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02/04/99 THU 19:34 FAX 202 6222633
5
001
Office of Economic Policy
Department of the Treasury
Washington, D.C. 20220
FAX
Date: 2/4/99
Number of pages including cover sheet: 21
Name
Fax Number
Phone Number
To: Jeanne Lambrew
456-7431
456-5377
Chris Jennings
456-5557
456-5360
From: Mark McClellan
202-622-2633
202-622-0563
Remarks: URGENT For your review Reply ASAP Please comment
THU
19:34
FAX
202
6222633
002
Background on Prescription Drug Issues
Prescription drugs account for 6.6% of health care expenditures for the elderly, but drug
treatment is one of the most rapid areas of technological change. Most new drugs today are the
result of advances in many branches of molecular biology, including new insights into the
molecular mechanisms of disease processes, and the capacity to modify precisely existing agents
in a therapeutic class (e.g., to influence side effects or ease of use). If anything, most experts
expect the rate of innovation in drug agents to increase, so that the recent rapid spending growth
on drugs (8% per year) is likely to continue or even accelcrate - even as a growing number of
existing drugs come off patent and see their prices fall.
This brief focuses on three issues related to adding a drug benefit to Medicare:
(1) Drug Benefits in Medicare: What drug benefits are currently used by Medicare beneficiaries,
how are they structured, and how might a Medicare benefit be structured?
(2) Drug Spending and "Crowdout" of Private Plans: What are drug expenditures for Medicare
beneficiaries and their distribution between the private and public sectors, and how much might a
Medicare drug benefit "buy out the base" as well as induce additional utilization?
(3) Controlling Drug Costs through Benefits Management: How are drug benefits managed in
the private sector, and how might these models be adopted for a Medicare drug benefit?
1
1/88 THU 18:20 FAA 202 0222033
003
1. Drug Benefit Structure
Drug Benefits for Medicare Beneficiaries Today
Source
Share
Coverage
Medicaid
13%
Nominal copayments and few coverage limits, but
formularies often restrict coverage and use of costly brand
drugs.
Medicare HMO
6%
Mostly "front-end" benefit: low copayments, but total
benefit capped (most commonly at $1,000) in over 60% of
plans, and such limits are becoming more common.
Generally use benefits management (see below) to limit drug
costs.
Medigap
10%
Mostly "front-end," limited benefit: the standardized
Medigap plans require $250 deductible, 50% coinsurance,
cap benefits at either $1,250 or $3,000 per year. Due to
adverse selection, the drug benefit in Medigap adds $1,000
or more to the premium, so these plans provide only limited
insurance. However, they can help seniors buy drugs at
lower negotiated costs.
Employer-provided
29%
Vary in generosity, but most apparently provide coverage
Supplemental
similar to that for privately-insured workers, which is
Insurance (ESI)
relatively generous by Medicare standards (no coverage
limits, small or moderate copayments).
Combination
7%
Changed source of coverage during the year.
No Coverage
35%
The beneficiary shares above are for drug coverage of different types in 1995. Since then,
the number of beneficiaries enrolling in HMOs, which have mostly offered limited drug benefits,
has doubled. However, an increasing share of HMOs are reducing the generosity of their drug
benefit, increasing beneficiary premiums, or dropping the drug benefit. The share of
beneficiaries covered by supplemental policies from former employers that include prescription
drugs is also declining, and beneficiary payments for the coverage that is offered are rising.
Finally, the stability of the Medigap market is open to question, as the price of plans that offer
drug benefits has continued to rise. In sum, even those who now have coverage that might be
similar to what Medicare would offer would gain financial and benefit security from
The following two moderate drug options illustrate the kinds of benefit packages that
Medicare might offer:
2
02/04/99 THU 19:35 FAX 202 6222633
004
Capped option: For example, this plan might include a $250 deductible (or with drugs counting
toward the overall deductible), "standard" copays (e.g., $7 for a generic and $15 or 20% for an
on-patent prescription), a $1,000-$1,250 limit on benefits, and premiums covering 50% of costs.
HCFA actuaries expect that all beneficiaries would take it up, and that it might cost on the order
of $40B over 5 years.
Pros: Would be preferred by most beneficiaries, who do not have nor expect very high
prescription drug expenditures.
Cons: No catastrophic protection for those with the highest drug costs.
Catastrophic option: High deductible but low out-of-pocket payments thereafter; 50% premium.
The deductible would have to be very high to limit program costs - - well over $1,000. (Estimates
by the HCFA actuaries suggest that such a catastrophic benefit with a $1,000 deductible but no
further cost sharing might cost 50% more - - or nearly $60 billion over 5 years)
Pros: Provides relief for those facing the greatest burden of prescription drug costs.
Cons: Would benefit far fewer beneficiaries. Since high drug expenditures are generally
associated with chronic disease and are therefore predictable, probably would not be taken up by
most beneficiaries, leading to adverse selection that could worsen the budgetary implications.
2. Distribution of Drug Expenditures and Potential for Crowd-Out
Expenditures for drugs by Medicare beneficiaries in 1995 totaled $22 billion. The first
column of the Table below summarizes the distribution of this spending. Roughly one-fourth
($5.5 billion) was paid out-of-pocket by those with no drug coverage, one-fourth was paid out-of-
pocket by those with drug coverage (both individually-purchased and employer-provided
Medigap), and one-half ($11 billion) was paid by insurers. Of this $11 billion, one-half was
ultimately paid by government sources (primarily through Medicaid and the tax expenditure on
employer-provided health insurance), with the rest coming from premiums paid by beneficiaries
($3 billion) and employers ($2.5 billion).
The second column presents a comparable estimate of what drug expenditures might have
been if a capped Medicare benefit like that described in Section 1 had existed in 1995. HCFA
actuaries have indicated that such a benefit would be taken up by essentially all beneficiaries (due
to the 50% subsidy), would have an actuarial value of approximately $200 (the 50% of the
premium paid by the government), and thus would have started out costing the program about
$6.0 billion. (Both columns could be scaled up proportionally to generate more current
estimates.) The column illustrates the likely implications of such a universal benefit: how much
of the $6.0 billion is likely to crowd out private employer spending, to offset beneficiary out-of-
pocket spending, and to represent new spending on drugs?
3
02/04/99 THU 19:36 FAX 202 6222633
005
Approximate Annual Payments for Drugs by Source (1995 SBillions)
Current Distribution
Capped Drug Benefit
Medicaid (Federal + State)
2.6
2.6
Medicare HMO / Other Programs
1.0
1.0
Tax Expenditure on Employer-Provided Ins.
1.9
1.2
Medicare Drug Benefit
6.0
Total Government
5.5
10.8
Beneficiary Out-of-Pocket Costs
Had Drug Coverage
5.5
5.0
Had No Drug Coverage
5.5
2.0
Beneficiary Premium Contributions
Had Employer-Provided Insurance
1.0
1.0
Had Medigap / Switched
2.0
1.0
Had No Coverage
0
2.5
Total Beneficiary
14.0
11.5
Employer Premium Contributions
2.5
1.2
Total Employer
2.5
1.2
Total Drug Expenditures
22.0
23.5
These key points of the Table include:
The first key point is that the incremental cost to the government of adding this drug
benefit to Medicare ($5.0 billion) is less than the increase in Medicare expenditures ($6.0
billion). Though the program would provide some coverage that beneficiaries now get
through former employers, it would simultaneously reduce the tax subsidy for this
employer-provided coverage ($0.7B). It would also reduce drug expenditures now paid by
other federal and state health programs ($0.3B).
Second, even under generous assumptions, the share of the additional government
spending that "crowds out" private insurance is modest. Maximum crowd-out of existing
private coverage would occur if all former employers who offer drug benefits changed
their benefit to "wrap around" the new Medicare benefit, e.g. by buying the Medicare
4
02/04/99 THU 19:36 FAX 202 6222633
006
benefit for their employees and possibly offering additional coverage beyond it.' In this
case, the employer costs that would bc shifted to Medicare are about $1.3 billion - - only
around 1/5 of the total and 1/4 of the incremental program cost. Actual crowd-out might
be smaller, if some employers do not wrap around the Medicare benefit. Moreover, even
the crowded-out employer drug payments are likely to be redirected to other forms of
employee compensation.
Most of the additional Medicare spending would offset current out-of-pocket payments
by beneficiaries and pay for additional drug usage. While financing out-of-pocket
payments by beneficiaries that would have occurred anyway might also be viewed as
"crowd-out," it is worth remembering that a principal goal of this policy is to increase
beneficiary financial security by reducing their out-of-pocket drug outlays through a
reliable source of coverage.
The "winners" from this standpoint include beneficiaries without any coverage now, who
would save around $1 billion per year in out-of-pocket costs (net of premium payments)
and who would probably consume more drugs because of the reductions in aggregate and
per-unit out-of-pocket costs. (An increase in drug utilization on the order of $1.5 billion,
or 7% of total spending, might be expected; this would be concentrated among those who
currently lack drug coverage, and reflects the assumption that half of the difference in
their per capita utilization is due to lack of insurance, with the rest due to selection.)
The policy would also provide transfers of $1.5 billion to those with Medigap coverage
now, who would start receiving both a 50% premium subsidy and somewhat more
generous coverage (lowering their out-of-pocket costs).
Spending for HMO beneficiaries who already have a drug benefit would probably not be
much affected. Those who are enrolled in risk HMOs that offer prescription drug benefits
might face modest reductions in out-of-pocket premiums and increases in coverage (if
their current HMO benefit is more limited than the new benefit). Many HMOs do not
charge significant beneficiary premiums (beyond what they receive from Medicare) for a
drug benefit similar to the capped benefit option. They may continue offering these
benefits rather than have their enrollees receive drug coverage outside the HMO. If they
dropped coverage, these beneficiaries would have to start paying 50% of the premium for
their drug benefit- which could generate up to $0.5B in cost-shifting from the
government to beneficiaries. However, because HMOs compete in benefits for Medicare
enrollees (government premium contributions are fixed), these HMO cost reductions
would probably be offset by increases in other benefits (e.g., preventive care, dental,
¹If employers stopped offering altogether rather than paying the beneficiary premium, the
savings in drug spending would be expected to go into other forms of employee compensation.
In turn, the employees would use these higher wages to buy the new Medicare drug benefit, so
the net effect is the same.
5
02/04/99 THU 19:37 FAX 202 6222633
007
eyeglasses, etc.) Thus, our best guess is no significant change in government spending or
net out-of-pocket payments for HMO beneficiaries who currently have prescription drugs.
Introducing a capped Medicare drug benefit would probably not change total government
drug expenditures on Medicaid enrollees substantially. But the actual
division
of
dollars
between Federal Medicaid, state Medicaid, and Medicare could change, depending on a
number of factors. For simplicity these dollars are left in the Medicaid line, though it
should also be noted that maintenance-of-effort requirements on the states and Medicaid
payment of the 50% beneficiary premium would ensure that large portions of this public
spending would not be transferred to Medicare.
These figures suggest that the total additional federal spending would primarily go to
reduce existing beneficiary premium costs and out-of-pocket payments for the uninsured and
underinsured ($2.5B or 50%); another $1.5B (30%) would represent new spending on drugs by
beneficiaries with little or no drug insurance now, and around $1B (20%) would crowd out other
private spending. These estimates do not reflect a comprehensive model of drug demand or of
adverse selection in particular segments of current coverage. However, a more sophisticated
model is unlikely to alter the basic conclusion that the vast majority of spending on the new drug
benefit would reduce beneficiary out-of-pocket payments and permit additional drug use by
seniors who cannot afford it now.
Composition of New Government Spending on Drug Benefit - Preliminary Estimates
1995 $
Share of Net
Share of Total
Billions
Program Costs
Program Costs
Reductions in Out-of-Pocket Costs for
Uninsured and Underinsured
2.5
47%
42%
New Spending on Drugs
1.5
28%
25%
Reduced Employer Contributions
1.3
25%
22%
TOTAL NEW GOVT. SPENDING
5.3
100%
Reduced Tax Expenditures
0.7
12%
TOTAL MEDICARE COST
6.0
100%
6
02/04/99 THU 19:37 FAX 202 6222633
008
3. Management of Drug Benefits
Could the costs of drugs in the drug benefit be reduced through benefits management?
Many private-sector health plans use Pharmacy Benefit Managers (PBMs) to administer their
drug benefit programs. In 1995, about 60% of Federal employees were covered by plans with
PBMs, and their use is even more common among large managed care plans and large private
employers. Such arrangements could be adopted in the Medicare benefit to encourage efficiency
and avoid forcing the government to make decisions about what specific drugs are covered and
how they should be priced, and to address concerns about greater direct government involvement
in pharmaceutical markets. This section reviews how PBMs work and some of the recent
research on their consequences for drug costs.
Sources of Drug Cost Savings. PBMs use a variety of mechanisms to control costs and
ensure appropriate utilization, including:
Formulary Management. Plans often provide financial incentives for enrollees to use
generic versions of drugs when available, or encourage physicians and pharmacists to
substitute generics when writing or filling prescriptions. Plans may also limit costs by
excluding the most expensive on-patent drugs in a therapeutic class from their formulary,
or list of covered drugs, and by negotiating volume-discount contracts that include only a
few drugs in each therapeutic class.
The following table, taken from a recent news article, provides an example of these
beneficiary payments (and the recent trend toward more cost sharing) in an Oxford Health
Plan in New York City. Captopril is the generic version of Capoten (the original, and still
most popular, drug in the therapeutic class of acetylcholinesterase or ACE inhibitors).
The other drugs are more recent entrants in this drug class which are still on patent, and
which are marketed for their added benefits (c.g., less frequent dosing).
Blood Pressure Drugs -
Price of One- Month Supply
ACE Inhibitor Class
Retail Price
1998 Plan Price
1999 Plan Price
Capoten
$95
n/a
50
Vasotec
35
10
35
Accupril
35
10
20
Monopril
30
10
20
Captopril (generic)
32
5
7
The bulk of the savings that PBMs offer appear to come from discounts they negotiate
through outside retail pharmacies (as reflected in the table above) or through their own
7
02/04/99 THU 19:38 FAX 202 6222633
009
retailing methods (e.g., the plans require prescriptions to be filled by mail, or at their own
in-house pharmacies).
Mail-Order Discounters. Some mail-order (and now internet-based) drug companies also
offer discounts to seniors who do not have a drug benefit plan. These companies focus
on high-volume users with chronic illnesses, typically by requiring a minimum of a 90-
day prescription. Many plans provide financial incentives for beneficiaries to use mail-
order prescriptions as well, and similar incentives might be adopted in a Medicare
benefit.
Drug Utilization Review. Improving information systems on drug use and patient health
characteristics has permitted many retailers and plans to avoid adverse drug interactions
and drugs that cause allergic reactions. In principle, these systems could be used to
monitor physician prescribing patterns and the appropriateness of a patient's drug
regimen, and to encourage physicians to change drug choices in order to reduce costs.
