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fli Medicare
PLAN TO STRENGTHEN AND
MODERNIZE MEDICARE
FOR THE 21st CENTURY
National Economic Council / Domestic Policy Council
The White House
PRESIDENT'S PLAN TO
STRENGTHEN AND MODERNIZE MEDICARE
Tab 1.
Overview: Budget Priorities
Tab 2.
Comparison of the President's and Republicans' Priorities
Charts on Budget Priorities
Programmatic Impacts of Republican Tax Cut
Tab 3.
President's Medicare Plan
Summary of the President's Plan
New York Times Editorial on President's Plan
Charts on Medicare Plan
Tab 4.
Prescription Drug Benefit
White House Report on Prescription Drug Coverage
Tab 5.
Charts
Demographic Challenges Facing Medicare and Its Trust Fund
Prescription Drug Coverage and Trends
Women on Medicare and Prescription Drugs
Rural Beneficiaries and Prescription Drugs
Tab 6.
Breaux-Thomas Medicare Reform Plan
Summary of Issues
Tab 7.
Top-Tier Questions and Answers About Medicare Reform
Prescription Drug Benefit
Importance of Dedicating Part of the Surplus to Medicare
Uncertainty of Projected Surplus, Savings, and Drug Costs
Provider Reimbursement
Structural Reform
TAB 1.
OVERVIEW: BUDGET PRIORITIES
BUDGET PRIORITIES:
Protect And Build On Our Prosperity? Or Threaten The Health Of Our Economy?
We have the best economy in the world today. But remember, just six and a half
years ago, the budget deficit was $290 billion and rising. Wages were stagnant,
economic inequality was growing, social conditions were worsening.
In the 12 years before President Clinton took office, unemployment averaged more
than 7 percent. It's almost difficult to remember what it was like. No one really
thought we could turn it around, let alone bring unemployment to a 29-year low, or
turn decades of deficits, during which time the debt of our country was quadrupled in
only 12 years, into a surplus of $99 billion. The keys to our prosperity have been
fiscal responsibility and key investments in the American people.
President Clinton has a responsible budget plan that builds on our prosperity, by
putting first things first. The President's plan uses the surplus to strengthen Social
Security and Medicare, including modernizing Medicare with a long-overdue
prescription drug benefit. It provides targeted tax cutsfor childcare, long-term care
and the President's USA Accounts proposal which helps middle-income Americans
save for retirement. It provides for military readiness and strengthens our investment
in domestic priorities like education, lawenforcement and the environment
And, the President's plan continues down the path of fiscal responsibility - and would
eliminate the national debt by 2015.
Republicans would spend nearly the entire surplus on a risky tax cut scheme that
would threaten the continued health of our economy. Their plan does nothing to
strengthen Social Security. Nothing to strengthen and modernize Medicare. Nothing
about providing prescription drug coverage for Medicare beneficiaries.
Fifty economists, including six Nobel laureates, signed a statement on July 21st which
said: "[C]ommitting to a large tax cut would create significant risks to the budget
and the economy." And on July 22ⁿᵈ, Federal Reserve Chairman Alan Greenspan
said: "I would prefer to hold off on significant further tax cuts."
Republican plans would lead to deep, across the boardcuts in domestic priorities. In
order to pay for their risky tax cut and fund our military at the same level as the
President, Republicans would have to cut more than $700 billion from domestic
spending. In 2009, that would mean roughly a 50% cut in domestic programs across
the board.
TAB 2.
COMPARISON OF PRESIDENT'S AND
REPUBLICANS' PRIORITIES
Plans For The On-Budget Surplus
(Dollars in Billions)
Republican Plan
President's Plan
Medicare,
Education,
Tax Cut
Military, Etc
Medicare
$25
$250
Tax Cut
$374
$792
Interest
$179
Interest
$132
$127
$201
Military
Education &
FY 2000-2009; Republicans Use CBO, President Uses OMB Estimates
Domestic Priorities
Impact of Republican Tax Plan
Fails to extend Social
More than $700 billion
Security Solvency
cut in domestic spending --
50% in 2009. This means:
Fails to dedicate surplus to
Medicare to extend
Cutting services to 425,000 of
solvency for even one day
835,000 children in Head Start
Reducing spending on bio-
Fails to fund adequately
medical research by $9.8 billion
military readiness,
education, environment,
Lowering NASA's budget to its
health, & other priorities
1984 level
Programmatic Impacts in FY 2009 of Republican Tax Cut
Assuming Defense is Equal to the President's Request
Education and Training
A cut of this magnitude would force Head Start to cut services to 425,000 of the 835,000
children who would otherwise be served in FY 2009.
About 306,000 summer jobs and training opportunities for low-income youth could be
eliminated from the 577,700 that would otherwise be provided in FY 2009.
Title I, Education for the Disadvantaged could be slashed, cutting more than 7.4 million
children (from the total 14.6 million assumed in the baseline) in high poverty communities
from key educational services necessary to improve their future prospects.
The Reading Excellence program, which would otherwise help 1.2 million children learn
to read by the 3rd grade, could serve 622,000 fewer students.
Environment and Health
In FY 1999, the VA Medical Care budget projects providing treatment for 3,468,000
veteran patients, a figure that would drop by 1,622,00 should a cut of this magnitude take
place.
Funding for the Health Resources and Services Administration would be cut by $2.5
billion from the current services baseline, resulting in the loss of health services for
roughly 15 million women, children, uninsured people, and people living with AIDS from
the total 30 million recipients assumed in the baseline.
Funding for the National Institutes of Health would be cut by $9.8 billion from the
current services baseline, resulting in approximately 15,000 fewer biomedical research
grants being funded from the total 31,000 assumed in the baseline. At this level, NIH
might not be able to fund any new research grants, and support for research grants begun
in previous years would have to be reduced.
Stopping Toxic Waste Cleanup -- EPA's Superfund program would be cut by nearly $1
billion, eliminating funding for all new Federally-led cleanups due to begin in 2009.
Major reductions would also be needed in emergency response actions, ongoing
Superfund cleanups, negotiation and oversight of private party-led cleanups, cost
recoveries, EPA's brownfields program, and support for other federal agencies and states.
Over a thousand employees could lose their jobs, and Superfund contractors would be out
of work.
Crime, Housing, and Other Priorities
Cuts to the Immigration and Naturalization Service could result in a reduction of
approximately 6,993 Border Patrol agents (from the total 8,947 assumed in the baseline).
