By Howard Gleckman
Creating a prescription drug benefit for seniors is about to become Washington's Next Big Thing. President Bush wants to do it. Conservative Republicans back the idea. So do liberal Democrats. And Congress has put aside $300 billion over the next decade to pay for one.
But so far, lawmakers are at an impasse, and negotiations on a draft plan are stalled in the Senate Finance Committee. No one can agree on how big a benefit to offer, what the premiums should be, or whether to tie a drug program to reform of Medicare, the federal health insurance program for seniors.
Why is this so hard? More than 90% of workers already get drug coverage through their employers, but the price tag for such plans is too high for Congress to simply copy the best of them. In just 25 years, Medicare is expected to absorb nearly one-quarter of the federal budget and 4.3% of gross domestic product--nearly twice today's level. Add Social Security and the Medicaid health program for the poor, and every dollar of anticipated government funds will go to retirees, leaving other federal programs nothing. A drug benefit will cost hundreds of billions of dollars more.
TRADE-OFFS. Then there's the issue of who should get benefits. All seniors, or only the poorest? Those with high-cost catastrophic illnesses? Or perhaps seniors with chronic diseases such as diabetes? Even $300 billion won't fund it all. "Are we going to have to do some trade-offs? You betcha," says AARP chief health lobbyist Patricia Smith.
Congress should start by offering coverage to all seniors, not just the poor. It should be tied to broad reform of Medicare that would rely more on private insurers and competition. And reforms should spread the rising costs among insurers, drugmakers, taxpayers, and, yes, seniors. Forcing government to carry the weight will bankrupt the program.
Reform is essential. Medicare has failed to keep up with dramatic changes in both medicine and insurance since its creation in 1965. Most private policies steer patients to managed care, thus limiting their choices of doctors and hospitals. But they also cover drugs, focus on preventive care, and protect against catastrophic illness by capping policyholders' out-of-pocket expenses. By contrast, Medicare lets patients pick their own doctors, but offers no drug benefit, is slow to cover preventive screenings such as mammograms, and provides little insurance against such high-cost illnesses as cancer. Says White House economist Mark McClellan: "Everybody is expecting to spend more for health care for seniors. The question is, are we really going to modernize the program?"
Because Medicare benefits are so spotty, about two-thirds of seniors have extra insurance. Some are covered by ex-employers. Others buy supplemental insurance, known as Medigap, or are enrolled in Medicare managed-care programs. The poorest seniors are eligible for Medicaid, and others participate in state programs.
But some types of coverage may prove unreliable in the long run. In 1994, about 40% of big employers offered retiree health benefits. In 2000, only 24% did. The cost of a Medigap policy has ballooned to $100 a month or more. A drug benefit adds another 20%. And HMOs? Dozens have abandoned the Medicare market. Others are slashing drug benefits. "Sixty percent of beneficiaries have no coverage or crappy coverage," says Urban Institute senior fellow Marilyn Moon.
Insurance is drying up just as medicine is relying more on drugs. In the U.S., drug spending rose 19%, to $132 billion, in 2000, according to the National Institute for Health Care Management. For seniors, the yearly tab nears $1,000.
But adding a drug benefit alone--without making it part of broad Medicare reform--won't solve the problem. A key element should be more reliance on private insurers, who can cut costs by negotiating lower prices from manufacturers. "Competition works," insists Alan F. Holmer, president of the Pharmaceutical Research & Manufacturers of America, a drug lobby.
LET SENIORS DECIDE. The best way to see if he is right: Add a drug benefit to traditional Medicare. And let insurers build the most cost-effective plans they can. Then let seniors pick among the offerings. If managed care fulfills its promise of better and cheaper care, it will offer lower rates or greater benefits. If not, seniors can stick to their old plans.
No drug plan will work if out-of-pocket costs are too high. Lawmakers believe that the elderly will decline a benefit if monthly premiums top $25. One way to keep costs low is to cover as many people as possible. All seniors should be eligible--and be pushed to sign up as soon as they join Medicare. Otherwise, they won't buy coverage until they are sick, and costs will skyrocket. Of course, healthy seniors will demand attractive benefits. That means protection against big out-of-pocket costs. Still, all but the poorest should pay the first $250 or so before insurance kicks in.
Any plan is going to be costly, but it could offer valuable trade-offs. The elderly will have to pick up a greater share of their health costs, but they should also get better care. Drug companies and insurers can expect to see their margins slip, but they'll have a bigger market to compete in. Taxpayers will pay more, but costs may be kept under control. Jeff Lemieux, a senior economist at the Progressive Policy Institute, calls it all "a major leap of faith." Everyone agrees on the need. It's time now to work out the details. Gleckman covers economic issues from Washington.