which are left over from the 2000 sessions. The proposals include raising
the maximum annual tax-deferred contributions to IRA plans from $2,000 to
$5,000 over the next several years, and raising maximum tax-deferred
401(k), 403B, and 457 contributions from $10,500 to $15,000.


Spencer Rich

National Journal