Cuts to the FBI could result in a reduction of approximately 7,187 FBI agents (from the
total 10,687 assumed in the baseline).
Cuts of this magnitude to HUD's housing rental subsidy could result in the termination of
rent subsidies to approximately 1.5 million HUD subsidized low-income tenants in FY
2009.
Cuts of this magnitude would reduce NASA's funding to the lowest level since FY 1984.
With this level of funding, NASA could support either a human spaceflight program or a
science program relying on robotic missions, but not both.
The National Park Service operating budget would be cut by almost a billion dollars
below the FY 2009 baseline. Park rangers and other staff would have to be reduced
through hiring freezes and RIFs. Seasonal workers could not be hired, resulting in
widespread cutbacks in visitor services, seasonal programs, and hours of operations, as
well as closures at many of the 378 park units serving almost 300 million visitors
annually.
Source: Office of Management and Budget
TAB 3.
PRESIDENT'S MEDICARE PLAN
STRENGTHENING MEDICARE FOR THE 21st CENTURY
President Clinton has proposed to strengthen Medicare by making it more competitive and efficient; modernizing its
benefits; and improving its financing. This plan would both offer a long-overdue prescription drug benefit to
Medicare beneficiaries and use a portion of the surplus to secure the life of the Medicare Trust Fund for at least the
next 25 years. It would also add structural reforms that constrain cost growth by making Medicare fee-for-service
and managed care compete more effectively. Lastly, the plan would smooth out and moderate Balanced Budget Act
provider payment changes that are excessive. The New York Times editorial board described the proposal as "well-
considered" and said it would "constitute the most substantial change to Medicare since its creation in 1965."
MAKING MEDICARE MORE COMPETITIVE AND EFFICIENT. In recent years, the President and Congress have
worked together to extend the life of the Medicare trust fund from 1999 to 2015. Building on this success, this plan:
Gives Medicare new private purchasing and quality improvement tools to improve care and constrain costs;
Injects true price competition between traditional Medicare and managed care plans, making it easier for
beneficiaries to make informed choices and saving money over time for both beneficiaries and the program;
Reduces average annual Medicare spending growth, ensuring that program growth does not significantly
increase after most of the Medicare provisions of the Balanced Budget Act expire in 2003; and
Takes administrative and legislative action, including a $7.5 billion quality assurance fund, to smooth out
provisions in the Balanced Budget Act which may be affecting Medicare beneficiaries' access to quality care.
MODERNIZING MEDICARE'S BENEFITS. The current Medicare benefits package does not include all the services
needed to treat health problems facing the elderly and people with disabilities. To address this, the President's plan:
Establishes a new prescription drug benefit that is affordable and available to all Medicare beneficiaries. All
beneficiaries would have the option to purchase this benefit that provides for privately-negotiated price discount
and covers 50 percent of the costs from the first prescription for spending up to $5,000 when fully implemented.
Premiums for this coverage would begin at $24 in 2002 and phase in to $44 per month in 2008;
Eliminates copayments and deductibles for all preventive services covered by Medicare, including colorectal
cancer screening, bone mass measurements, pelvic exams, prostate cancer screening, and mammographies;
Rationalizes cost-sharing requirements to help pay for the prescription drug and preventive benefits by adding a
20 percent copayment for clinical laboratory services and indexing the Part B deductible for inflation;
Reforms Medigap policies by working to add a new lower-cost option with low copayments and provide
Medicare beneficiaries easier access to and a better understanding of Medigap policies; and
Includes the President's Medicare Buy-In proposal which provides an affordable coverage option for vulnerable
Americans between the ages of 55 and 65.
STRENGTHENING MEDICARE'S FINANCING FOR THE 21ST CENTURY. Medicare enrollment will double from
almost 40 million today to 80 million by 2035, creating a need to strengthen Medicare financing. To address this,
the plan dedicates part of the budget surplus to secure the life of the Medicare trust fund for the next quarter century.
It is impossible to reduce provider payments enough to extend the life of the Medicare trust fund for any
significant length of time. Medicare Part A spending growth per beneficiary would have to be limited to less
than 3 percent per beneficiary in every year to get to 2027 without the surplus dedication. This rate is about 60
percent below projected private health insurance spending per person.
Dedicating over $300 billion to Medicare solvency has the additional effect of buying down the debt faster,
helping to eliminate public debt by 2015. This would make America debt-free for the first time in the 160 years
ALCO YNE
THE NEW YORK
ARTHUR OCHS SULZBERGER JR, Publisher
June 30, 1999
JOSEPH LELYVELD, Executive Editor
BILL KELLER, Managing Editor
GERALD M. BOYD. Deputy Managing Editor
JOHN M. GEDDES, Deputy Managing Editor
Assistant Managing Editors
SOMA GOLDEN BEHR
JACK ROSENTHAL
The New York Times
CAROLYN LEE
ALLAN M. SIEGAL
HOWELL RAINES. Editorial Page Editor
PHILIP M. BOFFEY, Deputy Editorial Page Editor
Founded in 1851
ADOLPH OCHS, Publisher 1896-1935
JANET L ROBINSON, President, General Manager
ARTHUR HAYS SULZBERGER, Publisher 1935-1961
RICHARD H. GILMAN, Senior V.P., Operations
ORVIL E. DRYFOOS, Publisher 1961-1963
JYLL F. HOLZMAN, Senior V.P., Advertising
ARTHUR OCHS SULZBERGER, Publisher 1963-1992
SCOTT H. HEEKIN-CANEDY, V.P., Planning
MARC Z KRAMER, V.P., Labor Relations
DENNIS L. STERN, V.P., Human Resources
JAMES L TERRILL, V.P., Chief Financial Officer
DAVID A. THURM, V.P., Production
MICHAEL G. WILLIAMS, V.P., Chief Information Officer
THOMAS K. CARLEY, President, News Services
Improving Medicare
President Clinton's Medicare reform plan, if
$44 in 2008, with the maximum benefit cap rising to
approved by Congress, would constitute the most
$2,500. Low-income people would receive help pay-
substantial change to Medicare since its creation in
ing the monthly premiums and co-payments.