Such utilization review and disease management applications have been implemented on
only a limited basis to date, however, and have not necessarily reduced drug costs. For
example, many plans use information systems to remind doctors to advise
postmenopausal patients about the value of hormone replacement, or to assure that
asthma patients are on a regular preventive regimen of inhaled corticosteroids. While
these management systems have important health benefits and may reduce long-term
health costs, they probably increase drug costs.
Evidence on cost impact of drug benefit management PBMs are relatively recent
developments, and few studies have examined their effects. Two studies are summarized below;
both suggest that strong PBM programs could reduce drug expenditures by around 25%.
Source of Drug Expenditure Reduction
Effect
Grabowski and Mullins (1997)
Negotiated Discounts through Formularies
5-15%
Generic Substitution
5-10%
Utilization Review
0-4%
Total Savings
14-31%
GAO Survey of FEHB PBMs (1997)
Negotiated Discounts through Formularies
14-20%
Other Sources of Savings
6-12%
Total Savings
20-27%
8
02/04/99 THU 19:38 FAX 202 6222633
010
In principle, beneficiaries could enjoy these savings even if they were below their
deductible or over their benefit cap. Because negotiated discounts are the major source of PBM
savings, however, it is possible that the average savings from retail prices could be smaller if all
of the elderly were enrolled in PBM plans. The likely savings in overall elderly drug
expenditures from widespread use of PBMs is also limited by the fact that many Medicare
beneficiaries already use plans with PBMs, or mail-order discounters. Consequently, a reasonable
but conservative and preliminary estimate of the overall effect of adopting PBMs for all
Medicare beneficiaries is a 5-10% reduction in average drug prices paid. Using this estimate,
total drug expenditures by Medicare beneficiaries would increase by 7% under a capped benefit
plan, even though the quantity of drugs used by the elderly would increase by a larger amount,
10-20%.
9
Unresolved Issues for Medicare Reform
Issue
Breaux Plan 1/26/99
Issues / Options
Design of Premium Support
Required Benefits
Benefit categories (e.g., hospital
Must maintain at least the benefits in Medicare today, plus a
services) would be specified as FEHB
prescription drug benefit (below). Some question about whether
does, but details are left for plans to
certain benefits need to be specified in more detail (e.g.,
02/04/99 THU 19:38 FAX 202 6222633
choose - subject to approval of
minimum length of stay for mastectomy) - though all plans are
oversight board. Presumably current
likely to be subject to Executive Orders on patients' rights, as
Medicare benefits are included.
Medicare and FEHB are now.
Drug Benefit
Exploring options (including Medigap
Must be included, but key questions on specifics:
mandate?). Republicans have
(1) Voluntary or mandatory: probably voluntary with significant
expressed concerns about substituting
beneficiary contribution to limit cost to program (e.g., 50%
public for private dollars, and fears of
subsidy for premium); subsidizing premium limits adverse
"government price regulation" of drug
selection pressures but opt-in rules may also be needed
companies.
(2) Front-end coverage (relatively low copays and/or deductibles
and modest limit on total benefits per year, e.g. S1000-1500 with
indexing) or catastrophic coverage (high deductible and/or copay,
but no limit on benefits; fewer elderly benefit more)
(3) Drug purchasing mechanism: Probably would rely on govt.
contracts with private pharmaceutical benefit managers, who
could manage formularies and negotiate favorable contracts, just
as they do now for private insurance plans
(4) Other design issues: Do deductibles and copays count toward
overall plan limits? Income-related premium (e.g., no cost for
current Medicaid beneficiaries, subsidies for others)? Strength of
financial incentives for beneficiary to use generics and
therapeutic equivalents, to reduce cost of plan?
1
011
Issue
Breaux Plan 1/26/99
Issues / Options
Premium Support
For typical beneficiary, govt. pays a
Prefer explicit commitment to maintaining current level of
Formula
fraction of premium (88-90%) up to a
support for current package of benefits. Need to specify how this
premium "cap." Cap is equal to the
would work in practice - e.g., 88% of premium of traditional fee-
national average premium (based on
for-service (FFS) Medicare plan? What if FFS Medicare adds
prior-year enrollments?); beneficiary
benefits like drug coverage or stop-loss protection?
pays full premium above this. At
02/04/99 THU 19:39 FAX 202 6222633
hearing, Breaux stated that average
beneficiary share for current benefits
will remain at current level (12%), but
no written details on how to guarantee
this support level.
Updates to Level of
Unclear. Appears that premium cap
Need explicit statement that premium support will increase with
Premium Support
would grow with national average
health care costs, to limit growth in beneficiary financial
premium (which in turn is likely to
exposure. Could be tied to private-sector medical cost growth if
depend on how basic benefits are
concern that linkage to Medicare cost growth would encourage
defined); also verbal commitment at
premium increases.
hearing that standard beneficiary share
for current benefits will remain at 12%.
2
012
Issue
Breaux Plan 1/26/99
Issues / Options
Low-Income
Medicaid, QMB, and SLMB eligibles
Need explicit statement of low-income protection, at least at level
Protections /
pay no premiums up to cost of
implied by current Breaux plan. High-income premiums may not
Income-Related
traditional FFS Medicare plan (and
raise much revenue and create administrative problems (few
Premiums
presumably no cost-sharing for
elderly households are high-income; would need asset tests to
Medicaid and QMB?). High-income
raise significant revenue). Democrats also have concerns about
beneficiaries - above $50K for couples
Medicare becoming a "welfare program." High subsidies for all
and $40K for singles - pay higher
income groups are needed to keep beneficiaries from dropping
02/04/99 THU 19:39 FAX 202 6222633
fraction (25% not 10-12%) of premium
Medicare - Breaux plan provides this even for wealthy, who get
up to national average, and apparently
75% subsidy up to national average (around $5700 today). But
higher fraction (125% not 100%) for
making them pay more than 100% of premium above average
premium above average.
would create this risk if average plan deteriorated. Details: Are
higher premiums for high-income phased in? Will reported
income of elderly respond?
Premium Bidding
Little detail - national bidding (national
Regional bidding (like FEHB), or national bidding with
premium for traditional FFS Medicare;
"appropriate" regional adjustment. Appropriate regional
regional or national bids by private
adjustment might include (a) adjustment for part of regional
plans, with "geographic adjuster" for
variations in Medicare costs or private insurance costs (but
regional variation in health care costs)
difficult to obtain reliable private insurance data at local level),
or regional/ local bidding.
(b) adjustment for regional variations in overall cost of living
only (to reduce the large variation in Medicare utilization).
Transition period needed if regional adjustments are small. Need
to define relevant market in which competition will take place -
FEHB regions? counties, as in Medicare AAPCC payments?
3
013
Issue
Breaux Plan 1/26/99
Issues / Options
Geographic Variation
Appears to establish a national
Should account for regional variations in premiums, either by
in Premium Support
schedule for premium support;
defining premium support cap on regional basis or by using
suggests geographic adjustments
regional adjuster as described above for bidding, SO that
limited to general cost differences, not
beneficiaries in high-cost areas do not face large increases in out-
the large variations in average
of-pocket payments. At a minimum, national schedule should
utilization across regions.
include a substantial transition period.
02/04/99 THU 19:39 FAX 202 6222633
Risk Adjustment of
Says only that government contribution
Need more details on general principles. Can't appeal to FEHB
Premiums and
"will be adjusted for health risk and
experience, since FEHB premiums are not adjusted for
Government
other factors."
beneficiary characteristics. Potential for risk selection is much
Payments
greater in Medicare. Example: AAPCC "premium" payment in
Medicare+Choice for 85+ year-old is over 50% higher than
payment for 65-74 year-old. Issues include:
(1) Beneficiaries should make similar premium contributions
regardless of premium adjustment 85-year old should not pay
much more than 65-year old.
(2) Risk adjustment method should be considered in context of
other incentives / options to switch plans (i.e., open enrollment,
financial incentives in premium support, allowed benefit
variation). Goal is to minimize adverse selection pressures
without recreating fee-for-service incentives.
At this point, probably should (1) encourage further development
of risk adjustment systems that do not depend on hospitalization,
as HCFA is doing now; and (2) support adjustment of premiums
and government contributions to protect quality and limit out-of-
pocket cost of care for higher-cost beneficiaries.
4
014
Issue
Breaux Plan 1/26/99
Issues / Options
Default Choice/
Not addressed, except in that option to
Less serious problem if support for 88% of FFS Medicare
Choice Assistance
stay in Medicare FFS will be retained.
premium were guaranteed - assuring that there is a default option
for Impaired
that is at least as good as their current insurance. May want to
Beneficiaries
consider a counseling/ assistance system like that for elderly
taxpayers, or support through through AOA offices.
Rural Beneficiaries
Not addressed. Presumably regional
Regional premium support might actually make rural
02/04/99 THU FAX 202 6222633
with No/Limited
bid would be FFS Medicare.
beneficiaries worse off, since they generally live in lower-cost
Choice
Republicans have expressed concerns
areas. Additional steps to assure quality and value of care in areas
about HHS operating as unregulated
where traditional FFS Medicare has no competition?
monopoly.
Oversight Board
Similar to FEHB.
Some concerns about oversight/ accountability of independent
Board, which would be charged with promoting welfare of
beneficiaries but which would have no direct ties to them. But
additional accountability mechanisms run risk of reducing Board
independence from political pressures. Administration has
endorsed an independent Board for managing Social Security
funds, but the Medicare Board would have a much more complex
task and much more discretion.
5
015
Issue
Breaux Plan 1/26/99
Issues / Options
Additional Benefits
Plans allowed to offer, with restrictions
Prohibiting additional benefits would encourage plans to compete
as in FEHB: oversight board "will be
on cost and quality, and would reduce opportunities for risk
empowered to ensure that all benefit
selection. This is done by most private "managed competition"
packages do not vary to the point that
plans. FEHB allows additional benefits, which provides more
they produce ineffective or unfair
flexibility to respond to beneficiary demands. If additional
competition." Benefit standardization
benefits are allowed, may want to restrict the types of additional
noted as an "alternative design option."
benefits that can be offered - to make choosing among plans less
02/04/99 THU 19:40 FAX 202 6222633
confusing for beneficiaries, and to avoid benefits that create
significant risk selection problems. For example, variation in
individual Medigap benefits is restricted today.
Plan Switching
Annual open enrollment period. One
Annual open enrollment period.
member suggested longer lock-in to
limit selection.
6
016
Issue
Breaux Plan 1/26/99
Issues / Options
Changes in the "Traditional" Fee-for-Service (FFS) Medicare Program
Medicare FFS Option
Retained as an option in premium
Must be retained and modernized.
support; would continue to be managed
by HCFA; could be modemized.
HCFA Authority for
HCFA would be given "management
Support - both to rationalize benefit package and give HCFA
02/04/99 THU 19:41 FAX 202 6222633
"Modern"
tools adopted by the private sector,"
powers needed to compete fairly. Should also allow HCFA to
Management of FFS
including "enhanced demonstration
continue to develop quality assurance tools (and use them for
Medicare
authority, flexible purchasing
payment). Much political opposition to exercising such powers
authority, competitive bidding,
under demonstration authority now - but new context of
negotiated pricing authority, elective
competition could reduce this opposition. If HCFA gets greater
contracting, and preferred provider
political independence, may still want mechanism for
arrangements."
accountability/review, perhaps through oversight board.
Rationalize FFS Out-
As example, proposes a combined
Support rationalization. Breaux proposal is reasonable (similar 10
of-Pocket Payments
deductible of $350, with 20% coinsur-
those considered by Administration) but could increase costs.
ance for all but inpatient and
How would deductible be indexed? Would payments for drugs be
preventive care, and 10% for home
counted toward deductible? Home health currently has 0 copay.
health.
Stop-Loss Protection
Not yet addressed in text - awaiting
Catastrophic protection seems desirable on policy grounds, and
scoring results? Perhaps trade off
may reduce demand for Medigap. But not a priority for most
$4,000 stop-loss limit for 20%
seniors, and much of the catastrophic insurance provided would
inpatient coinsurance.
go to hospitals that currently write off these charges as bad debt
(covered by paying patients). If not included in FFS benefits,
would it be allowed/prohibited in private plans?
7
017
Issue
Breaux Plan 1/26/99
Issues / Options
Medigap
No specifics, but states that "Medigap
Need reform to discourage first-dollar coverage and encourage
(Supplemental
should be reformed to minimize the
stop-loss protection (some plans today cover copayments and
Insurance) Reform
effects of first-dollar coverage on
deductibles only). Ideally, benefit rationalization would reduce
utilization and so that the price of
or eliminate the need for Medigap. Without such rationalization,
Medigap policies reflect their true
Breaux proposal likely to reduce Medigap takeup, worsening
cost."
Medigap selection problem and raising out-of-pocket costs for
sicker beneficiaries.
02/04/99 THU 19:41 FAX 202 6222633
BBA Extenders
Provider payment rates are noted
Current hospital margins and the magnitude of the proposed
(primarily consist of
among "areas that need resolution."
payment changes suggest that they could be extended for at least
tighter limits on
5 years. (Continuing to reduce payments beyond that might
growth of provider
finally reduce provider participation in Medicare.)
payments)
Could be used to fund some or all of the proposed prescription
drug benefit.
8
018
Issue
Breaux Plan 1/26/99
Issues / Options
Changes in Medicare Eligibility
Increase Eligibility
Proposes to increase to age 67 over 24
"Skeptical," especially in the absence of a specified buy-in plan
Age
years, paralleling Social Security
for those approaching Medicare eligibility age.
increase.
Medicare Buy-In
Suggests buy-in plan may be possible,
Administration already supports a two-part buy-in: one for 62-64
02/04/99 THU 19:41 FAX 202 6222633
but offers no details.
year-olds, in which they pay approximately $300/month premium
up front plus $200-600 annual surcharges on their premiums after
age 65 (to account for the fact that higher-cost individuals are
likely to sign up); and one for 55-61 year-olds who lose insurance
when they lose a job, and who would pay about $400/month but
have no "loan" to repay after 65. Compromise position might be a
buy-in for a more limited age group (e.g., starting at 62-65 to
match Social Security early eligibility and gradually increasing
with NRA). Those buying in would receive no premium support,
and because of adverse selection would need 10 pay an additional
premium surcharge to avoid increasing program costs (surcharge
could be limited to 62-64 year-olds, but this would reduce
savings from raising eligibility age) Analysis of previous
Administration proposal suggests those buying in would have
expected costs around 133-150% of average.
9
019
Issue
Breaux Plan 1/26/99
Issues / Options
Part A Medical Education and Disproportionate Share Payments
Direct Medical
Carve out from Medicare Part A and
Unclear. Shifting these programs to general revenues would
Education (DME)
fund as mandatory or discretionary
improve Trust Fund solvency (about one year) and progressivity,
appropriation; would also make
and medical education payments are probably allocated to
available to all residency programs.
hospitals inefficiently. However, they do provide important
support to teaching hospitals - which not only provide education
02/04/99 THU 19:42 FAX 202 6222633
Indirect Medical
Retain but revisit appropriate payment
but also treat more difficult cases, and (often) large shares of
Education (IME)
rate.
uninsured patients. Making these payments discretionary would
probably lead to larger reductions over time
Disproportionate
DSH and other subsidies "should be
Unclear. Carve-out to discretionary budget would improve Trust
Share (DSH)
revisited to ensure that Medicare's
Fund solvency (around one year), and improves actuarial balance
support is reasonable and appropriate."
