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Cost major hurdle to Medicare Rx benefit

Lawmakers' competing funding priorities make coverage of a Medicare prescription drug benefit challenging.

By Jane Cys, AMNews staff. March 5, 2001. Additional information

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Washington -- Figuring out how to pay for a pricey Medicare outpatient prescription drug benefit is once again shaping up to be a key sticking point in the ongoing congressional debate over how to add such coverage to the 36-year-old program.

Lawmakers at Senate and House hearings in February eyed several funding possibilities, including tapping into the projected $5.6 trillion surplus, achieving administrative savings via structural Medicare reform, and establishing co-payments and premiums paid by seniors.

Although no funding consensus emerged from the committee meetings, it did become clear that competing funding priorities and widely divergent political philosophies will make it difficult for lawmakers and the president to forge an agreement.

Democrats, for example, charged that President Bush's proposed $1.6 trillion tax cut leaves little money to accomplish big-ticket projects. They argue a smaller tax cut would leave enough money to fund such reforms as a Medicare drug benefit.

Republicans generally favor enacting drug coverage along with a comprehensive structural reform of the program that will inject more competition into Medicare in an effort to achieve cost savings.

Many physicians have been following Congress' Medicare drug debate because of worries that elderly patients can't afford all their prescriptions. Doctors also remain concerned about the effect that adding a drug benefit would have on Medicare's long-term financial solvency.

Estimates for the key drug benefit proposals debated in Congress' previous session ranged from about $150 billion to $350 billion for the first 10 years. Baseline Medicare spending would increase between 7% and 14% once the benefit was fully implemented in the 10th year.

But some policy experts say those cost estimates could miss the mark and that beneficiaries, once they had a drug benefit, would begin demanding richer coverage.

"Our history of being able to estimate the costs of major new benefits is not promising," said Gail Wilensky, PhD, chair of the Medicare Payment Advisory Commission. As an example, she noted that cost estimates of the Medicare prescription drug benefit that Congress passed and later repealed in the 1980s rose by a factor of 21/2 from the time it was proposed until it was eliminated.

Robert Reischauer, president of the Urban Institute, said last year's drug coverage proposals generally offered benefits packages that were skimpy compared with those of the private sector.

"As soon as one of these plans was enacted, pressure would begin to mount to liberalize the benefit and make it more like the ones enjoyed by workers," he said.

Some lawmakers argue that Congress first must tackle the factors causing double-digit increases in prescription drug prices before drug coverage is added to Medicare, a program already considered financially shaky.

Rep. John Shadegg (R, Ariz.) pointed out that the growth of direct-to-consumer drug advertising and the resulting patient demand is one area that needs careful evaluation.

"I've talked to a lot of doctors back in Arizona who tell me patients are watching television and coming in and demanding a drug," Shadegg said. "The doctor then has to talk them out of that drug."

Others voiced concerns that utilization -- and the cost of the benefit -- would increase simply because the government decided to offer drug coverage. As House Majority Leader Richard Armey (R, Texas) put it: "When you got the coverage, you use far more than you need."

Lawmakers plan to weigh all these issues as they consider various drug proposals this year.

Among the first proposals presented to them -- and one that hasn't garnered much support -- is Bush's plan to immediately help seniors with their drug bills by infusing $48 billion into state assistance programs. This is an interim step that could be taken until Congress can work out structural Medicare reform, Bush has said.

Sens. John Breaux (D, La.) and Bill Frist, MD (R, Tenn.), also reintroduced two bills in February that propose differing levels of structural Medicare reform and the addition of a prescription drug benefit.

Despite ongoing concerns about drug benefit funding, some common themes run through many of the Medicare prescription coverage proposals, as was pointed out at an Institute for Policy Innovation conference in February.

For example, most lawmakers and policymakers agree that low-income seniors need government subsidies to help them pay for the drugs and any drug insurance premiums, said Len Nichols, PhD, a principal research associate with the Urban Institute. Lawmakers also agree that some type of catastrophic drug coverage should be offered, although they disagree on the exact amount of that coverage.

The AMA, several health provider groups and some lawmakers also prefer adding a Medicare drug benefit along with comprehensive reform of the program -- although they have different ideas on the best way to restructure the program.

"If we focus on prescription drugs and don't get to the other restructuring issues, we're going to have some unintended consequences in terms of the program that is not stable financially over the long term," said Richard Deem, AMA vice president of government affairs, at the Institute for Policy Innovation conference.

One of the reforms the AMA supports is restructuring Medicare Part A and B cost-sharing and deductible requirements so they are more in line with private-sector plans and discourage patients from buying supplemental coverage. Seniors often view that additional coverage, known as medigap, as essentially "free" so they use more services than they need.

"A lot of people could actually save money compared to what they were purchasing for supplemental policies," Deem said.

Any drug benefit that is approved for Medicare would need to ensure that physicians have input into the design of Medicare's drug formulary, Deem said.

That formulary also needs to include a process that gives physicians and patients a chance to access drugs that may not be on the formulary, he said.

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 ADDITIONAL INFORMATION: 

Who pays for prescription drugs

Almost two-thirds of Medicare beneficiaries get their drugs paid for by some form of insurance -- a factor lawmakers are considering when trying to design a drug benefit. Here's a breakdown of Medicare beneficiaries' drug coverage sources:

Employer: 24%
Medicare+Choice HMO: 17%
Medicaid: 12%
Medigap: 8%
Other: 5%
None: 34%

Source: Henry J. Kaiser Family Foundation, 2000

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Copyright 2001 American Medical Association. All rights reserved.

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