1965. Although no reform can instantly improve
The drug plan, which would increase Medicare
quality and increase cost-efficiency in the enormous
costs by about 5 percent in 2009, would not create an
program, Mr. Clinton has delivered a well-consid-
open-ended benefit. But it would enable Medicare to
ered proposal that can shore up Medicare without
get volume discounts from drug companies, as
heedlessly expanding costs or creating chaos for 39
large purchasers typically do, and to pass those
million beneficiaries.
discounts on to the elderly. The plan may also help
The plan takes a prudent, incremental ap-
staunch the decline in employer-paid retiree health
proach in adding benefits and changing Medicare's
benefits by covering some of the drug costs.
structure. The proposal is premised on putting $794
The Administration's package would also make
billion into Medicare over the next 15 years from the
it more attractive for beneficiaries to join managed
projected $5.5 trillion Federal surplus. But any plan
care plans, a shift that is essential to future cost
that does not greatly cut benefits or reduce eligibil-
containment. Health plans bidding for Medicare
ity through income tests or other means would need
patients would have to offer the same benefits as
to put more money into Medicare in the next two
fee-for-service Medicare. If a plan could provide the
decades as baby boomers reach. retirement and
same coverage for less money, enrollees would
technology makes it possible for more people to live
benefit directly from those savings, most likely
longer. The Clinton plan would extend the solvency
through discounts off the current $45.50 monthly
of the Medicare trust fund to 2027.
Medicare premium. That incentive could help pull
The Administration would spend $118 billion
more people into lower-cost plans. The proposal
over 10 years to provide limited prescription drug
would increase competition and efficiency in the
coverage. That step is long overdue. A third of
fee-for-service sector by enabling qualified, cost-
Medicare recipients have no drug coverage, even
efficient doctors to attract Medicare patients by
though drugs have become crucial to managing
offering patients lower cost-sharing than traditional
chronic illnesses and can help keep patients out of
Medicare, where patients usually pay 20 percent of
the hospital. The proposed voluntary program, be-
the costs and the Government pays 80 percent.
ginning in 2002, would charge Medicare enrollees
Reforming Medicare requires modernizing the
$24 a month. The Government would pay half the
benefits and improving cost controls. The Clinton
cost of prescription drugs for those who enroll, with
proposal, made feasible by the surplus, offers some
a maximum Government payment of $1,000 a year.
sensible ways to achieve those goals while keeping
The monthly premium would gradually increase to
Medicare a broad-based social insurance program.
PRESIDENT'S PLAN TO
MODERNIZE & STRENGTHEN
MEDICARE
Plan To Modernize and
Strengthen Medicare
Make Medicare More Competitive & Efficient
Modernize Medicare Benefits, Including a Long-
Overdue Prescription Drug Benefit
Strengthening Financing for the 21st Century By
Dedicating Part of the Surplus to Medicare
Medicare Enrollment Will Double As
The Baby Boom Generation Retires
90
Medicare Enrollees in Millions
70
Medicare's Projected
Bankruptcy: 2015
50
30
2000
2004
2008
2012
2016
2020
2024
2028
2032
2036
2040
Baby Boomers Turn Age 65
Modernizing and Strengthening
ME DICARE
Extending The Solvency Of Medicare To 2027
2030
2027
Reducing Fraud & Waste
2020
1997
2015
1993
Budget
2010
Budget
2008
2002
1999
2000
1990
1993
1995
1998
1999
President's
Plan
President's Proposal For Medicare
Prescription Drug Coverage
Meaningful coverage: Beginning in 2002, beneficiaries
have the option to enroll in Part D:
- No deductible -- coverage with first prescription
- 50 percent copay with access to discounted prices
- Benefit limited after $5,000 in costs (phased-in in 2008)
Affordable premiums: $24/month, rising to $44/month
when fully phased in. Includes low-income protections
Private management, and incentives for retaining retiree
health coverage
Three Out Of Four Beneficiaries
Do Not Have Solid Private Drug Coverage
Distribution Of Beneficiaries
By Drug Coverage
76%
80%
Other 5%
Medigap 8%
60%
Medicaid 12%
Medicare Managed
40%
Care 17%
24%
20%
NO COVERAGE
Retiree
34%
Coverage
0%
Solid Private Coverage
Public/Medigap/No
Coverage
SOURCE: Actuarial Research Corporation for HHS, point-in-time, 2000
Retiree Health Coverage Is Declining
25% Fewer Firms Are Offering Retiree Health Benefits
Firms Offering Retiree Health Coverage
50%
40%
40%
30%
30%
20%
10%
0%
1994
1998
SOURCE: Foster-Higgins, 1998
Premiums for Medigap, Which Only
Covers 8% of Beneficiaries, Are High
And Increase With Age
$150
$126
$125
$114
$101
$105
$95
$93
$100
$83
$75
$56
$60 $59
$50
$50
$44
$25
$0
Texas
Louisiana
Nebraska
Michigan
65 Year Olds
75 Year Olds
85 Year Olds
Sample Premiums for 1999. Difference between Plans I ($1,250 benefit limit) and Plan F which is similar but has no drug coverage.
These premiums will be higher in 2002, when the President's proposed drug benefit will cost $24 per month.
Value of Medicare Managed Care
Drug Benefits Is Declining
Nearly Three-Fifths Of Plans Will Cap Benefit Payments
Below $1,000 In 2000
Proportion of All Plans With Limits of
Less Than $1,000
59%
60%
56%
40%
35%
20%
0%
1998
1999
2000
Source: HHS analysis of plan submissions for 2000; preliminary. This includes plans with unlimited generics and limited brand name drug spending
Many Middle-Class Beneficiaries Lack
Coverage For Prescription Drugs
Income of Beneficiaries
Over Half of Medicare Beneficiaries
Without Drug Coverage
Who Lack Prescription Drug Coverage
(As A Percent Of Poverty)
Are In The Middle Class
Less Than 100%
of Poverty
22%
Disproportionately Affects:
Greater Than
Rural beneficiaries, since nearly
150% of Poverty
half have no coverage
54%
Older women, for whom total
100 to 150%
prescription drug spending averages
of Poverty
24%
$1,200 -- 20% more than men's
SOURCE: Actuarial Research Corporation for HHS, 2000
In 2000, 150% of poverty for a single person is about $12,750, for a couple is about $17,000
Making Medicare Managed Care
More Competitive
Current System
Competitive Defined Benefit
No price competition
Plans paid based on price
and quality
Plans compete by offering
Plans compete by lowering
hard-to-compare benefits
premium & cost sharing
for clearly defined benefits
Over 1 in 4 beneficiaries do
Explicitly pays for drugs in
not have access to managed
managed care as well as
care -- or the extra benefits
traditional Medicare
they offer
Smoothing Out Balanced Budget
Act Policies In The Short Run
Immediate Administrative Actions, that
moderate the impact on hospitals, academic health
centers and home health agencies
Targeting Disproportionate Share Hospital
Payments Directly to Hospitals
$7.5 Billion Quality Assurance Fund
TAB 4.