(by about 0.1 percent of payroll). Payments are probably
Possibility of carve-out noted.
allocated inefficiently, and financing through payroll tax may not
be best policy. But they provide substantial funding for hospitals
that treat a many uninsured and Medicaid patients, and they
would be more likely to fall over time if they were discretionary.
10
020
Issue
Breaux Plan 1/26/99
Issues / Options
Addressing Trust Fund Solvency
Additional Revenues
Suggests that financing changes should
Medicare needs infusion of revenues, i.e. transfer of 15% of
not be considered until structural
unified surplus for 15 years as proposed in SOU.
reforms are in place. Republicans
Possible further steps: combine HI and SMI Trust Funds, add
reluctant to add any new funding.
general revenues as needed to supplement payroll taxes - to
improve progressivity and avoid issue of "insolvency"? If not,
02/04/99 THU 19:42 FAX 202 6222633
how would premium contributions be allocated to Parts A and B?
Limiting Medicare
Unclear how much this will be
BBA extenders would have modest positive effect. Unclear how
Cost Growth
addressed. No explicit statements
much further extension of Trust Fund solvency is a priority.
recently. Actuarial scoring likely to
Pro: Continuing rapid change of health care system suggests that
suggest no significant savings from
reform should be revisited frequently, so that very long-term
premium support in Breaux plan: it
solvency is impossible to predict and should not be a high-
lead to modest reduction in long-term
priority goal - better to make system more rational and efficient
growth rate of Medicare costs, but
so funds are spent wisely whatever their level. Extending Trust
offsetting impact on Medicare outlays
Fund solvency to 2020 provides a substantial window to consider
because beneficiaries choose plans
whether further reforms are needed.
with more generous benefits under
Con: Very likely that health care costs will continue to rise, so
premium support (traditional FFS
deferring further attention to program cost growth may make it
Medicare is not a generous benefit
tougher to address later.
package). Modest improvements in
solvency (several years) may result
from increasing eligibility age and
carving out medical education and/or
disproportionate share payments.
II
021
HEALTHGARE
Now, the Hard Part
MEDICARE HAS LONG
DEFIED ATTEMPTS TO
REFORM IT. BUT A
BY MARILYN WERBER SERAFINI
BIPARTISAN
he conventional wisdom is that not
COMMISSION
much of anything will get done in
SHOWS SIGNS OF
COALESCING BEHIND
Washington next year, because of the
A MARKET-ORIENTED
new, slimmer Republican majority in
APPROACH TO KEEP
Congress. But a diverse group of legisla-
THE SYSTEM AFLOAT.
tors and health care policy experts is determined to make
reform of the huge Medicare system the exception, even
though any attempt to change the health insurance
program for the nation's elderly is certain to be
politically volatile.
The 17-member National Bipartisan
Benefits are an ongoing con-
Commission on the Future of Medicare,
AP/DENIS PAQUIN
cern-in particular, the lack of
created by Congress in 1997, is getting
coverage for prescription drugs.
ready for the final, and most difficult. phase
Past efforts to restructure Medi-
of its work: devising reform recommenda-
care have been notably unsuccess-
tions that can be enacted in 1999, before
ful. After taking control of Con-
the 2000 presidential election takes over the
gress in 1995, Republicans tried to
political landscape. Having held hearings
revamp Medicare to extend its
throughout much of this year. the commis-
solvency, but Democrats success-
sion is set to begin drafting a reform plan in
fully hammered the GOP propos-
early December. Under its charter, the
als, a stance that helped them win
panel has until March to make its recom-
back House seats in the 1996 elec-
mendations. "There's no excuse for not act-
tions. Several years earlier, in 1988,
ing next year," said Sen. John B. Breaux, D-La., who chairs
Congress had thought it was doing the elderly a favor by pass-
the commission.
ing legislation that added a prescription drug benefit and
The challenge is huge:
limited recipients' out-of-pocket expenses for long hospital
According to current projections, the part of Medicare
stays. But elderly Americans were so upset about the premi-
that pays for hospital care will go broke in 2008 if Congress
um hikes needed to pay for the new benefits that Congress
does nothing.
ended up repealing the law a year later. Representatives still
Medicare hasn't kept pace with changes in the medical
well remember that angry constituents chased then-Chair-
and insurance worlds. More than 80 percent of Medicare ben-
man of the House Ways and Means Committee Dan Ros-
eficiaries are still in the expensive fee-for-service system, which
tenkowski, D-III., down a Chicago street. Since then, Congress
lets patients go to the physicians of their choice. Most of their
has avoided making many changes that directly affect benefi-
kids and grandkids have moved on to more-cost-conscious
ciaries, opting instead to cut payments to doctors and hospi-
managed care plans. which seek to limit health care choices.
tals as a way to check the program's growing costs.
2774 NATIONAL JOURNAL 11/21/98
Despite this sobering history, many members of the
eral agreement that Medicare's benefits package is inade-
Medicare commission appear enchanted with an idea that has
quate. Commissioners cite its lack of coverage for prescrip-
the potential to transform Medicare into a market-based SVS-
tion drugs and mental health services. and its limited cover-
tem. vet maintain the guarantee that the elderly will get cer-
age of long-term care. Unlike most private insurance plans.
tain benefits. It's called premium-support, and it strongly
Medicare does not limit the amount of money it can require
resembles the widely acclaimed system through which federal
a patient to spend out-of-pocket.
employees now get their health care-the Federal
Employee Health Benefits Plan.
AP/NICK
Robert D. Reis-
chauer and Henry
J. Aaron. both sen-
SENSITIVE TERRITORY:
ior fellows at the
Commission members (be-
Brookings Insti-
low), including Illene Gordon
tution. put the
(left) and John Breaux (right),
visit a hospital. At right, the
elderly protest Medicare
changes proposed in 1995.
Concerns about Medicare's benefits package have prompt-
ed some 13 million people to purchase so-called Medigap
policies from private insurers. Beneficiaries can choose from
10 standardized Medigap plans, all of which cover
deductibles and co-payments, and some of which offer a pre-
scription drug benefit. Some commissioners argue in favor of
dissolving Medigap and incorporating some of its benefits
into Medicare's core benefits program.
But even if the commission rallies around a set of propos-
AP/ANN HEISENFELT
als, there's no guarantee that Congress would approve the
package. Commission members worry that there won't be
enough pressure from the public to spur Congress to act.
Complicating matters, President Clinton wants Congress to
consider reforming Social Security-and it's doubtful that
"premium-support" name on the idea a few years ago. but it
Congress would be able to move on both Social Security and
hasn't drawn much attention until now. Here's how it would
Medicare in one year.
work: The government would specify a minimum benefits
Breaux argues that Medicare is a more immediate prob-
package. though health plans could offer more services. The
lem. noting that while Social Security is slated to go broke
government would divide the country into market areas and
around 2015, Medicare has only until about 2008. "Both are
take bids from health plans that wanted to serve Medicare
severe problems, but here we're talking about someone's
beneficiaries in each area.
health. We haven't gotten the attention, and while saving
From those bids. the government would decide on an
Social Security is important, we need to save Medicare first,
amount of money that it would pay in premiums for each
then Social Security," he said.
individual in the area. The idea is that the government pay-
Some are also concerned about time. The commission
ment would cover most of the premium in a basic plan. Bene-
must report its recommendations by March, and it hasn't yet
ficiaries who opted for health plans with richer benefits
begun considering reform plans. "We haven't even come to
would have to pay more. Each area would have government
grips with whether this is to save money or make a better pro-
administrators to provide participants with information about
gram." said Rep. James A. McDermott, D-Wash. "The ones
the health plans. collect premiums. enroll participants and
who are optimistic say you can do both. I say, 'Put your pro-
distribute payments to the plans. Once the government had
posal on the table, and let's look at it.' I've done enough stuff
paid its share of a beneficiary's premium, the health plan and
to be very [wary] about people who have an easy answer."
the covered individual would pay for anything else.
McDermott also complained that commissioners haven't
Reischauer said he's confident that this kind of structure
had enough time to kick around ideas. "There has to be a
would save Medicare money. although he acknowledges that
process by which you put a proposal out there and let us look
the Congressional Budget Office would have a hard time pre-
at it, haggle over it. If this is a major public policy change-
dicting how much. Some commissioners said they could sup-
and it is-then you have to go through the process of let-
port this approach only if recipients would receive as many
ting people look at it and vet it."
benefits as then get now-plus a prescription drug benefit
The election was one reason why reform proposals weren't
and perhaps a few more.
aired earlier. Several commissioners said that panel members
Interviews with the 17 commission members suggest gen-
agreed. not to talk about Medicare revenue sources-always a
11/21/98 NATIONAL JOURNAL
277
contentious topic-until after Nov. 3. Likely revenue options
ing to serve federal employees. then bases premiums on those
include raising Medicare's eligibility age from 65 to 67. charg-
bids. It gives participants a huge choice of health plans with
ing wealthier people more to get Medicare benefits. institut-
varying benefits and prices.
ing a co-payment for home health care services, and creating
"The idea is to come up with
private investment accounts to help people save for their fu-
RICHARD A BLOOM
a defined package of benefits
ture Medicare needs. Other politically difficult questions
for recipients. We would have
include whether to allow uninsured individuals under age 65
an outline of what thev're enti-
to buy into Medicare and whether to encourage more of the
tled to," Breaux said. adding
elderly to move from fee-for-service Medicare to managed care.
that he'd like to see Medicare's
Some commissioners said that achieving consensus might
benefits package improved.
be easier, now that Speaker Newt Gingrich, R-Ga., is leaving
"It's not in keeping with what
the House. Gingrich appointed four members to the com-
we need. Prescription drugs
mission on the condition that they would not agree to new
are now as important as a hos-
taxes. "This opens up a fresh slate, as far as I'm concerned,"
pital bed was in 1965. perhaps
said Breaux. "There's less pressure to be told what to do from
more so."
Gingrich. People on the commission may have some flexibili-
Breaux said he's intrigued by the idea of having young peo-
tv that they didn't have before."
ple invest in special accounts for their retirement health care
What follows is a look at where the commission members
needs: "It makes people more careful in what they purchase
stand as they enter this critical, decision-making stage. Mem-
and how they purchase it." But he acknowledged that this pro-
bers are grouped according to who appointed them. Clinton,
posal hasn't gotten much attention from other commission
Gingrich and Senate Majority Leader Trent Lott, R-Miss.,
members. Other possible changes Breaux cited include com-
named four members each; House Minority Leader Richard
bining Medicare's Part A (hospital coverage) and Part B
A. Gephardt. D-Mo.. and Senate Minority Leader Thomas A.
(basic doctor care); and making private Medigap insurance
Daschle, D-S.D., named two members apiece. Breaux was
unnecessary by improving Medicare's benefit structure.
jointly appointed.
CLINTON'S APPOINTEES
JOHN BREAUX
STUART ALTMAN
Sen. John B. Breaux, D-La., is chairman of the Medicare
Stuart H. Altman is a professor of national health policy at
commission and a member of the Senate Finance Commit-
Brandeis University's Florence Heller Graduate School and a
tee. He was appointed chairman by President Clinton and
former chairman of the Prospective Payment Assessment Com-
congressional leaders. His priorities: Extend Medicare's sol-
mission, a government panel that advised Congress on Medi-
vency and infuse competition into the system.
care payment policies. His priorities: Preserve Medicare as a
Breaux has long advocated transforming Medicare into
government program and add a prescription drug benefit.
something resembling the Federal Employee Health Benefits
His concern is that Medicare leaves millions of elderly
Plan, which has been touted as the most successful and effi-
Americans unable to afford prescription drugs and related
cient health care system in the country. The Federal Employee
out-of-pocket expenses. The most comprehensive supplemen-
Health Benefits Plan collects bids from health plans compet-
tal insurance comes in the form of retiree health plans, but
TODAY'S MEDICARE
39 million seniors and disabled people have
MEDICARE SPENDING IN TRILLIONS OF DOLLARS
Medicare.
(ASSUMING NO SLOWDOWN IN GROWTH OF MEDICARE SPENDING)
17 percent of beneficiaries are in health mainte-
$3.0
nance organizations.
Medicare Part A covers hospital stays. Part B cov-
2.5
ers basic doctor services.
Medicare Part A is projected to go broke in 2008.
2.0
Under current projections, Medicare spending
could account for 8 percent of GDP by 2030 (up
1.5
from 2 percent in 1995), and 37 per cent of the
federal budget (up from 11 percent in 1995).
Most beneficiaries have supplemental insurance
1.0
to cover co-payments and deductibles (35 per-
cent have Medigap, 35 percent have retiree
0.5
plans, 15 percent have Medicaid). About half
have a prescription drug benefit through other
insurance.
o
1980
1990
2000
2010
2020
2030
SOURCES: Medicare commission staff, Medicare Payment
Advisory Commission, Health Care Financing Administration
SOURCE: Medicare commission staff
2776
NATIONAL JOURNAL 11/21/98
Altman noted with alarm that employers are beginning to
solely because of troubling long-term economic projections.
stop providing that benefit. Meanwhile. Medigap policies are
"We shouldn't exceed what We know." Forecasts of more
expensive and their benefits are limited.
than 10 years. he said. Tall off into meaninglessness."
Nearly half of the elderly don't have prescription drug COV-
Yet Madeck worries that commissioners with ideological
erage. "I cannot support any long-term plan that doesn't cover
agendas may be able to use fear that the program will go bank-
prescription drugs in some wav." he said. although he said he
rupt in 2008 to successfully sell
realized it's an expensive benefit-by some estimates. covering
radical restructuring. % there a
all Medicare recipients would cost S40 billion a year.
long-term Medicare problem?"
Altman said one option is
said Vladeck. The just don't
to keep the existing Medicare
know how big it is and whether
YEAR
structure and have wealthier
it will fix itself."
people pay more. But he said
Vladeck savs he is particular-
he's open to different ways of
IV concerned about the 15 per-
COURTES BRANDE
adding new benefits. includ-
cent to 20 percent of Medicare
ing through a so-called premi-
beneficiaries who can't afford
um-support system, "provided
private Medigap insurance vet
it's adequate. and the benefits
aren't poor enough to quality
there are clear and that we
for Medicaid. the federal-state
have a fair system that doesn't
health care program for the poor. Any Medicare savings
adversely affect low-income
should be plowed into prescription drug and mental health
elderly." However. he added.
benefits. Vladeck maintains. A way of saving money that he
"I'm not signing "p vet. I want to be assured that the benefi-
would find acceptable: Establish a target growth rate for the
ciaries get decent protection."
program. and institute a selfenforcing cost-control mecha-
nism that would kick in every three to five years.
LAURA D'ANDREA TYSON
Laura Andrea Tyson is the dean of the Haas School of
ANTHONY WATSON
Business at the University of California (Berkeley). and a
Anthony 1.. Watson is chief executive officer of the HIP
former national economic adviser. Her priorities: Add flexi-
Health Plans. His priorities: Resist radical changes and sim-
bility SO Medicare can change with the times. and establish
plifv the program.
regular reviews to assess the program's performance.