PRESCRIPTION DRUG BENEFIT
DISTURBING TRUTHS AND
DANGEROUS TRENDS:
The Facts About Medicare Beneficiaries and
Prescription Drug Coverage
National Economic Council
Domestic Policy Council
July 22, 1999
DISTURBING TRUTHS AND DANGEROUS TRENDS:
The Facts About Medicare Beneficiaries and Prescription Drug
Table of Contents
Overview
i
Importance of Prescription Drugs to Medicare Beneficiaries
1
Prescription Drug Spending by Medicare Beneficiaries
3
Coverage for Prescription Drugs for Medicare Beneficiaries
4
Retiree Health Coverage
5
Medigap Prescription Drug Coverage
6
Medicare Managed Care
7
Medicaid
8
Beneficiaries Lacking Drug Coverage
9
President's Proposed Prescription Drug Benefit
10
Appendix: Methodology & Endnotes
11
2
OVERVIEW
DISTURBING TRUTHS AND DANGEROUS TRENDS:
The Facts About Medicare Beneficiaries and Prescription Drug
This report describes the inadequate and unstable nature of the prescription drug coverage
currently available to Medicare beneficiaries. Prescription drugs have never been more
important, but the people who rely on them most - the elderly and people with disabilities -
increasingly find themselves uninsured or with coverage that is becoming more expensive
and less meaningful. This report shows that the accessing essential prescription drugs is not
only a problem for the millions of Medicare beneficiaries without any insurance - it is an
increasing challenge for beneficiaries who have coverage. Key findings of the report include:
Prescription drug coverage is good medicine.
Part of modern medicine. Prescription drugs serve as complements to medical
procedures, such as anti-coagulants, used with heart valve replacement surgery;
substitutes for surgery, such as lipid lowering drugs that reduce the need for bypass
surgery; and new treatments where there previously were none, such as medications
used to manage Parkinson's disease. In addition, as our understanding of genetics
grows, the possibility for breakthrough pharmaceutical and biotechnology will
increase exponentially.
Medicare beneficiaries are particularly reliant on prescription drugs. Not only do the
elderly and people with disabilities have more problems with their health, but these
problems tend to include conditions that respond to drug therapy. Not surprisingly,
about 85 percent of beneficiaries fill at least one prescription a year for such
conditions as osteoporosis, hypertension, myocardial infarction (heart attacks),
diabetes, and depression.
The lack of drug coverage has led to inappropriate use of medications which can
result in increased costs and unnecessary institutionalization. Recent research has
determined that being uninsured leads to significant declines in the use of necessary
medications. The consequence of inappropriate and underutilization of prescription
drugs has also been found to double the likelihood that low-income beneficiaries
entering nursing homes. One study concluded that drug-related hospitalization
accounted for 6.4 percent of all admissions of the over 65 population and estimated
that over three-fourths of these admissions could have been avoided with proper use
of necessary medications.
About 75 percent of Medicare beneficiaries lack decent, dependable, private-
sector coverage of prescription drug coverage.
Only one-fourth of Medicare beneficiaries have retiree drug coverage, which is the
only meaningful form of private coverage.
i
Over three-fourths of beneficiaries lack decent, dependable. At least one-third of
Medicare beneficiaries have no drug coverage at all. Another 8 percent purchase
Medigap with drug coverage - but this coverage is frequently expensive, inaccessible
and inadequate for many Medicare beneficiaries. About 17 percent have coverage
through Medicare managed care. Given the projected leveling off of managed care
enrollment and actual declines in the scope of managed care drug benefits, this
source of coverage is unstable. Drug coverage in managed care can only be assured
if it becomes part of Medicare's basic benefits and is explicitly paid for in managed
care rates. The remaining 17 percent are covered through Medicaid, Veterans'
Affairs and other public programs.
Private trends: Decline in coverage and affordability.
The proportion of firms offering retiree health coverage has declined by 25 percent
in the last four years. Retiree health coverage is declining substantially because many
firms previously providing it are opting to drop their coverage. The decline was
more pronounced among the largest employers (greater than 5,000 employees), over
a third of whom dropped coverage in this period.
Medigap premiums for drugs are high and increase with age. Medigap premiums
vary widely throughout the nation but are consistently two to three times higher than
the Medicare premium proposed by the President. Moreover, unlike the President's
proposal, premiums substantially increase with age as virtually every Medigap plan
"age rates" the cost of the premium. This means that just as beneficiaries need
prescription drug coverage most and are the least likely to be able to afford it, this
drug coverage is being priced out of reach. This cost burden will particularly affect
women, who make up 73 percent of people over age 85.
Public drug coverage trends: managed care benefits reduced.
The value of Medicare managed care drug benefits is declining. Nearly three-fifths
of plans are reporting that they will cap prescription drug benefits below $1,000 in
the year 2000. This is part of a troubling trend of plans to severely limit benefits
through low caps. In fact, the proportion of plans with $500 or lower benefit caps
will increase by over 50 percent between 1998 and 2000.
Participation by Medicaid eligible populations remains low. Millions of Medicare
beneficiaries under 75 percent of poverty (about $6,000 for a single, $8,500 for a
couple) are eligible for Medicaid prescription drug coverage, but the participation
rate is only about 40 percent. This contrasts with an almost 100 percent
participation rate in Medicare Part B for beneficiaries. Inadequate outreach and
welfare stigma contributes to these low participation levels and raise serious
questions about the feasibility and advisability of using the Medicaid program to
provide needed coverage for a population at higher income levels.
ii
Millions of beneficiaries have no drug coverage.
At least 13 million Medicare beneficiaries have absolutely no prescription drug
coverage. The number of the uninsured is not concentrated among the low income.
In fact, the income distribution of uninsured Medicare beneficiaries is almost exactly
the same for beneficiaries at all income levels.
More than half of Medicare beneficiaries without drug coverage are middle class.
Over 50 percent of Medicare beneficiaries without drug coverage have incomes in
excess of 150 percent - an annual income of approximately $17,000 for couples.