"It's clear to me that you can't tiv and project [Medi-
Tyson warned against making radical changes based on
care's solvency needs] out to 2030.7 he said. "It's impossible
long-range economic forecasts. (Gongress has asked the
to do that with any precision. We should go for the next 10
commission to propose changes that would keep Medicare
years." Watson said he might be able to back a premium-
solvent through 2030.) Part of the problem. she said. is that
support proposal. depending on its structure. "The devil's
there's no way to know whether tomorrow's elderly popula-
in the details." he said. adding that he's afraid that volatility
tion will act like today's. mostly because the newcomers will
in the health care sector
have had more experience with managed care. That's why
could cause chaos.
she lavors the regular reviews: "It's a mistake to leave the
Next year. for instance.
American people with the view. 'Here's the problem. here's
dozens of health maintenance
the solution." she said,
organizations will stop serving
Tyson also emphasized the
Medicare recipients. leaving
RICHARD A BLOOM
need to make Medicare more
about 400,000 elderly to find
COURTESY HIP HEAL TH PLANS
efficient. regardless of how
other care. "HMOs are leav-
much money is saved. She
ing the markets now. How do
cited the proposal of having
you keep that from happen-
health plans submit competi-
ing?" Watson asked. The exist-
tive bids to insure the elderly.
ing Medicare system. mean-
"Everyone thinks it's more
while. needs simplification. he
efficient. but I don't know
said. There's some rationale. he said. for combining
how much it saves."
Medicare's Part A (hospital coverage) and Part B (basic
Significant improvements in
doctor care).
the program. though. hinge
on incorporating Medigap benefits into Medicare so that
GINGRICH'S APPOINTEES
people who can't afford Medigap have more protection. "It's
MICHAEL BILIRAKIS
supposed to be a program that gives beneficiaries help based
Rep. Michael Bilirakis. R-Fla.. is the chairman of the
on their status as elderly. not on their income." she said.
House Commerce Committee's Health and the Environ-
ment Subcommittee. His priorities: Extend Medicare's sol-
BRUCE VLADECK
vency at least through 2030 and achieve tort reform.
Bruce C. Vladeck is a professor of health policy and
It's very possible to ensure Medicare's financial health
geriatrics at Mt. Sinai School of Medicine. in New York
through 2030. "or even further." said Bilirakis, adding that
City. and a former administrator of the Health Care
tort reform is the best way to save money." He savs that if
Financing Administration. which oversees Medicare. His
Congress imposes limits on medical malpractice awards, the
priority: Resist drastic changes.
savings will ripple through the health care system.
Vadeck savs he can't support overhauling the program
What Bilirakis doesn't want to do is cut benefits to
11/21/95 NATIONAL JOURNAL 2777
patients or reimbursements to doctors and hospitals. In
Howard said. adding. however. that there is no quick In
fact. he wants to create a benefit for prescription drugs. He
He said he wants Medicare to become more adaptable in
said that Medicare also needs to improve its long-term-care
becoming more sensitive to the marketplace "Benetits as
benefit. Congress could
going to change. Technology is going to change. The market
accomplish some of this by
11',
is sensitive to that change." he said. Medicare. he added. is not
incorporating Medigap bene-
Howard said it would be "worth exploring" the model of
fits into the main Medicare
the Federal Employee Health Benefits Plan for was of creat-
program OF by changing
ing a competitive structure. For starters. he advocates remov-
Medicare so that beneficiaries
ing the upcoming Medi-
pay more of their deductibles
care+Choice program from
and co-payments. he said.
the oversight of the Health
Representing a constituen-
Care Financing Administra-
(V of whom nearly 25 percent
tion. Medicare+Choice. which
are over the age of 65. Bili-
will be launched next year. is
rakis said he feels strongly that
designed to give the elderb
the commission needs to tack-
some of the same health plan
le some nuts-and-bolts Medicare issues. He lavors decreas-
choices available to the under-
ing the paperwork and simplifying the procedures NO that
65 population. It will include
doctors need not get permission from nondoctors before
all of Medicare's managed care
treating patients.
plans and other alternatives to
traditional fee-for-service.
COLLEEN CONWAY-WELCH
Howard and other critics of the agency arrangement have
Colleen Conway-Welch is the dean of the Vanderbilt Uni-
suggested that Medicare's managed care options should not
versity School of Nursing and was named by Gingrich on
run by the same agency (HCFA) that runs Medicare's fee-
july 24 to replace Rep. Greg Ganske. R-lown. who left the
for-service program.
commission after a dispute with the speaker over managed
care reform. Conway-Welch's priorities: Add a prescription
WILLIAM THOMAS
drug benefit and ensure preventive care and more competi-
Rep. William M. Thomas. R-Calif.. is the administrative
tion 111 the Medicare system.
chairman of the Medicare commission and the chairman of
Conway-Welch savs competition man be the only was to
the House Ways and Means Health Subcommittee. His pri-
provide more benefits in an
orities: Extend Medicare's solveney and make the program
affordable will. She likes the
more market-oriented.
approach of the Federal
The have to rethink the entire structure of Medicare and
Employee Health Benefits
not continue the same old statutory responses." he said.
Plan. The has .1 number of
Thomas led the push to create Medicare+Choice as part of
plans available. hom Volkswa-
the 1997 Balanced Budget Act. Thus far. although the elderly
gen to Mercedes. and there's
can choose health maintenance organizations instead of fee-
the opportunity 10 accept .1
for-service plans. Medicare has not offered preferred provider
plan that fils .1 person's partie-
organizations, medical savings accounts or other options.
ular needs." she said.
Thomas wants to add more competition to the Medicare
Her concern is that the com-
program. perhaps by using the federal employees' plan as a
mission has not decided
model. Thomas called Medicare's current structure ineffi-
between womans of structuring
cient. particularly its spawning
Medicare: Should the government cap the amount of money
of Medigap supplemental
it will spend on a beneficiary over a certain period of time. 01
insurance policies. A recent
should it detine the benefits it will CONCE. 110 matter what the
study by the Medicare Payment
JUHN USELL
cost? "We are obvioush struggling with the Issue of defined
Advisory Commission found
benefits 11. defined contribution." said comway-Welch,
that elderly Americans with
She is interested III Medicare as a woman's issue and in
Medigap tend to overuse basic
emphasizing preventive care. "Many older women don't have
Medicare services. because
Pap smears of gynecological exams. Many have significant
Medigap allows them to pay
osteoporosis 110 need 10 step base and look all the whole
fewer out-of-pocket costs.
spectrum of care."
Thomas also said that cer-
tain essential services-such as
SAMUEL HOWARD
a prescription drug benefit-
Samuel II. Howard is chief executive officer of Phoenix
could be corporated into Medicare if beneficiaries paid
Health are Corp., in Nashville. Tenn The priorities. Ensure
more III deductibles and co-payments. He also said he sup-
Medicare's long-term solvency and provide more health
ports limiting the amounts beneficiaries must pay for cata-
plan choices.
strophic illnesses.
Ensuring the program's financial health through 2020 is
absolutek doable. Howard said. "The fac that we IT still living
LOTT'S APPOINTEES
with the [single] benefit plan set "P in 1965 is an haie." he
BILL FRIST
said. Medicare needs to evolve from 115 1965 for us on acute
Sen. Bill Frist. R-Tenn., is chairman of the Senate Labor
(hospitab Gare to a focus on chronic dong-term regular) care.
and Human Resources Public Health and Safety Subcom-
2778
NATIONAL JOURNAL
mittee. His priorities: Rethink
PHIL GRAMM
graduate medical education
Sen. Phil Gramm. R-Texas. is chairman of the Senate
payments. extend Medicare's
Finance Health Care Subcommittee and heads the Senate
solveney and make Medicare
GOP Healthcare Task Force. His priorities: Extend
more market-oriented.
Medicare's solveney and get young Americans 111 save for late-
Adding competition will be
in-life medical costs.
a Ley 10 the program's long-
"What's most important is our mandate of trying to save
term financial health. Frist
Medicare." he said. In his view. that means promoting effi-
said. He tavors using the fed-
ciency and controlling costs. Gramm calls the current COSt-
eral workers' program as a
sharing system irrational. For example. he savs it's illogical
model. Though premium-sup-
for Medicare to require no co-payment from beneficiaries
port should be a component
for their first 90 davs in a hospital and big co-payments for
of ann recommendations the commission makes. he savs
longer stavs. "It induces people to bun supplemental insur-
that Medicare's traditional fee-for-service option should
ance that's ven expensive and ineffective." he said. "We have
remain a part of the system.
a collage of co-payments and
"I don't think we know enough 10 go to full premium-
deductibles. with no rationale."
support." he said. "When vou plug in the question about
VERIO VORVICE
Gramm lavors requiring the
security for seniors. I don't know that [premium-support]
elderly to pay more in deduct-
will be the final answer." He said he would not want to see a
ibles and co-payments and
"defined-conribution" system. under which Medicare limit-
abolishing limits on how much
ed the amount of money it would pay in a given time for
Medicare will pay for an exten-
each beneficiary.
sive hospital stav: such a limit
Frist. a heart transplant surgeon. is especially interested
now "ruins people financially if
in the financing of graduate medical education through
they get very sick."
Medicare. He said the commission needs to decide whether
Making Medicare more like
educating physicians should be a societal goal that deserves
the Federal Employee Health
the federal government's financial backing.
Benefits Plan is a step in the
Frist also said the commission needs to consider the priori-
right direction. he said. He savs he likes the market approach
ties of this country's elderly-such as security. simplicity and
of that program. which limits the money the federal govern-
more choices of health plans. He advocates adding a prescrip-
ment pays for each person.
non drug benefit and perhaps a beneht for mental health
Gramm has written a proposal 10 require voung people
Gate as well.
to invest privately to save for their medical expenses.
ILLENE GORDON
DEBORAH STEELMAN
Illene Gordon is a staff assistant in Senate Majority
Deborah Steelman. an attorney in private practice, head-
Leader Trent Lott's state office in Jackson, Miss. Her priori-
ed a Social Security and Medicare council during the Bush
ties: Add a prescription drug benefit. improve the long-term
administration. Her priority: Make Medicare more like the
care benefit and require voung people to save for their later
working population's market-orienfted programs.
health care needs.
Her main concern is that Medicare doesn't allow patients to
Gordon. 71. gets an cartul of complaints every dav in Lott's
fulls insure themselves against risk. "and that's wrong." she
Jackson office. where her job is to help constituents with
said. In the private sector. she continued. people are "not
Medicare problems. (Some commissioners had been con-
faced with the prospect of a cap. after which the insurance
cerned that she would act strict-
company won't pav. They're not faced with the problem of. 1
" as a monthpiece for Lou. but
hope I get sick in a way that I don't need pharmaceutical ther-
now then regard her more as a
apv. Mv main concern is to try to. in a fiscally solvent and fair
-
spokeswoman for the elderlyn
way. 10 correct that phenomenon."
"One of nv priorities is pre-
The challenge. she said. will be to rework the connections
scription drugs." the said. The
between Medicare. Medigap and
have a lot of people. couples
Medicaid so that they "make
who are both disabled. mavbe
sense." One priority: Combine
in their SOs. living 01) less than
Medicare's Part A and Part B.
S800, OF $600. .1 month. but
Steelman savs she's also
RICHARD A. BLOOM
who can't qualify for Medic-
committed to making sure
aid. 11's sometimes " choice
Medicare is self-sustaining, so
between prescription drugs
that she and other baby
and food. 117 hear a lot of that." She added that con-
boomers are not "forced to
stituents also call because they need long-term care. which
demand that the population
Medicare covers only on a limited basis: and they have 100
behind us pays for us." That
many financial assets to qualify for Medicaid. which would
could mean requiring that
cover most of 11.
beneficiaries pay a greater por-
But Gordon acknowledged the difficulty of adding bene-
tion of their anticipated Medicare expenses in advance of
his and keeping Medicare from going broke. She savs she's
that wealthier elderly people pay more. She is concerned
open to the concept of getting the under-65 population 10
that people with Medigap cost Medicare too much. because
invest in private savings for later medic needs.
they are more prone to overuse basic doctor services.
11.21.98 NACIONAL JOURNAL
2779
GEPHARDT'S APPOINTEES
Finance Committee. was co-chairman in 1994 of a congres-
JAMES McDERMOTT
sional commission on entitlement reforms. Ilis priority:
Rep. James A. McDermott. D-Wash.. is a member of the
Achieve long-term solvency by making bold changes.
House Was and Means Committee. His priorities: Preserve
Instead of fixing the current Medicare system. Kerrey
the current system. add a drug
would like to see new approaches. But he's not optimistic.
benefit. ensure at continuum of
"We still don't have a mandate
care and improve coverage for
from the electorate." he said.
long-term care.
"The problem with Medicare is
There's a split on the com-
that it's not that well-under-
mission about how to define
Present
stood
Am problem that
what's wrong with Medicare. he
isn't imminent is not a political
said: "If you saw it's that we're
problem with the electorate."
spending 100 much money. it
Kerrey said his main objec-
sends you off in one direction.
tive is to stabilize Medicare costs
If von san [the program] was
SO they don't consume an ever-
designed 30 years ago and
growing share of the federal
needs to be modernized, it
budget. "There are those who
sends you off in another direction. I'm in the second catego-
sav you can't forecast out 25
n." Commissioners who sav you can both modernize and cut
years. that you can't know where this trend is going." he said.
costs are overly optimistic. he said.
"That argument is typically authored by someone who doesn't
To move forward. there must be an acknowledgment that
want to make changes in the program. By next year. Congress
what Congress tried to do in the 1997 Balanced Budget Act-to
will be looking as far ahead as 2010 when it writes its federal
"cram everyone into [HMOs]-is not going to work."
budget. and the extent of the problem will become more clear.
McDermott. who wants to help low-income people cover
We'll be able to see the beginning of the baby boom retires
their out-of-pocket costs. also said ann revised plan has to
ment age. Right now. boomers don't exist [in Medicare
include a prescription drug benefit. Like many of his col-
terms]. If you don't see it in the budget window. it's not real."
leagues. McDermott wants to revamp Medigap. perhaps by
In the Senate Finance Committee last year. Kerrey advocat-
incorporating it into Medicare. But he criticized proposals
ed controversial proposals to cut Medicare's costs. including
that would keep the elderly from buving Medigap plans to
increasing the eligibility age from 65 to 67. starting to require
cover all out-of-pocket costs.
a co-payment for home health care services and charging
Senior citizens. he said. don't "sit around and sav. Well.
wealthier people more for Medicare.
gee. I haven't seen m doctor in a while. I think I'll go in and
see him. We go [to the doctor] when we re scared."
JAY ROCKEFELLER
Sen. John D. "Jay" Rocke-
JOHN DINGELL
feller IV. D-W.Va.. a member of
Rep. John D. Dingell. D-Mich.. is the ranking member of
the Senate Finance Commit-
the House Commerce Committee. His priorities: Preserve the
tee. was chairman of a commis-
RICHARD A BLOOM
existing program. add a pharmacentical benefit and head off
sion on long-term health care
the proposed deep cuts and limits on government payments.
in 1989. His priorities: Preserve
Dingell. who voted in 1965 to create Medicare. savs he is
the current system and fight
determined to preserve the program in its current form. while
attempts to impose limits on
adding a prescription drug benefit. The said at the beginning
how much Medicare will pay
that this was a needed level of benefits." he said. "I'm not for
for am one person.
dismantling the system. I'm not for forcing people into
"That is basically saving to
[HMOs]. I'm not for gutting
someone with diabetes or a
benefits OF the program."
whole range of diseases. Here is $5,000. and good luck.' he
Dingell said he will try to
FILHAPLA Brood
said. "If you have diabetes. it costs $12,000 a year."
scuttle attempts to set a ceiling
A premium-support system modeled after the federal work-
on the amount the government
ers plan might be worth examining. he said. but he worries
would pay on behalf of an indi-
that limits may be imposed on spending for an individual.
vidual. He said he's willing.
"I want to make sure that 111' really know what we're doing.
though. to discuss moving
Sometimes commissions want to strike out with a brand-new
more toward a system like the
idea. without knowing what the effects are." he said. "There
federal employees'. He wants to
are discussions about the Federal Employee Health Benefits
help people who make too
Plan]. but there's little written as back-up for it."
much money to qualify for
What does he favor. then? "I'm about solvency, plus mak-
Medicaid. but not enough to
mg sure seniors get the benefits they need. the most impor-
cover their share of their Medicare costs. "Tin sure not going
tant of which is prescription drugs." he said. But Rockefeller
10 pile am more miseries on the ones at the bottom of the
added that he's worried about overly ambitious plans for res-
totem pole. he said.
cuing Medicare. "It's hard to predict, because of how fast
things are changing." he said. "It would be great if we could do
DASCHLE'S APPOINTELS
something [that would work| through 2015. Medicare's going
ROBERT KERREY
to go through a lot of changes. To posture as to what they're
Sen. Robert Kerrev. D-Neb.. a member of the Senate
going to be. much less legislate it. is pushing it."
2780
NATIONAL JOURNAL
NOV 20 '98 05:31PM SENATOR BREAUX
P.2/3
JOHN
AUX
STATE OFFICES:
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MEMORANDUM
(504) 589-2531
CENTRAL LOUISIANA
(318) 487-8445
To:
Vice President Gore
From:
Senator Breaux
Date:
November 19, 1998
As a follow-up to our discussion last week, I want to reinforce my point that we need
to talk about restoring solvency to Social Security in conjunction with a discussion
about restoring solvency to Medicare. There are several reasons why I think this is
important.
1. The financial problems facing Medicare are even more grave than those facing
Social Security. Unlike Social Security which continues to take in more revenue
through the payroll tax than it pays out in Social Security benefits, Medicare is
spending more on Part A benefits than it takes in through the payroll tax and has been
since 1995. Medicare's HI Trust Fund will also be insolvent at a much earlier date
than the Social Security Trust Fund--2008 as opposed to 2029.
2. Medicare has a significant impact on the income security of the elderly population.
Since Medicare was enacted, the poverty rate among the elderly has declined from
29% to 10.5%. However, the elderly are spending an increasing amount of their
retirement income on out-of-pocket health care costs.
3. In 1997, Medicare's share of the federal budget was 12% and Social Security's
share was 21%. The projections for 2030 show that Social Security and Medicare will
consume half of the federal budget in almost equal shares--26% and 24% respectively.
In the debate over the 1997 Balanced Budget Act, the Senate, by large, bipartisan
margins, supported politically difficult changes to Medicare that would have extended
the solvency of the trust fund by a few years. While these changes would not have put
Medicare on firm financial footing or conformed Medicare's benefit design to the
modern notions of comprehensive health care coverage, they were still too
controversial to become enacted into law. Hopefully we will refrain from politicizing
the issue of Medicare, since 2008 is less than a decade away and the consequences of
inaction are severe.
NOV 20 '98 05:32PM SENATOR BREAUX
P.3/3
The National Bipartisan Commission on the Future of Medicare was created because
the Administration and Congress recognized the need to develop a bipartisan,
comprehensive solution to restore the long-term solvency of the program. The
Commission is required by statute to make recommendations in several areas including
Medicare's eligibility age, Graduate Medical Education, and the health needs of the
chronically ill. Our report must be submitted to Congress and the President by March
1, 1999. The Commission has held more than thirty hearings at both the task force
and full Commission level to seek input from providers, beneficiaries and analysts and
to gather information regarding the scope of the problem facing Medicare. We are
considering a wide range of options and I am committed to finding a "center out"
solution that meets the Commission's statutory objectives.
It is my hope that the Commission can make bold recommendations, bolder than what
may be possible for Congress to enact and the Administration to support. These
recommendations should ensure that Medicare is able to provide the current benefits
package to future beneficiaries before new benefits are considered but we will also
explore the types of reforms that would make expanded coverage possible. We can't
do this unless we have bipartisan support, including support from the White House
appointees who are critical to this process.
The next meeting of the Commission is December 2nd and 3rd. We will be discussing
at length various reform options. I will touch base with you again as it becomes
clearer what recommendations might be included in the final report. I look forward to
working with you and the President as we move forward.
Date:
FAX
Health Division
Office of Management and Budget
Executive Office of the President
Washington, D.C. 20503
To: DEVORAH
Fax:
Phone:
From: YVETTE
Number of Pages (not including cover):
Subject:
Please call if there are any problems with this transmission:
Health Division (Front Office)
202/395-4922
Health & Human Services Unit
202/395-4925
Health Programs & Services Branch
202/395-4926
Health Financing Branch
202/395-4930
Fax Numbers:
Health Division (Front Office)
202/395-3910
Health Division (Room 7001)
202/395-7840
DRAFT: NEC MEDICARE COMMISSION PRINCIPALS' MEETING
OEOB Room 180; 3:15pm
February 22, 1999
RETERMINED TO BE AN
for
ADMINISTRATIVE MARKING
Not
INITIALS: Rece DATE: 04/05/12
AGENDA
2012-0463-5
I.
PREMIUM SUPPORT (15 minutes)
Policy
Politics
Fassed to:
NAM
II.
OPTIONS (45 minutes)
Rich
Guidance for Upcoming Commission Meetings
Dan M
Mark McC.
Response to Commission Vote
-
cinarled to
Q&Y
Rick
mes a puey
POLICY PROS AND CONS OF PREMIUM SUPPORT
PROS
Would likely reduce Medicare costs through competition. Premium support encourages
beneficiaries to choose lower cost health plans by giving them a financial incentive to do so.
Depending on how premium support is structured, efficient plans can attract beneficiaries by
offering lower premiums or additional benefits. As beneficiaries move to lower-cost plans,
the national average Medicare spending is reduced (or doesn't grow as fast as it would have),
thus reducing Federal Medicare costs over time.
Better aligns Medicare with private health insurance. Today, Congress and the President
must make explicit changes to Medicare reimbursement levels to control program costs.
While over time the growth in Medicare has roughly matched private health insurance
growth, cost control is cumbersome and subject to significant political constraints. Under
premium support, Medicare spending is more dependent on the ability of private plans to
achieve efficiency, which should more closely align the growth of future government
Medicare spending with the overall level of efficiency achieved by private health insurers.
Gives beneficiaries more choices. Today, beneficiaries enroll in managed care plans
because, in some areas, those plans can offer extra, free benefits. Under this proposal,
beneficiaries can lower their Medicare premiums by enrolling in low-cost plans and, under
some proposals, also get some extra benefits. Premium support also has the potential to
attract more private plans to participate in Medicare or extend their market area, since they
would have new flexibility to use financial incentives to attract beneficiaries.
CONS
Premium for traditional Medicare will likely be higher than private plan options. Since
the government's contribution to the traditional Medicare would be based on the premium
support program, the Medicare fee-for-service premium can be expected to be higher than
that of private plans -- especially if it is not allowed to use the same management tools as
private plans. This could put people who do not want to enroll in private plans or who don't
have the option (e.g., in rural areas) at a financial disadvantage. It could also create
confusion and anxiety for beneficiaries -- and may not be worth it if the savings from
premium support are small.
Could reduce extra benefits that current Medicare managed care enrollees receive.
Currently, Medicare managed care plans compete for enrollment by offering beneficiaries
additional benefits such as lower cost sharing, preventive care, and outpatient prescription
drugs. Under premium support, a greater share of the efficiency savings accrue to the
government, reducing the amount that can be provided as additional benefits.
Significant regulation would be required to avoid two-tiered Medicare. To promote
competition based on price and quality -- rather enrollment of the healthiest beneficiaries
significant new rules and oversight would be needed. Without such rules, or because of
imperfect implementation, premium support could have the unintended effects of creating
higher premiums for people who are sick and low-income.
POLITICAL PROS AND CONS OF SUPPORTING PREMIUM SUPPORT
PROS
Elite validation would enhance credibility and increase likelihood of bipartisan agreement on
Medicare -- and Social Security.
Would significantly increase the likelihood of a drug benefit for all beneficiaries and new
purchasing tools for the traditional program.
Drugs and the dedication of the surplus in return for premium support may be a good trade.
Defining acceptable premium support at the beginning of the debate will give us more
credibility in opposing at the end of Congress passes a flawed version.
CONS
Will alienate Democrats base, particularly in the House.
Risk of higher premiums and elderly dissatisfaction is too high relative to any potential
positives.
More difficult to oppose premium support at the end of the process -- particularly if included
in a broader reconciliation.
OPTIONS FOR FEBRUARY 23, 24 MEETINGS
I.
REJECT COMMISSION PLAN; CONCLUDE THAT THERE IS NOT ENOUGH
TRUST OR TIME TO WORK OUT DETAILED COMPROMISE; REITERATE
PRINCIPLES FOR REFORM
II.
CRITIQUE COMMISSION PLAN AND LACK OF DETAILS; REITERATE
SPECIFIC IMPROVEMENTS NECESSARY TO SUPPORT; SUGGEST
WILLINGNESS TO CONTINUE TO WORK FOR COMPROMISE AND
OPENNESS TO EXTENSION
III.
REJECT COMMISSION PLAN AND PROCESS, SUGGEST THAT WE'LL
OFFER AN ALTERNATIVE WITH PREMIUM SUPPORT
IV.
REJECT COMMISSION PLAN, SUGGEST THAT WE'LL OFFER AN
ALTERNATIVE LOWEST COMMON DENOMINATOR PLUS PRINCIPLES
FOR VIABLE PREMIUM SUPPORT
DRAFT BACKGROUND: PRESCRIPTION DRUG COVERAGE FOR
MEDICARE BENEFICIARIES
NEED AND USE AMONG MEDICARE BENEFICIARIES
Over 85 percent of Medicare beneficiaries use at least one prescription drug in the course of a
year. (Davis et al., 1999).
Medicare beneficiaries with coverage for drugs used, on average, 20.3 prescriptions per year,
compared to 15.3 per year for beneficiaries without coverage. (Davis et al., 1999)
One study found that elderly and disabled Medicaid beneficiaries experienced significant
declines in the use of essential medicines (e.g., insulin, lithium, cardiovascular agents,
bronchodialators) when their Medicaid drug coverage was limited. (Soumerai et al., 1987)
Another study found that elderly, ill Medicare beneficiaries whose Medicaid coverage was
limited were twice as likely to enter nursing homes. (Soumerai et al., 1991)
The odds that Medicare beneficiaries use drugs to treat their health problems increases by 60
percent if they have insurance. (Stuart & Grana, 1998)
SPENDING
In the past 10 year, spending on prescription drugs has risen as a percent of total spending, by
20 percent. In the next 10 years, its share of national health spending is projected to increase
by nearly 30 percent. This means that nearly one in ten health care dollars will be spent on
drugs. (HCFA, 1998)
Although the elderly comprise 12 percent of the population, they account for over one-third
of all prescription drug spending. (Mueller, Schur & O'Connell, 1997)
The elderly's per capita spending on drugs is over three times as high as that of non-elderly
adults, and nearly 10 times that of children. This reflects the greater prevalence of chronic
conditions like arthritis and high blood pressure that are best managed through medication.
(Mueller, Schur & O'Connell, 1997)
Spending on prescription drugs represents one-third of Medicare fee-for-service
beneficiaries' out-of-pocket spending (excluding premiums payments). (AARP, 1998)
About half of Medicare beneficiaries have prescription drug spending of more than $500 per
year; over one in ten have more than $2,000. (HCFA Office of the Actuary, 1999)
INSURANCE COVERAGE
Only 38 percent of Medicare beneficiaries
have private drug coverage. Employer-
Medicare Beneficiaries' Drug Coverage,
based, retiree coverage is the largest source
1995
of private coverage, but recent studies show
Changed
During Year
a dramatic decline in this coverage. About
7%
No Coverage
35%
10 percent of beneficiaries have Medigap or
Employer
other private sources of coverage. Similarly,
28%
as the cost of Medigap insurance climbs, the
proportion of beneficiaries who can afford it
Medigap/Self
Government
10%
20%
has been declining. (Davis et al, 1999)
Retiree health insurance: The major source of drug coverage for the elderly -- employer
sponsored retiree insurance -- is eroding. Between 1993 and 1997, the percent of large firms
offering retiree health benefits for Medicare eligibles dropped about 20 percent (from 40 to
31 percent). (Mercer/Foster Higgins, 1997).
Medigap: 3 of the 10 standard Medigap plans offer prescription drugs. Their benefits
includes: a $250 deductible; 50 percent coinsurance; and a cap of $1,250 or $3,000.
Medigap premiums in general have been rising rapidly. One study of Medigap in 3 states
found that premiums for the two most popular plans rose by 12 and 20 percent between 1995
and 1996. (Eppig & Chulis, 1997)
Medigap coverage has declined from about 40 percent in 1984-87 to 30 percent in 1996.
(Medicare Commission staff analysis)
Medigap premiums range from $402 to $7,196, depending on the state and type of coverage.
The median premium for a 65-year old choosing a plan with prescription drug coverage
(Medigap Plan H) to one with virtually identical benefits except for drugs (Medigap Plan D)
is well over $1,000 or more than twice as costly ($2,073 V 913 in 1998). (Medicare
Commission staff analysis). According to experts, virtually all Medigap drug coverage plans
are underwritten, meaning that the premiums that they charge are based on the person's
health.
Medicare managed care: Typical Medicare managed care plans have no deductibles and
relatively low copayments, but caps on the benefit:
-
40 percent of enrollees are in plans with unlimited benefits
-
18 percent of enrollees are in plans with limits greater than $1,000
-
17 percent of enrollees are in plans with a limit at $1,000
- 24 percent of enrollees are in plans with limits less than $1,000
[Note: these data are for 1998; expectations are that for 1999, the proportion of beneficiaries
in plans with caps and deductibles will rise significantly; unpublished HCFA analysis]
BENEFICIARIES WITHOUT ANY INSURANCE COVERAGE
Not just a problem for low-income beneficiaries: Over 40 percent of beneficiaries without
drug coverage have income above 200 percent of poverty.