This clearly indicates that any prescription drug coverage policy that limits coverage
to below 150 percent of poverty, as some in Congress suggest, will leave the vast
majority of the Medicare population unprotected.
iii
IMPORTANCE OF PRESCRIPTION DRUGS TO
MEDICARE BENEFICIARIES
Part of modern medicine. Prescription drugs serve as complements to medical
procedures (e.g., anti-coagulents with heart valve replacement surgery); substitutes for
surgery and other medical procedures (e.g., lipid lowering drugs that lessen need for
bypass surgery) and new treatments where there previously were none (e.g, drugs for
HIV and Parkinson's). Some of the major advances in public health - the near
eradication of polio and measles and the decline in infectious diseases -- are largely the
result of vaccines and antibiotics. And, as the understanding of genetics increases, the
possibility for pharmaceutical and biotechnology interventions will multiply.
Greatest need for prescription drugs. The elderly and people with disabilities are
particularly reliant on prescription drugs. Not only do they experience greater health
problems, but these problems tend to include conditions that respond to drug therapy.
As a result, about 85 percent of beneficiaries fill at least one prescription a year. Some
examples of common conditions include:
Osteoporosis: Over 1 in 5 older women have osteoporosis and about 15 percent
have suffered a fracture as a result.¹ It is a leading risk factor for hip fractures, which
affects 225,000 people over the age of 50. Estrogen replacement can reduce the risk
of osteoporosis as well as that of cardiovascular disease. One commonly used drug
costs $20 per month, $240 per year.
Hypertension: About 60 percent of people over age 65 have hypertension.² African
Americans are more likely to have hypertension. For a person over age 55,
hypertension increases the risk of a heart attack or other heart problem over 10 years
by 10 percent.³ Hypertension roughly doubles the risk of cardiovascular disease and
is the leading factor for stroke. According to one study, treatment results in a one-
third reduction in the probability of stroke and a one-quarter reduction in the
probability of a heart attack.4 ACE inhibitors which typically cost $40 per month,
$480 per year are commonly prescribed to control hypertension, and are frequently
used in combination with diuretics and /or beta-blockers.
Myocardial Infarction (Heart Attack): Heart disease is the leading cause of death for
persons 65 and over. About 1.5 million Americans each year have heart attacks,
which are fatal in about 30 percent of patients. Since people who survive heart
attacks are much more likely to have subsequent attacks, disease management
including drugs can significantly improve health and longevity. For example, a study
of the use of a lipid lowering drug by people who had an acuate myocardial
infarction found a 42 percent reduction in coronary mortality after 5 years of follow-
up.⁵ A common lipid reduction drug costs about $85 per month, $1,020 per year. A
beta-blocker costs about $30 per month, $360 per year, and can reduce long-term
mortality by 25 percent.6
Adult-Onset Diabetes: About 1 in 10 elderly have Type I or II diabetes.⁷ Diabetes
can lead to blindness, kidney disease and nerve damage. Glucose (blood sugar)
1
control can prevent or delay these conditions. Commonly used medications include
cost around $60 per month, $720 per year.
Depression: An estimated 1 in 10 to 1 in 20 community-based elderly experience
depression.⁸ Depression can lead to institutionalization and other health problems.
From 60 to 75 percent of patients respond to drug therapy.' New therapies can cost
from $130 to $290 per month or $1,560 to $3,480 per year.
Many beneficiaries need drugs but do not use them as prescribed because they
do not have well managed, affordable drug insurance. Most research has found that
drug coverage influences use of needed drugs:
Decreased use of needed medications. 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.¹⁰ Many elderly must choose between prescriptions and other basic
household needs.¹¹
Increased nursing home use. Medicare beneficiaries whose Medicaid drug coverage
was limited were twice as likely to enter nursing homes.¹²
Less protection against drug complications. Even though the elderly and disabled
take more prescription drugs and have more complex medical problems, Medicare
beneficiaries without coverage do not benefit from drug management. This could
lead to adverse drug reactions, inappropriate use of drugs, or discontinuation of
needed drugs. One study which classified the geriatric admissions to a community
hospital found that drug-related hospitalization accounted for 6.4 percent of all
admissions among the over 65 population. The study estimated that 76 percent of
these admissions were avoidable.¹
2
PRESCRIPTION DRUG SPENDING BY
MEDICARE BENEFICIARIES
Because of their greater need, the elderly and people with disabilities have greater
health care costs. The elderly's per capita spending on drugs is over three times higher
than that of non-elderly adults. While only 12 percent of the entire population, the
elderly account for about one-third of drug spending.
Medicare Beneficiaries
Need Prescription Drugs
Beneficiaries By Total Drug Spending
None
13%
$1,000+
38%
$1-500
31%
$500-1,000
18%
SOURCE: Actuarial Research Corporation for HHS, 2000
Over one-third (38%) of Medicare beneficiaries will spend more than $1,000 on
prescription drugs. Less than 5 percent will spend more than $5,000.
The average total drug costs for Medicare beneficiaries is estimated to approach
$1,100 in 2000. Over 85 percent of Medicare beneficiaries will spend money on
prescription drugs, and more than half will spend more than $500.
Spending is higher for women. Because of their greater likelihood of living longer and
having chronic illness, women on Medicare spend nearly 20 percent more on
prescription drugs than men.
Out-of-pocket spending is also high. In 2000, Medicare beneficiaries are estimated to
spend about $525 on prescription drugs out-of-pocket. This spending is linked to
insurance coverage - it is much higher for those with no coverage ($800) and people
with Medigap ($650) than those with retiree coverage ($400).
3
COVERAGE FOR PRESCRIPTION DRUGS
FOR MEDICARE BENEFICIARIES
Unlike virtually all private health insurance plans, Medicare does not cover
prescription drugs. As a result, a fragmented, unstable system of coverage has emerged
as beneficiaries attempt to insure against the costs of medications.
Three-Fourths Of Medicare Beneficiaries
Lack Decent, Dependable, Private-Sector
Coverage of Prescription Drugs
Distribution Of Beneficiaries
By Drug Coverage
76%
80%
Other 5%
Medicape
60%
Medicaid 12%
Medicare Managed
40%
any 53
24%
20%
Retiree
NO COVERAGE
Coverage
34%
0%
Solid Private Coverage
Public/Medigap/No Coverage
SOURCE: Actuarial Research Corporation for HHS, point in time, 2000
Only one-fourth of Medicare beneficiaries have retiree drug coverage. Employers
provide health insurance for most Americans under the age of 65, but pay for
supplemental coverage for only a fraction of their elderly retirees. When available, this
coverage tends to have reasonable cost sharing and affordable premiums.
About 75 percent of Medicare beneficiaries lack decent, dependable, private-
sector coverage of prescription drugs. These beneficiaries include those with:
Medigap. About 8 percent of beneficiaries purchase Medigap with drug coverage -
but this coverage is frequently expensive, inaccessible and inadequate for many
Medicare beneficiaries.