Beneficiaries without drug coverage are not much healthier than those with coverage:
Although some argue that beneficiaries without coverage may not need it, 26 percent of
beneficiaries without coverage report fair to poor health, compared to 29 percent of
beneficiaries with drug coverage. Nearly one in three (30 percent) of nonelderly Medicare
beneficiaries with disabilities does not have any coverage for prescription drugs.
Older beneficiaries are less likely to have drug coverage: The proportion of beneficiaries
without drug coverage rises with age:
-
38 percent of people ages 80 to 84
-
41 percent of people ages 85 or older
Nearly half of rural beneficiaries have no insurance coverage for drugs: 46 percent of
rural beneficiaries do not have drug coverage
Source: Unpublished analysis of the 1995 Medicare Current Beneficiary Survey
SPENDING BY BENEFICIARIES WITHOUT DRUG COVERAGE
Even after controlling for health status and income, elderly people with private insurance for
drugs had half the financial burden for drugs as those without coverage. One percent of
elderly households spend at least 25 percent of their household incomes on drugs. Rural
elderly have costs that are 35 percent hgiher than urban elderly, and women have, on average,
costs that are 20 percent higher than men, primarily because many are widowed and lower
income. (Rogowski et al., 1997)
A recent study found that the average older American without insurance coverage for drugs
pays twice as much as large insurers or HMOs. (Committee on Government Reform and
Oversight, 1998)
A 1993 survey found that 13 percent of elderly Americans reported having to choose between
buying food and buying medicine. (Families USA, 1995)
SOURCES
Committee on Government Reform and Oversight, U.S. House of Representatives. (October 9,
1998). Prescription drug pricing in the 1st Congressional District in Maine: Drug company profit
at the expense of older Americans. Minority Staff Report prepared for Rep. Thomas Allen.
Davis M; Poisal J; Chulis G; Zarabozo C; Cooper B. (1999). Prescription drug coverage,
utilization, and spending among Medicare beneficiaries. Health Affairs. 231-243.
Eppig F; Chulis G. (1997). Trends in Medicare Supplemental insurance: 1992-96. Health Care
Financing Review. 202.
Families USA. (March 1995). Worthless promises: Drug companies keep boosting prices.
Washington, DC: Families USA.
Health Care Financing Administration Office of the Actuary. (1999). Unpublished data.
Health Care Financing Administration. (1998). National health expenditure data, as posted on
the internet.
Medicare Commission staff. (1998). Private supplemental coverage summary. Unpublished.
Mercer/Foster Higgins. (1997). National Survey of Employer-Sponsored Plans, 1997.
Mueller C; Schur C; O'Connell J. (1997). Prescription drug spending: the impact of age and
chronic disease status. American Journal of Public Health. 87(10): 1626-29.
Rogowski J; Lillard LA; Kington R. (1997). The financial burden of prescription drug use among
elderly persons. The Gerontologist. 37(4): 475-82.
Soumerai SB; Avorn J; Ross-Degnan D; Gormaker S. Payment restrictions for prescription
drugs under Medicaid: effects of therapy, cost, and equity. New England Journal of Medicine
317: 550-6.
Sourerai SB; Ross-Degnan D; Avorn J; McLaughlin TJ; Choodnovsky I. (1991). Effects of
Medicaid drug-payment limits on admission to hospitals and nursing homes. New England
Journal of Medicine. 325:1072-7.
Stuart B; Grana J. (1998). Ability to pay and the decision to medicate. Medical Care. 36(2): 202-
11.
UNITED STATES SENATE
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
WASHINGTON, DC 20510-6300
JAMES M. JEFFORDS, VERMONT, CHAIRMAN
JUDD GREGG, NEW HAMPSHIRE
EDWARD M. KENNEDY, MASSACHUSETTS
BILL FRIST, TENNESSEE
CHRISTOPHER J. DODD, CONNECTICUT
MIKE DEWINE, OHIO
TOM HARKIN, IOWA
MIKE ENZI, WYOMING
BARBARA A. MIKULSKI, MARYLAND
TIM HUTCHINSON, ARKANSAS
JEFF BINGAMAN, NEW MEXICO
SUSAN COLLINS, MAINE
PAUL D. WELLSTONE, MINNESOTA
SAM BROWNBACK, KANSAS
PATTY MURRAY, WASHINGTON
CHUCK HAGEL, NEBRASKA
JACK REED, RHODE ISLAND
JEFF SESSIONS, ALABAMA
DATE:
March 3, 1999
TO:
Chris Jennings
FAX NUMBER:
456-5557
FROM:
David Nexon
(202) 224-7675 phone
(202) 224-3533 fax
NUMBER OF PAGES:
2 (including cover)
MESSAGE:
This is what we've been saying to Altman. Do you have any comments/suggestions?
If you have trouble receiving this fax, please call (202) 224-7675
TALKING POINTS
--I am disappointed by your offer to Breaux and Thomas.
-You have given them cover for some thoroughly bad Republican ideas: a premium support
program that could force the most vulnerable beneficiaries into HMOs and a program to raise the
eligibility age that could dramatically increase the number of the uninsured. As I understand
your paper, you have not insisted that all GME payments be maintained as entitlements under
Medicare. And I am not clear that you have insisted on the President's plan to put 15% of the
surplus into Medicaid as a precondition before considering further cuts. I am glad that you are
calling for a good drug benefit, but I am concerned that making it a separately purchased benefit
will leave too many seniors out and promote adverse selection.
--What is the impact of the program of the total program on beneficiaries? How much more are
they going to have to pay in premiums and cost-sharing under best case and worse case
scenarios? How many more seniors will become uninsured if you raise the eligibility age, even
with a low-income subsidy? What is going to happen in high cost and low cost geographic
areas? How would GME and DSH funds be distributed if you pull them out of patient care?
What's the impact on solvency of all these changes. I hope you won't even consider putting your
name to something without solid estimates on each of these points for the total package.
--I understand your desire to be a bi-partisan contributer to the work of the Commission, but you
and Laura have basically left the other Democrats on the Commission in the lurch by offering a
separate deal. That's not the way to get where we want to go on Medicare, and it's not the way
to treat people who have spent so much effort in protecting the program against the Republican
assault of the last few years.
--I hope you will not agree to a separate deal with Breaux and Thomas, that you will stiffen your
terms for any compromise, and that you will insist on using the surplus first as the precondition
for any other changes to the program.
--I respect your commitment to the program and your insight into the policy issues, but this is
one time where I really believe you have done the wrong thing--and I hope you will reconsider.
Page 19
LEVEL 1 - 5 OF 5 STORIES
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SHOW: TALK OF THE NATION (2:00 PM ET)
March 1, 1999, Monday
LENGTH: 7117 words
HEADLINE: DR. THOMAS BODENHEIMER, DIANE ROWLAND AND ROBERT REISCHAUER DISCUSS
THE PROPOSED CHANGES IN MEDICARE
BODY:
(Technical Difficulties)
SUAREZ: He's a senior fellow in the economic studies program at the Brookings
Institution and the chair of the National Academy of Social Insurances project,
restructuring Medicare for the long term. Good to have you back.
Mr. ROBERT REISCHAUER: Good to be with you.
SUAREZ: Our number in Washington, (800) 989-8255. That's (800) 989-TALK.
And, Diane Rowland, the Kaiser Survey showed that while people are not really
sure what's in Medicaid, not exactly how it gets paid for, not exactly sure what
their rights are and benefits are under the program, they do support it, which
is not really contradictory, I guess.
Professor DIANE ROWLAND: It isn't. Medicare is, in fact, one of our most
popular health programs. It usually ranks much higher on people's opinion than
our private insurance options. People know that Medicare is there when people
retire. They like and value the program. But they understand it has some
deficiencies and gaps, which is part of what we'll be talking about today.
SUAREZ: What are some of the big suggestions that either win the approval or
win the scorn of the people that you surveyed?
Prof. ROWLAND: Well, certainly one of the most important omissions from
Medicare's current benefit package is the coverage of prescription drugs. As
we've evolved our way to (technical difficulties) medical care since Medicare
was enacted in 1965, prescription drugs have become a central part of the
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treatment options that any physician can offer. Yet today, about a third of the
beneficiaries on Medicare have no coverage for prescription drugs, and others
have to pay a substantial amount on their own to supplement the coverage that
they have. So a big issue in this debate is will we cover prescription drugs
and add them into the Medicare benefit package, and how will we cover the cost
of doing that?
SUAREZ: Well, if I remember my history of the program correctly, one of the
reasons why they were left out at the beginning is that prescription drugs
were pretty cheap, and some people envisioned a nightmare scenario of trying to
fill 10 million or 20 million claims for $ 2 or $ 3 apiece, and they at that
time thought they were wisely leaving it out. Now that drugs--a drug regimen to
treat a chronic condition can cost you a couple of grand a year, it looks like
something that's much more dire.
Prof. ROWLAND: Right. And now we've shifted care, really, from an
intensive, hospital-based system in 1965 to doing much more on an out-patient
basis, SO we try to keep people at home, and we try to minimize the cost of
their care by using drugs to supplement it. So that's one key improvement in
the program.
Second, people talk about the need for long-term care coverage, which
currently isn't available, really, through the Medicare program, yet people face
huge bills for nursing home care that would help to be covered under the
Medicare program. But on the other side, people are really looking at the
fiscal issues, and how we can protect Medicare's solvency in the future, how can
we sustain the cost of a growing program with an aging population, and that's
where you get some of the other proposals that are on the table, such as the
Breaux proposal for premium support, a new way of adding to the competitiveness
of the Medicare program, and helping to give people assistance to go out and
shop for insurance coverage instead of getting one-stop shopping through the
Medicare program.
Another proposal to add to the age of Medicare so that instead of getting
benefits at age 65, you might not get them until age 67. So we're looking at a
broad mix of improvements to Medicare and reductions. As you might suspect, the
public is far more supportive of those options that expand coverage than of
those options that would reduce or cut back on coverage.
SUAREZ: Well, Thomas Bodenheimer, does that jibe with what you know about
people's preferences, and how does it line up with what you've come up with in
rebuilding Medicare for the 21st century?
Dr. THOMAS BODENHEIMER: As you know the Medicare Commission under Senator
Breaux, the majority of the commission now favors a type of voucher system that
it calls premium support. And under this plan, 40 million elderly and disabled
Medicare beneficiaries would lose their red, white and blue Medicare cards and
instead would receive a voucher that pays most of the cost of an insurance plan,
so that Medicare would be turned into a marketplace of competing private health
insurance plans, and our feeling is in the national campaign to protect, improve
and expand Medicare, that this is a plan with serious negative effects, and I'll
give three of them. It will fail to solve the financial problems of Medicare,
which has to be done. It will shift health-care costs onto elderly and disabled
people, and it's wasteful of taxpayers' dollars. And I could speak a little
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more, if you want, about why I don't think this plan will save Medicare money.
SUAREZ: Yeah, let's talk about that, because I think part of the rationale is
that big insurers would be competing in price and program to bring on--sign on
millions of new beneficiaries. Why wouldn't it save the program money?
Dr. BODENHEIMER: Well, the main work of the commission really is to solve
Medicare's financial problems so that Medicare will really be there when
millions of younger Americans reach retirement age. The premium support plan
may not save any money for Medicare, really relies on competition among
private health insurance plans to reduce costs, and that is an assumption
without a lot of good evidence to support it.
Let me just give one example. Premium support plan is modeled on the federal
employees' health benefits program. If you look at the federal employees'
program, since 1995, its costs have been rising faster and faster each year.
And compare that to the public Medicare program we now have. Its costs, since
1995, have been going up slower and slower each year, so that in 1998, the
private federal employees' program average premiums went up by over 10 percent
over the previous year. In the same year, the public Medicare expenditures
increased by only 1.5 percent, so this premium support program would abandon the
existing Medicare program, whose rate of inflation is slowing, and would
substitute a private marketplace whose rate of inflation is increasing.
SUAREZ: Well, it sounds like it's only a matter of time till people start
clamoring to put all those FEHBP recipients onto Medicare, because it's so much
cheaper.
Dr. BODENHEIMER: Well, we'll see what happens with that.
SUAREZ: Those two trend lines have to cross somewhere out in space, don't
they?
Dr. BODENHEIMER: It's--you know, it's interesting that even a number of
experts, including, for example, Health Care Financing Administration that runs
Medicare, says that you could not expect to get savings in the Medicare program
from the premium support feature that's being discussed by the Medicare
Commission, SO I'm not alone in thinking that this is not a good idea if we
really want Medicare to be there for the millions of baby boomers who are going
to reach retirement age about the year 2010, 2011.
SUAREZ: Robert Reischauer, let me bring you in here.
Mr. REISCHAUER: Well, just a few comments on the doctor's analysis. One is
that we shouldn't be comparing these programs over a three- or a four-year
period, but over a much longer period of time. One reason Medicare spending has
slowed down SO precipitously in the last few years is because in 1993, and again
in 1997, the Congress enacted very substantial cuts in the program, and the
question, looking forward, is will we be able to make cuts of a similar
magnitude in the future? If not, one would expect that Medicare spending is
going to accelerate once again.
The other real issue is the one that Diane pointed out, and that is that we
have a program which was a pretty good program for 1965, but it's 1999. And
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this program has a lot of holes and gaps in it, such that for the average
elderly participant, half of their health-care spending is paid for by Medicare
and half out of pocket or through a supplementary policy somewhere. This is
hardly a comprehensive insurance policy. It's certainly not one that any
American who is now covered by an employer-sponsored policy would want, because
it doesn't have an out-of-pocket limit; it doesn't have--cover of prescription
drugs; it doesn't cover a lot of preventive services that most workers and
dependents are quite used to now.
So we really have to think of ways to modernize, make this a more adequate
program while, at the same time, holding down the cost growth. And that's a
very, very difficult thing to do.
SUAREZ: But are we really intending to create a comprehensive, all-embracing
system out of Medicare? Right now, people are starting to change the tone with
which they talk about Social Security and telling people who now are in their
30s and 40s, Look, this is not meant to be your entire retirement package. This
isn't meant to be your pension. Think about it in another way. So it sets a
floor for the least financially well-endowed people, and then everybody takes it
from there and goes up.
Mr. REISCHAUER: That certainly
SUAREZ: Should we be thinking of Medicare in a similar way?
Mr. REISCHAUER: No, we shouldn't.
SUAREZ: OK.
Mr. REISCHAUER: I mean, that's certainly a way to go about retirement
income. The government, through Social Security, provides the fundamental basis
upon which you build a pension plan from your employer, some private saving of
your own, the equity you've built up in your house and all of that. But when we
talk about medical care, it really doesn't make much sense to have two or three
policies covering your health-care needs, because it's confusing, it's complex,
it's costly, not just for the participants but also for providers as well. And
you can gain some significant efficiencies by bundling the entire coverage into
one insurance policy. Now this is certainly what we found out in the
employer-sponsored world.