Medicare managed care. About 17 percent of beneficiaries have coverage through
Medicare managed care. Given the projected leveling off of managed care
enrollment and actual declines in the scope of managed care drug benefits, this
source of coverage is unstable.
Medicaid and other public programs. Medicaid covers about 12 percent of
beneficiaries and programs like the Veterans' Administration cover another 5 percent
of beneficiaries. Eligibility for these programs is very restrictive.
No coverage at all. 34 percent of Medicare beneficiaries has no drug coverage.
4
RETIREE HEALTH COVERAGE
About one in four Medicare beneficiaries has prescription drug coverage through
their retiree health plan. These employer-based plans offer decent, affordable
coverage.
Retiree Health Coverage Is Declining
25% Fewer Firms A re Offering Retiree Health Benefits
Firms Offering Retiree Health Coverage
50%
40%
40%
30%
30%
20%
10%
0%
1994
1998
SOURCE: Foster Higgins, 1998
Firms offering retiree health coverage have declined by 25 percent in the last four
years.14 Retiree health coverage is declining substantially because many firms previously
providing it are opting to drop their coverage.
The decline was more pronounced among the largest employers (greater than 5,000
employees), over a third of whom dropped coverage in this period.
Most serious effect will occur when the baby boom generation retires. Although
there are employers who are dropping health coverage for current retirees, most are
restricting coverage for future retirees. This means that the access problems that are
emerging now could be more severe in the future.
Firms are increasingly moving their retirees to Medicare managed care. To help
constrain costs, a number of employers are providing incentives for their retirees to join
managed care. The number of large employers offering Medicare managed care plans
rose from 7 percent in 1993 to 38 percent in 1996. 15
5
MEDIGAP PRESCRIPTION DRUG COVERAGE
Because of its high cost relative to its benefit, less than one in ten Medicare
beneficiaries purchases a Medigap plan with prescription drugs. Three of the ten
standardized Medicare supplemental plans, (plans H, I, and J) include prescription drug
coverage. All three plan types have a $250 deductible for the drug benefit and require 50
percent coinsurance. The H and I plans have a cap on drug benefits of $1,250 while the
J plan caps the benefit at $3,000. The typical premium for a plan with the lower cap
costs about $90 per month or $1,080 per year.
Medigap is expensive, inefficient, and often uses higher prices to discriminate
against the oldest beneficiaries.
Expensive. Medigap policies that
cover prescription drugs are
Beneficiaries With Medigap Still Pay
expensive relative to comparable
High Out-Of-Pocket Drug Costs
policies that do not cover drugs.
Medigap Annual Premiums And Out-Of-Pocket Spending
Additionally, premiums vary
tremendously from place to place,
$4,000
$650
Drug Out-Of-
and from beneficiary to beneficiary.
$3,000
Pocket Spending
Finally, a beneficiary cannot only
THE
$2,000
Medigap Drug
pay for prescription drugs - they
Premium
51332
must also buy the other benefits in
$1,000
Base Medigap
Premium
the package.
$0
SOURCE: Actuarial Compension for HHS. - from Terms fore 75 your all base - $161 per 1 dong additional in $101 - a
Inefficient. Because it is sold to
individuals, Medigap does not offer
Medigap Premiums For Drugs Are
beneficiaries the kind of premiums that
result from group purchasing. This also
High And Increase With Age, 1999
adds to the administrative costs per
$150
policy, which are typically two to three
$126
times more than that of group coverage.
$125
$114
$10
$105
$95
$93
$100
$83
Costs increase with age as well as health
$75
$56
$60
$5
inflation. This "attained age" pricing
$50
$50
$44
practice causes excessive premiums for
$25
those who need it most - the very old. It
$0
also disproportionately affects women
Texas
New Orleans
Nebraska
Michigan
since they comprise nearly three-fourths
65 Year Olds
75 Year Olds
85 Year Olds
of people over age 85.
Sample Promiums for 1999. Difference between Plan ($1,250 berefit limit) and Plan which is similar be be no ding coverage.
These premiums be higher in 2002, when the President's proposed drug benefit ast $24 per month
6
MEDICARE MANAGED CARE
The number of beneficiaries with drug coverage through Medicare managed care
has risen to 17 percent. Most Medicare managed care plans offer prescription drugs.
Drug coverage is one of the major attractions for beneficiaries to enroll in these plans.
Drug coverage under Medicare+Choice is unstable. Managed care plans are not
required to offer a drug benefit, but can do so with any excess Medicare payments or by
charging a premium. This results in wide variation across areas, since payments vary by
area, and over time.
Value of Medicare Managed Care
Drug Benefits Is Declining
Nearty Three-Fiftbs Of Plans Will Cap Benefit Payments
Below $1,000 In 2000
Proportion of All Plans With Limits of
Less Than $1,000
59%
60%
56%
40%
35%
20%
0%
1998
1999
2000
Snarce: HHS analysis of plan advancions for 2000; preliminary. This includes plans with unlimited generics and limited brand name drug spending
The value of Medicare managed care drug benefits is declining. Nearly three-
fifths of plans are reporting that they will cap prescription drug benefits below $1,000 in
the year 2000. The proportion of plans with $500 or lower benefit caps will increase by
over 50 percent between 1998
and 2000. This is part of a
troubling trend of plans to
Limits on Medicare Managed Care
severely limit benefits through
Drug Benefit Are Getting Lower
low caps.
Proportion Of Plans With A $500 Or Lower Limit Has
Increased By 50%
Proportion of Plans With Limit of $500 or Less
Plans dropping out of
Medicare limit access to
30%
28%
drugs. Nearly 80,000 Medicare
20%
19%
beneficiaries will lose access to
20%
Medicare managed care next
year as plans withdraw from
10%
particular areas or Medicare
altogether.
0%
1998
1999
2000
Source: HHS analysis of plan submissions for 2000 preliminary. This includes plans with unlimited generics and limited brand name drug spending
7
MEDICAID
About 12 percent of Medicare beneficiaries are also fully eligible for Medicaid and
its drug benefit. Most of these "dual eligibles" qualify for Medicaid because they
receive Supplemental Security Income due to low income (on average, about 73 percent
of poverty -- $6,200 for a single, $8,300 for a couple in 2000). States have other options
for covering the elderly and disabled, including "medically needy" or "spend-down"
programs that extend eligibility to sick and/or institutionalized people.
Participation In Medicaid Is Low
Only 40% Of Eligible Beneficiaries Are Enrolled in Medicaid
Eligible Medicare Beneficiaries' Enrollment in Medicaid
Enrolled
Eligible But
Not Enrolled
SOURCE: Actuarial Research Corporation for HHS. Calculated assuming that beneficiaries below
73% of poverty are eligible for full Medicaid benefits through SSI (Kaiser Commission on Medicaid & the Uninsured, May 1999)
Participation by Medicaid eligible populations remains low. Millions of Medicare
beneficiaries under 75 percent of poverty (about $6,000 for a single, $8,500 for a couple)
are eligible for Medicaid prescription drug coverage, but the participation rate is only
about 40 percent.
Lack of information, ineffective outreach and welfare stigma contributes to these low
participation levels.
This contrasts with an almost 100 percent participation rate in Medicare Part B for
beneficiaries.
8
BENEFICIARIES LACKING DRUG COVERAGE
At least 13 million or 34 percent of Medicare beneficiaries have no insurance
coverage for prescription drugs. These beneficiaries pay retail prices for prescription
drugs, which can often be significantly more expensive than what large firms or public
programs pay for the same drugs.
More than half of Medicare
Many Uninsured In Middle Class
beneficiaries without drug coverage
Our Half of Medicare Beneficiaries Who Lack Prescription Drug Covenage
Are In The Middle Class
are middle class. Over 50 percent of
Medicare beneficiaries without drug
Income of Beneficiaries Without Drug Coverage
coverage have incomes in excess of 150
(As A Percent Of Poverty)
22%
percent - an annual income of
approximately $17,000 for couples.
This indicates that targeting a drug
benefit only to the low-income cannot
54%
address even half of the problem.
24%
SOURCE: Actuariel Research Corporation for 185, 2000
in 2000, poverty for single person - about $8,500, for couple - about $11,400
The income distribution of beneficiaries lacking drug coverage closely parallels
that of all beneficiaries. This lack of difference suggests that everyone is at risk of
losing their health insurance.
Lack of Insurance Affects All
Medicare Beneficiaries
Income of Beneficiaries Lacking Covenage Matches That Of All Beneficiaries
100%
8%
6%
14%
16%
>$50,000
75%
18%
19%
$30-50,000
50%
$20-30,000
32%
$10-20,000
25%
<10,000
25%
26%
0%
All
Uninsured
SOURCE: Actuariel Research Corporation for HHS, 2000
9
PRESIDENT'S PROPOSED PRESCRIPTION DRUG BENEFIT
The President's plan to modernize Medicare would include a new, voluntary Medicare drug
benefit. Called Medicare Part D, it would offer all beneficiaries, for the first time, access to
affordable, high-quality prescription drug coverage beginning in 2002. This benefit would
cost the Federal government about $118 billion from 2000 to 2009. It would be fully offset,
primarily through savings and efficiencies in Medicare and, to a small degree, from the
surplus amount dedicated to Medicare.
Meaningful coverage. Beginning in 2002, beneficiaries would have the option of
participating in the new Medicare Part D program. It would have:
No deductible - coverage begins with the first prescription filled and
50 percent coinsurance, with access to discounts negotiated by private pharmacy
managers after the limit is reached.
The benefit would be limited to $5,000 in costs ($2,500 in Medicare payments) in 2008.
It would phase it a $2,000 for 2002-2003; $3,000 for 2004-2005; $4,000 for 2006-2007;
and $5,000 in 2008 (indexed to inflation in subsequent years).
Affordable premiums. Beneficiaries who opt for Part D would a pay separate premium
for Medicare Part D - an estimated $24 per month in 2002, and $44 per month in 2008
when fully implemented. This premium represents 50 percent of program costs.
Enrollment would be optional and, after an initial open enrollment for all beneficiaries in
2001, would occur when a beneficiary becomes eligible for the program or when they
transition out of employer-based coverage. Premiums would generally be deducted from
Social Security checks.
Low-income protections. Beneficiaries with income up to 150 percent of poverty
($17,000 for a couple) would pay no Part D premium. Those with income below
135 percent of poverty ($15,000 for couples) would pay no premiums or cost
sharing. This assistance would be administered through Medicaid, with the Federal
government assuming all of the premium and cost sharing costs for beneficiaries
with incomes above poverty.
Private management. Beneficiaries in managed care plans would continue to receive
their benefit through their plan. For enrollees in the traditional program, Medicare
would contract with numerous private pharmacy benefit managers (PBMs) or similar
entities. Medicare would use competitive bidding to award contracts for drug
management. The private managers would use the latest, effective cost containment
tools, drug utilization review programs, and meet quality and consumer access standards.
No price controls would be imposed.
Incentives to develop and retain retiree coverage. Employers that choose to offer
or continue retiree drug coverage would be provided a financial incentive to do so.
10
APPENDIX: METHODOLOGY & ENDNOTES
Methodology. The Actuarial Research Corporation under contract with the Department of
Health and Human Services conducted most of the analysis. The basis for the estimates is
the Medicare Current Beneficiary Survey (MCBS) for 1995. These data were aged to CY
2000, converted to a point-in-time estimate, and adjusted for the increase in managed care
enrollment. This enrollment increase was estimated by moving beneficiaries from retiree
health coverage, Medigap and the uninsured to managed care in proportion to their
enrollment in those plans.
Endnotes.
1 Hazzard WR; Blass JP (Editor); Ettinger WH; Halter JB; Ouslander JG. (1998). Principles of Geriatric Medicine
and Gerontology. New York: McGraw Hill.
2 Centers for Disease Control and Prevention, National Center for Health Statistics. (1993). (National High
Blood Pressure Education Working Group): Report on primary prevention of hypertension. Archives of Internal
Medicine. 153: 186.
3 Wilson PWF. (1991). Established risk factors and coronary artery disease: The Framingham Study. American
Journal of Hypertension. 7: 75.
4 SHEP Cooperative Research Group. (1991). Prevention of stroke by hypertensive treatment in older patients
with isolated systolic hypertension. JAMA, 265: 3255-3264.
5 Randomized trial of cholesterol lowering in 4444 patients with coronary heart disease: The Scandinavian
Simvastatin Survival Study (45). Lancet 1994; 344: 1388-1389.
6 The beta-blocker heart attack trial: Beta-Blocker Heart Attack Study Group. JAMA. 1981; 246: 2073-2074.
7 National Health Interview Survey.
8 Tierney LM; McPhee SJ; Papadakis MA (editors). (1998). Current Medical Diagnosis and Treatment 1998.
Appleton and Lange.