There aren't a lot of people out there whose company provides them with
health insurance who then go out and buy a supplemental policy. It isn't
necessary, and it isn't an efficient thing to do.
SUAREZ: But your employer does give you a range of options at different
costs, and you look 'em over and you decide depending on whether you've got
dependents, depending on whether your children are still at home, what kind of
care you're going to need, and you may go with the real bells and whistles plan
or something a little bit more modest.
Mr. REISCHAUER: Well, that's precisely what Senator Breaux and a number of
people on the Medicare Commission have proposed in this premium support idea,
which would be to have a number of private plans--PPOs, HMOs, the various
alphabet soup that we have now out there for types of insurance available as
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well as standard Medicare. Standard Medicare isn't gonna disappear. And
depending on the cost of these various plans, you will have different premiums
that you pay as an individual, but you'll be able to choose among them.
SUAREZ: If you're just joining us, we're talking about Medicare this hour on
TALK OF THE NATION. It is a program that is an increasingly heavy burden on
general funds that are out of the taxes paid by American taxpayers. These are
not totally sufficient--the 1 1/2 percent that you're paying out of your
paycheck is not sufficient to pay the costs of Medicare. So we're looking ahead
and wondering what Medicare might look like when millions more of you are
retiring, when those of you who are already retiring later in the program and
your health care may be even costing a lot more by then. (800) 989-8255 is
our number.
Nampa, Idaho, is our first up. David, welcome.
DAVID #1 (Caller) Hello, Ray. I'm a family physician at Terry Reilly Health
Services, a community health center here in Idaho, and my concern is regarding
the commission's probable recommendation that they're gonna increase the age to
67. In my career and working with the uninsured in this country, I can think of
scores of examples of people who are already 64, 63, who are waiting deferring
essential medical care 'cause they can't afford it. As a particular example, I
can particularly think of a particular 64-year-old woman with known heart
disease who is developing worsening chest pain who refused to undergo cardiac
catheterization because she couldn't afford it. She kept saying, Can't we wait
six months?' Well, we waited six months
SUAREZ: Until she was Medicare eligible, you mean?
DAVID #1: Well, she would have been, right, at 65. She was 64, and so she
wasn't yet. And we kept our fingers crossed and, fortunately, she didn't have a
heart attack that took her, but it could have very well been a much more
expensive situation for everybody involved and maybe taken her life. Same thing
with another woman that was developing symptoms of a developing stroke, kept
saying, Can't we wait three months, six months, so I don't get my MRI?' And,
again, same thing, somebody who's potentially at high risk of developing a
serious medical problem not only in terms of cost but to that person's life is
literally deferring care 'cause they can't afford it. So my question to our
panel is, would the commission, if they do recommend raising the age to 65--what
do they propose we do with the additional one to two million seniors who will
become uninsured who are already sacrificing their own health care because they
lack access and who are probably the ones who are most in need of that? What
are we gonna do with those people?
SUAREZ: Diane Rowland?
Prof. ROWLAND: Well, I think you raise a very important point. One of the
concerns about raising the age of eligibility is that we believe people without
access to insurance--we know that as you get older, the cost of buying private
insurance goes up; the kinds of policies you can get are often inadequate so
that Medicare protection has been a very important piece of turning 65. And
it's really quite different than being able to retire at age 62 and take a
reduced benefit. If you've got an all or nothing situation, either you're
insured or you're not insured. And I think one of the challenges of raising the
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age of eligibility will be to try and figure out how to make insurance
affordable for people during the waiting period. Yet, we know that we haven't
been very successful in doing that anywhere else in our non-elderly population
SO that it is a major concern and one that I think will leave many people
waiting even longer for that operation, as you've described.
SUAREZ: But, Thomas Bodenheimer, isn't that a problem no matter where you set
the age limit? If, as some people have proposed, you dropped the age of
Medicare eligibility, let's say, to 62, there would be 61-year-olds that might
come to David's clinic in Nampa, Idaho, and have chronic conditions that need
treatment for which treatment only gets more expensive if you wait, and as Diane
Rowland calls it, an all or nothing program, there is a day when you're finally
eligible for it.
Dr. BODENHEIMER: I certainly agree with David. And being a primary care
practitioner in San Francisco, I have similar patients who are waiting to get on
a program who are currently uninsured. I really think that it's necessary for
everyone in this country to oppose the increase in the age of Medicare
eligibility from 65 to 67. Studies have shown, number one, it doesn't really
save that much money and, number two, it will increase the number of uninsured
by over a million people. What our proposal is is to lower the age rather than
to raise the age and, eventually, that Medicare is a good program to cover the
entire population. It would solve the problem of the 43 million people who are
currently uninsured. And if you have the entire population under a program such
as Medicare, which has to be improved to have a much better benefit package, as
our other guests have indicated, if you have the entire population under that
program, you can budget the program and really try to reduce the rate of
increase of health-care costs, 'cause we have to get health-care costs under
control. Otherwise, the nation will not be able to afford the kind of care
people need.
SUAREZ: Now, Robert Reischauer, you didn't used to be the head of the CBO for
nothing. You know how to add figures up on a pad and paper. What does raising
or lowering or keeping the same really do in terms of program eligibility?
Mr. REISCHAUER: Well, Dr. Bodenheimer's correct, that you don't save a
tremendous amount of money because, of course, the people 65 and 66 are fairly
healthy of the whole Medicare population. I agree with the other two panelists,
that it would be a terrible mistake to raise the age of eligibility to 67, and
it would create all sorts of problems in our system, not the least of which
would be that you would find an acceleration of the trend that's already
occurring, which is companies dropping their supplemental insurance for their
retirees, because they will say, Good Lord, we're gonna have to pay the full
bill for our 66- and 65-year-olds, and that's just gonna be too expensive, SO
we're gonna drop health-care coverage for our retirees.' And that will leave
more people without supplemental insurance or paying the very high rates that
Medigap policies now cost, which has become a real burden to many in that
population.
SUAREZ: But today's 64 1/2-year-old, if what I read is right, is healthier
than the 64 1/2-year-old from 1965 or 1935 or 1905 and can expect to live a lot
longer as a result of getting to that age as a healthier person. Why isn't it
actuarially rather than politically necessary to raise the age to respect--to
respond to the different realities of what it means to be 64 1/2 in this
country?
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Mr. REISCHAUER: Well, the major reality is that we really should expect
people to work longer. And if they work longer, they will be covered by their
employer-sponsored health policy, those that work for a company which provides
it, which is how most of us get our insurance. But we have not changed the age
of initial eligibility for Social Security. We have just changed the age at
which you receive unreduced benefits. And so I think some changes have to be
made in the work area before we can consider what I think you're driving at,
which is an increase in the age at which Medicare's available.
SUAREZ: Nampa, Idaho, thanks for your call.
You're listening to TALK OF THE NATION from NPR News.
David is with us now from San Francisco. David, welcome.
DAVID #2 (Caller) Yes, hi. There is a real simple solution to this, and it
really--it's so simple that God knows the Republicans and Democrats would never
go for it, and that's to raise the wages, either raising minimum wage or
allowing the rise in wages overall. You mentioned that we're currently paying
1.5 percent in everybody's paycheck to fund these programs, and to raise wages
in total, to raise the minimum wage and to raise other wages to an honest living
wage would simply take care of this problem, and we wouldn't have to go through
all of these machinations. But if you paid--if people have paid attention to the
tort reform laws of the last 10, 15 years, especially those done during the
Reagan and Bush administrations, these tort reform laws encouraged people who
were injured on the job and subject to cancers and other types of conditions
that were suing polluters to--and pollution is certainly going to be a major
cost of what Medicaid, Medicare is going to go through in the next X amount of
years. And the tort reform laws have actually encouraged the polluters to allow
people to die before they do a payout.
And SO if you look at much of the machinations which are going on in these
discussions, they are actually encouraging the deaths of average US citizens
because they don't want to pay--if you're familiar with tort reform, it's
cheaper to pay for a dead person than it is to pay for someone that's gonna
linger with a long-term condition, so if you just wait until they die and then
you pay out their medical benefits--you know, their past benefits
SUAREZ: But, David, wouldn't it have to be a sizable number of all the
citizens in the affected class dying from environmentally related causes for
this to really have an impact on the bottom line of managing Medicare?
DAVID #2: Oh, well, sure.
SUAREZ: You're making it sound like, you know, half of all old people are
dying from environmentally related causes, and I'm just not sure that's true.
DAVID #2: Right out here--yeah, out here in San Francisco Bay area, we've got
the highest birth or--excuse me--breast cancer instances in the country. We've
got God knows, you know, how many pollutants--it's not safe to eat fish twice a
month from out of the bay. Twice a month, and you're putting yourself at risk.
I remember 15 years ago, the DDT in ducks was so bad that 17 states--they were
telling duck hunters not to eat any ducks for--you know, shot in 17 states in
the western part of the US. I mean, this is 15 years ago. Pollution is
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critical at this point.
SUAREZ: Bob, I'm not trying to deny your point that pollution is critical,
but it's a very roundabout way of reducing the health-care costs of Medicare
to
DAVID #2: Is to kill people? Yeah.
SUAREZ: No, is to go and do a wall-to-wall environmental cleanup. I mean, it
just isn't gonna show up on the balance sheets for a very long time. Medicare
will go out of business first before cleaning up the environment shows up on the
balance sheet.
David in San Francisco, thanks for your call.
We're going to take a break. My guests are Thomas Bodenheimer, Diane Rowland
and Robert Reischauer. We're going to take a short break, and when we return,
we'll continue to talk to you about what's wrong with Medicare and how to fix it
and we'll take more of your calls at (800) 989-8255.
At 33 minutes past the hour, it's TALK OF THE NATION from NPR News.
(Announcements)
SUAREZ: Welcome back to the program. I'm Ray Suarez. Today we're talking
about the effort to improve the Medicare program, save it for the long term. My
guests are Thomas Bodenheimer, a physician in private group practice in San
Francisco, a clinical professor in the Department of Family and Community
Medicine at the University of California, San Francisco. He's also co-author of
Rebuilding Medicare for the 21st Century. Diane Rowland is here with me in
Washington, executive vice president at the Henry J. Kaiser Family Foundation
and the executive director of The Kaiser Commission On Medicaid and the
Uninsured. She's also a professor of health policy at Johns Hopkins University.
And Robert Reischauer is here in Studio 3A as well, a senior fellow in the
economic studies program at the Brookings Institution and the chair of the
National Academy of Social Insurance's project, Restructuring Medicare for the
Long Term. He's also former director of the Congressional Budget Office.
Our number is (800) 989-8255. Linda joins us now from Ann Arbor, Michigan.
Hi, Linda.
LINDA (Caller) : Hi, Ray. I have a couple suggestions that I think would save
money in the Medicare program. I'm a Medicare recipient. Excuse me. I'm also
a--was a geriatric social worker. My first idea is that I have to have periodic
IV drug treatment, and the only way Medicare pays for them is if I'm in a
hospital setting, which costs over $ 1,000. And they won't pay for the service
if done in my home, which would only cost $ 50. So I think that's one rule that
needs revamping, is allowing patients to get more care in the home.
SUAREZ: OK. Linda, as someone who used to do this kind of work, how much
qualification, how much training would a home health-care worker need to be able
to minister to someone like you?
LINDA: Well, it would take a nurse to actually, you know, get the IV site,
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but I can get a visiting nurse, so the IV treatments would only cost $ 50, and
Medicare won't pay for that, but they will pay over $ 1,000 to have it done in a
hospital setting.
SUAREZ: Thomas Bodenheimer, what do you make of that?
Dr. BODENHEIMER: Well, I'm surprised about that because we've had technology
for a number of years that enables us to give home IV treatments, and Medicare
recipients do receive these. I don't quite understand why this is a problem.
LINDA: Well
Dr. BODENHEIMER: I think a larger problem is that, yes, there is money
wasted in the Medicare program. That needs to be tightened up, and it's one
of the things that should be done, rather than move to a voucher premium support
program to try to reduce the rate of increase of Medicare expenditures, and
certainly what Linda suggests is a way to go.
LINDA: The other suggestion in working with the elderly is that a number of
those folks were people who were retired with health-care benefits from their
employer, and they were pretty well-off financially, and they said they felt
guilty getting Medicare because they didn't really need it. I would like to see
a tax incentive program perhaps that would provide an incentive for folks who
don't need it to surrender their Medicare.
SUAREZ: Diane Rowland, let's talk about that a little bit, because in your
research, people were willing to look at sliding scale benefits and sliding
scale payments for those who are more able or less able to afford it, having a
different relationship with the program.
Prof. ROWLAND: Well, we certainly currently have people who get both
Medicare coverage and supplementation from their former employer, although the
employer's coverage is declining over time so that we're beginning to see an
erosion of that double protection, so to speak. And I think what's most
important about Medicare is to remember that people will have Medicare from the
day they retire until the day they die and SO you need to be sure that the scope
of benefits there is maintained, and that if your employer goes out of business
or is no longer around to provide those benefits, you would then be left without
Medicare. So the universality of Medicare has really been one of its important
protections, and as we look at the future, I think we need to look more at,
within the Medicare program, doing things like income-relating premiums so that
people with more ability to pay can pay more, but I would hate to violate the
universality of Medicare coverage for over 65 population.
Mr. REISCHAUER: Linda's points, I think, are certainly well-taken, but there
are always problems and unforeseen repercussions. The folks who say they don't
need it don't need it because they had a pretty good employer-sponsored policy,
but if those employers knew that they were going to have to pay the full freight
rather than just supplement Medicare after the worker turned 65, they'd drop
that coverage like a hot potato, and so you'd find them all needing Medicare
very shortly.
SUAREZ: But Linda points out that there are wealthier and less wealthy
seniors who are Medicare eligible and seems to be looking for a way that the
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system itself would respond to that.
Mr. REISCHAUER: Well, in fact
SUAREZ: I mean, is there a mechanism, a means testing system where the
program can carry a heavier burden for those people less able to pay?
Mr. REISCHAUER: Well, the Medicare Commission is proposing or playing around
with an idea that there would be added premiums for those who are 500 percent of
poverty or more, and so it would be an income-related premium. These are very
hard to collect, and you have to collect them really through the income tax
system, and as soon as we mention the word tax, politicians disappear from the
room.
SUAREZ: Oh, Linda, thanks a lot for your call from Ann Arbor. Newtown,
Pennsylvania, is next. Frank, welcome to the program.
FRANK (Caller) : Yeah. I had a comment, but I wanted to ask ahead of time
whether any of your panelists read The Washington Monthly, this one March, an
article titled Bad Prescriptions: Why Privatizing Medicare May Be Hazardous To
Your Health, by Kip Sullivan. And he suggested basically there should be a
progressive tax--a Medicare tax on paychecks. It's not progressive now. And
also he suggested that it should be financed out of the general fund some, a
little, like it has been. We act as world policemen. You can't argue about
bankruptcy if the general fund is paying it. The Pentagon never goes bankrupt.
What's happening also, he says, is that what's going to happen is they're going
to give you vouchers, and they're going to subsidize the insurance companies,
and then few years, we'll switch to get prescription benefits, eyeglass
benefits, hearing aid benefits, and then they'll pull the rug out from under
them.
Now I want to ask you now, do you sh--anybody is interested--I don't know
whether any of you have read The Washington Monthly there. I'm sure you have,
Ray. But do you think that this plan to privatize medicine's a scam, to defraud
seniors of good fee-for-service Medicare? That's my question.
Mr. REISCHAUER: Let me just make a few observations on Frank's statement.
One is that we already use a lot of general funds for this program. The Part B
Program, which amounts to about 40 percent of the total, is three-quarters paid
for out of general revenues and one-quarter out of these monthly premiums that
people pay. The rest is--the Part A Program, which is financed through the
payroll tax, but the payroll tax is applied to all of your income--all of your
earned income. Unlike the Social Security system, it doesn't have a cap on it,
and so you'll find that Bill Gates is paying 1.45 percent of his wages, up to
the millions and millions of dollars, so he is going to pay in significantly
more than any of us will pay in, and yet the benefits he receives will really be
the same. And so it's a system that has, in a sense, a degree of progressivity
in it.
Prof. ROWLAND: But if I could add with regard to some of the kinds of plans
that people might go into, he talked about--Frank talked about the
fee-for-service program for Medicare, and there's a lot of fear that if you
begin to put out options for various managed care plans with different levels of
support and different types of benefits in those plans, that the healthier and
the wealthier will elect to go into some of these managed care plans that may be
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more expensive than the average, and they can afford to supplement them, but we
will leave the sickest and the oldest and the frailest in the Medicare
fee-for-service system, which will become more and more expensive and less and
less adequate as you skim off the healthier, so that many people predict that
under a premium support proposal, you could end up with as many as 40 percent of
Medicare beneficiaries in the fee-for-service program accounting for two-thirds
of expenditures, but not really being able to get the kind of benefits. So I
think we need to look at all of the options on the table from the perspective of
a program that takes care of our oldest and our sickest population to be sure
that we're not leaving the frailest in the most minimal covered programs.
SUAREZ: Thomas Bodenheimer, it sounds like Frank agrees with you, in large
regard, on the voucher system.
Dr. BODENHEIMER: I haven't seen the article, but I suspect that I would
agree with at least the parts of it that Frank mentioned. I think that it's
very important to realize that if you have a voucher premium support type
system, you're basically privatizing the Medicare program in the sense that
rather than people being in a public program, Medicare beneficiaries have to
join either a public or a private health plan, but there'd be a lot of financial
pressure to join a private health plan, and the problem with that is if you look
at how HMOs have been working in the Medicare program in the last few years,
there are a number of problems.
And I'm not an anti-HMO person, but if you look at some of the for-profit
HMOs who tend to be the main ones operating in Medicare, they were introduced
into Medicare to save money, but, in fact, every person in Medicare going to an
HMO costs Medicare 6 percent more than people who stay in public Medicare, and
that's because HMOs have tended to attract healthier people. Yet, they get
plenty of money as though they were getting the average Medicare beneficiary.
Administrative costs of HMOs are about 10 percent--something like that--as
opposed to 2 percent for Medicare. So if we put the entire Medicare system
toward a private voucher type system, the administrative costs will go up
tremendously, profits will go up tremendously. One could almost call it a
corporate welfare program for the private insurance industry. So I think that
Frank is right, that a lot of taxpayers' money is going to be wasted if we move
toward a privatized type of Medicare system
SUAREZ: But very briefly
Dr. BODENHEIMER:
as Senator Breaux wants.
SUAREZ:
Robert Reischauer, could the bait-and-switch that Frank talked
about--basically getting a lot of people into the program and then starting to
degrade the coverage provided by it--would that be possible under the way that
such legislation would be crafted?
Mr. REISCHAUER: Well, the law now requires that private plans that do
operate already in Medicare and enroll about 16 percent of the participants have
to offer at a minimum the same benefit package that's provided through Medicare
standard. And, in fact, almost all of them offer a richer benefit package.
It's also true that the law that was passed in 1997 will reduce that overpayment
that Tom talked about that's going to these plans now, and so while we might
have been overpaying them in the past, that should be a problem of the past.
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SUAREZ: Chicago, Illinois, is next. Sidney, welcome to the program.
SIDNEY (Caller) : Oh, hi, Ray. Thanks for taking my call. I'm 76 years old
and a retired physician, and I understand pretty well the rising costs of health
care, but every industrialized nation in the world except ours has solved this
problem of rising health-care costs through a national health plan, and I was
recently in Spain where everyone is covered for health care and with no
out-of-pocket costs. Now I don't know why we don't have a national health plan
that would eliminate the high administrative costs of private health insurance
like the rest of the world.
SUAREZ: But, Sidney, haven't
SIDNEY: Why is that off the table?
SUAREZ:
many of the countries that have the kind of comprehensive
nationally provided health care started to experience the same kind of
health-care inflation that we have in this country? I understand health-care
costs have been rising very strong in Canada. Spain, you're talking about a
country which is just now starting to move large numbers of people--millions at
a time--into the European middle class, and I think it's probably fair to say
that they will start to experience health-care inflation then, too, because the
kind of things you ask for when you look at your life in a different way and
when you're in this new industrial aristocracy, your needs start to go up. And
they'll probably have the same kind of health-care inflation that we have in the
United States and Canada. Maybe not at the same rate at the same time for the
same number of (technical difficulties) but I can't see that that will not be a
problem everywhere.
SIDNEY: Well, you know, I beg to differ with you, Ray. The Canadian system
is still viable. Its--their health indices are far better than ours, as far as
life expectancy and infant mortality are concerned, and the basic problem there
as far as their costs are concerned is that the HMOs have moved into--for-profit
HMOs have moved into Canada and are extracting profit, in that sense, from those
people who join. And it just seems to me that a system which takes the profit
out of health care is going to be far less expensive than the system that we now
have. We have allowed the market to come in and turn health care into a
commodity so that almost--are actually almost like being traded on the Big Board
in New York.
SUAREZ: Sidney in Chicago, thanks a lot for your call.
SIDNEY: Thank you.
SUAREZ: You're listening to TALK OF THE NATION from NPR News. Oh, well.
Sidney's still there for some reason.
SIDNEY: I'm here.
SUAREZ: Yeah. I'm pushing buttons like a madman here, Sidney, and nothing
personal, but I'm
SIDNEY: You're through talking to me then, huh?
SUAREZ: Yeah. I just--I'm pushing buttons, and you're still here. How is it
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in Chicago today?
SIDNEY: Oh, the weather's fine. The sun is shining and the temperature's
about 48. Pretty good.
SUAREZ: Well, thanks for calling us.
SIDNEY: OK.
SUAREZ: Let me see if I can get John from Koblenz, Germany, with us. Hi-ya,
John.
JOHN (Caller) : Hey, how you doing?
SUAREZ: OK.
JOHN: Can you hear me OK?
SUAREZ: Yes, I can. Go ahead, John.
JOHN: OK. First of all, thanks for taking my call. I tried calling you one
time before, and I got hung up on. You pushed the wrong button or something.
You were talking to me
SUAREZ: Oh, man.
JOHN:
I could hear you fine, but my question or my comment, I live in
Germany. I've lived her for 15 years. I'm still an American citizen, but I
live under the German system. And I'll tell you what, the socialized medical
system, in my opinion, is far, far better than anything I ever experienced in
the States. Doctors, I believe in the States, make too much money. How do I
want to put this better? In basketball or professional sports- I don't want to
compare doctors to sportsmen--they have salary caps because it was getting out
of hand. Here we have a situation where the Medicare system is taxed with
trying to overcome this hurdle of these rising costs instead of nipping the
costs in the bud, maybe looking at a social system, to a degree, or a salary cap
for doctors or certain operations. They just spring right over it and they try
to get more money out of a COW that will not give any more milk.
SUAREZ: Well, John, can you see how it would be difficult to control
health-care costs because health care is not a product like a lot of other
products? Would you shop for the cheapest possible doctor to do your bypass
surgery?
JOHN: No, not e--no, I wouldn't say I would shop for the cheapest doctor. I
would also
SUAREZ: I'll take that as a no.
JOHN: The market is saturated with doctors at the moment, much the same as
the legal system is. I believe that. And I believe, like the woman said
earlier-- I forget her name. She was referring to, Oh, I can get this treatment
at home cheaper than I can get it in a hospital, but that's my option with this
system.' Medicare is, in effect, an insurance system. It works as an insurance
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company should work, I believe, or an insurance policy. Why wouldn't people be
able, like with an insurance company, to be able to go out and get an estimate?
Or if they say, Well, I can get it done cheaper here,' why can't I get it done
like that? Why
SUAREZ: Well, John, that's a perfect question. Let me throw it to the panel.
This not a commodity, I guess, is what's emerging, that you can control costs on
that easily, Diane Rowland.
Prof. ROWLAND: But certainly, it's difficult to go out and shop for a doctor
and a package of services between one hospital and another on price today.
People go to a physician, get referred and often don't know the full cost
implication of the care they're to receive. But what we're really talking
about now in terms of controlling costs is not controlling it at the individual
level, but controlling it in terms of which health plan you go into. And
Medicare has had a fairly successful level record, as Bob Reischauer pointed
out, in--as Congress has made changes in the payment levels, keeping their costs
down. Medicare has a very low administrative overhead compared to private
insurance. So we've had a lot of successes in managing costs, but we just need
to look at some future ways of trying to build better and more modernized
incentives into the programs, such as the home health-care example you got
earlier.
SUAREZ: Well, Thomas Bodenheimer, you're the only physician on the panel
today. Do doctors make too much money? Is that what's driving the cost?
Dr. BODENHEIMER: I think doctors do make too much money in many areas of the
country, and I think it's very important, when we think about cost control, to
think about what would work and what would not work. If you have a voucher type
program, there's only one way in which that program will control Medicare costs,
and that's by shifting more of the costs as Medicare expenditures go up onto
beneficiaries. Now the average person over the age of 65 has an income--excuse
me, not the average--79 percent of people over 65 have incomes less than $
25,000 a year. They're already paying 21 percent of that income in health-care
costs. They can't afford to pay more, SO we shouldn't try to control
health-care costs by shifting more costs onto beneficiaries.
SUAREZ: OK. And that--let me
Dr. BODENHEIMER: They should control it the way they do it in Germany, with
a budget.
SUAREZ: And Rob Reischauer, about 25 seconds.
Mr. REISCHAUER: The reason that costs are rising really has nothing to do
with how fast doctors' salaries are rising. Really, it's technology and the
ever-increasing capabilities of modern medicine that are pushing up costs. We
could cut doctors' salaries. That would lower the costs at one point, but then
they'd begin rising again.
SUAREZ: Robert Reischauer, thanks for being with us today.
Mr. REISCHAUER: You're welcome.
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SUAREZ: Robert Reischauer is a senior fellow of the economic studies program
at the Brookings Institution, chair of the National Academy of Social Insurance
project, Restructuring Medicare For The Long Term. He's a former director of
the Congressional Budget Office. He was here in Studio 3A, along with Diane
Rowland. Thanks for coming by.
Prof. ROLAND: Thank you.
SUAREZ: Diane Rowland is executive vice president at the Henry J. Kaiser
Family Foundation and executive director of the Kaiser Commission on Medicaid
for the Uninsured. She's also a professor of health policy at Johns Hopkins.
And Thomas Bodenheimer, thanks for being with us.
Dr. BODENHEIMER: It was a pleasure.
SUAREZ: Thomas Bodenheimer is a physician in private group practice in San
Francisco and a clinical professor at the Department of Family and Community
Medicine at the University of California, San Francisco, and he's co-author of
Rebuilding Medicare for the 21st Century, a report from the national campaign to
protect, improve and expand Medicare. He joined us from the studios of KPFK in
Berkeley. Tune in tomorrow at this time for a look at how the US makes
decisions to intervene militarily in trouble spots around the world. What is
the national interest? In Washington, I'm Ray Suarez, NPR News.
LANGUAGE: English
LOAD-DATE: March 3, 1999
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THE WHITE HOUSE
WASHINGTON
March 5, 1999
MEMORANDUM TO THE PRESIDENT
FROM:
Chris Jennings and Jeanne Lambrew
RE:
Secretary Shalala's memorandum on the Medicare Commission
Attached is a detailed memorandum from Secretary Shalala expressing her concerns about the
possible recommendations of the Medicare Commission. She specifically suggests that the
Administration be extremely cautious about validating the Commission's plan in general -- and
premium support in particular. She has concluded that the Commission's work is ill-specified,
includes troubling policies, and would diminish our ability to influence the upcoming legislative
debate on reforming Medicare. Her particular concerns about the plan are its:
Lack of specificity, particularly about premium support. The Secretary's main point is
that premium support is a new idea that has not been subject to vigorous specification or
analysis, leaving unanswered questions about its design and potential effects. These details
are fundamental to decisions about whether or not to endorse premium support. Moreover, a
vote in favor of premium support without details will allow others to fill them in, using the
Commission's endorsement as political cover for a different agenda for Medicare reform.
Existing details that suggest beneficiaries would pay more and be put at risk. The
HCFA actuary estimates that about 45 percent of the savings from the Breaux/Thomas
proposal comes from increasing costs to beneficiaries. These include increases in premium,
cost sharing, and eligibility age. The premium support provisions, as designed by the
Commission, appear to raise the premium for fee-for-service by 10 to 20 percent, even in
areas where beneficiaries have no private plan choices.
Lack of guarantee of defined benefits and omission of a prescription drug benefit.
Although Senator Breaux has indicated both that benefits would be defined and that he will
attempt to add a drug benefit, the plan has yet to reflect these core Democratic issues.
Omission of the use of the surplus -- or any other revenue source -- necessary for
adequate financing. Premium support, which is one of the most contentious elements of the
plan, does not appear to produce large savings in the long-run. The actuaries suggest that it
reduces Medicare spending in 2030 by 2.5 to 3.1 percent. The proposal also does not include
any specific financing plan and does not recommend using part of the surplus for Medicare.
Reliance on a new "Board" that assume partial responsibility for running Medicare.
The Department believes that creating a new bureaucracy to administer the managed care
plans will reduce its ability to successfully enforce against fraud and would undermine a
single point of accountability for the program.
All of your policy advisors appear to be coalescing around the conclusion that the Commission's
work is unsalvageable. Clearly, Secretary Shalala is the most hostile to premium support. Even
those most supportive of this concept (Treasury Department and CEA) believe that the ability to
promote premium support will be undermined by any explicit endorsement of the Commission's
work product. In other words, they believe that a good concept, poorly designed and portrayed,
will undermine the prospects of a promising innovation to the Medicare program.
The NEC and DPC are coordinating a process for developing a recommended alternative
Medicare reform policy for your consideration. Options will likely include your surplus
proposal, an affordable and accessible prescription drug benefit, an income-related premium, and
policies to modernize and add more competition to Medicare. We are also working on the details
of what a more viable premium support proposal would look like. Clearly, a separate discussion
about the advisability about unveiling such a package and the timing of doing so will follow.