9 Tierney LM, et al.; ibid.
10 Soumerai SB; Ross-Degnan D; Avorn J; McLaughlin TJ; Choodnovskiy I. (1987). Payment restrictions for
prescription drugs under Medicaid: Effects on therapy, cost and equity. The New England Journal of Medicine,
317: 550-556.
11 Families USA, 1994.
12 Soumerai SB; Ross-Degnan D; Avorn J; McLaughlin TJ; Choodnovskiy I. (1991). Effects of Medicaid drug-
payment limits on admissions to hospitals and nursing homes. The New England Journal of Medicine, 325: 1072-
1077.
13 Bero LA; Lipton HL; Bird, JA.. (1991). Characterization of Geriatric Drug-Related Hospital Readmissions.
Medical Care, 29 (10): 989-1003.
Foster Higgins, National Survey of Employer-Sponsored Health Plans, 1998.
15 Foster Higgins, National Survey of Employer-Sponsored Health Plans, 1996. As reported in Hewitt
Associates. (1997). Retiree Health Trends and Implications of Possible Medicare Reforms. Washington, DC:
The Kaiser Medicaid Project.
11
TAB 5.
CHARTS
Medicare Enrollment Will Double As
The Baby Boom Generation Retires
90
Medicare Enrollees in Millions
70
Medicare's Projected
Bankruptcy: 2015
50
30
2000
2004
2008
2012
2016
2020
2024
2028
2032
2036
2040
Baby Boomers Turn Age 65
Modernizing and Strengthening
ME DICARE
Extending The Solvency Of Medicare To 2027
2027
2030
Reducing Fraud & Waste
2020
1997
2015
1993
Budget
2010
Budget
2008
2002
1999
2000
1990
1993
1995
1998
1999
President's
Plan
Medicare Beneficiaries
Need Prescription Drugs
Beneficiaries By Total Drug Spending
None
13%
$1,000 +
38%
$1-500
31%
$500-1,000
18%
SOURCE: Actuarial Research Corporation for HHS, 2000
Three Out Of Four Beneficiaries
Do Not Have Solid Private Drug Coverage
Distribution Of Beneficiaries
By Drug Coverage
76%
80%
Other 5%
Medigap &
60%
Medicaid 12%
Medicare Managed
40%
Care 17%
24%
20%
NO COVERAGE
Retiree
34%
Coverage
0%
Solid Private Coverage
Public/Medigap/No
Coverage
SOURCE: Actuarial Research Corporation for HHS, point-in-time, 2000
Retiree Health Coverage Is Declining
25% Fewer Firms Are Offering Retiree Health Benefits
Firms Offering Retiree Health Coverage
50%
40%
40%
30%
30%
20%
10%
0%
1994
1998
SOURCE: Foster-Higgins, 1998
Medigap Premiums For Drugs Are
High And Increase With Age, 1999
Monthly Premiums
$150
$126
$125
$114
$101
$105
$95
$93
$100
$83
$75
$56
$60 $59
$50
$50
$44
$25
$0
Texas
Louisiana
Nebraska
Michigan
65 Year Olds
75 Year Olds
85 Year Olds
Sample Premiums for 1999. Difference between Plans I ($1,250 benefit limit) and Plan F which is similar but has no drug coverage.
These premiums will be higher in 2002, when the President's proposed drug benefit will cost $24 per month.
Beneficiaries With Medigap Still Pay
High Out-Of-Pocket Drug Costs
On Top Of The Premium For The Base Medigap, Beneficiaries Pay
An Extra Premium For Drugs Plus Out-Of-Pocket Spending for Drugs
Medigap Annual Premiums And Out-Of-Pocket Spending
$4,000
$650
Drug Out-Of-
$3,000
Pocket Spending
$1,201
$2,000
Medigap Drug
Premium
$1,932
$1,000
Base Medigap
Premium
$0
SOURCE: Actuarial Research Corporation for HHS. Premium from Texas for a 75 year old: base is $161 per month; drug addition is $101 per month
Value of Medicare Managed Care
Drug Benefits Is Declining
Nearly Three-Fifths Of Plans Will Cap Benefit Payments
Below $1,000 In 2000
Proportion of All Plans With Limits of
Less Than $1,000
59%
60%
56%
40%
35%
20%
0%
1998
1999
2000
Source: HHS analysis of plan submissions for 2000; preliminary. This includes plans with unlimited generics and limited brand name drug spending
Limits on Medicare Managed Care
Drug Benefit Are Getting Lower
Proportion Of Plans With A $500 Or Lower Limit Has
Increased By 50%
Proportion of Plans With Limit of $500 or Less
30%
28%
20%
19%
20%
10%
0%
1998
1999
2000
Source: HHS analysis of plan submissions for 2000; preliminary. This includes plans with unlimited generics and limited brand name drug spending
Participation In Medicaid Is Low
Only 40% Of Eligible Beneficiaries Are Enrolled in Medicaid
Eligible Medicare Beneficiaries' Enrollment in Medicaid
Enrolled
Eligible But
Not Enrolled
SOURCE: Actuarial Research Corporation for HHS. Calculated assuming that beneficiaries below
73% of poverty are eligible for full Medicaid benefits through SSI (Kaiser Commission on Medicaid & the Uninsured, May 1999)
MILLIONS OF
BENEFICIARIES HAVE NO
DRUG COVERAGE
At Least 13 Million Medicare
Beneficiaries Lack Prescription
Drug Coverage
Many Uninsured In Middle Class
Over Half of Medicare Beneficiaries Who Lade Prescription Drug Coverage
Are In The Middle Class
Income of Beneficiaries Without Drug Coverage
(As A Percent Of Poverty)
Less Than 100%
22%
Greater Than 150%
of Poverty
of Poverty
54%
24%
100 to 150%
of Poverty
SOURCE: Actuarial Research Corporation for HHS, 2000
In 2000, poverty for a single person is about $8,500, for a couple is about $11,400
Lack of Insurance Affects All
Medicare Beneficiaries
Income of Beneficiaries Lacking Corerage Matches That Of All Beneficiaries
100%
8%
6%
14%
16%
>$50,000
75%
18%
19%
$30-50,000
50%
$20-30,000
36%
32%
$10-20,000
25%
<$10,000
25%
26%
0%
All
Uninsured
SOURCE: Actuarial Research Corporation for HHS, 2000
Most Medicare Beneficiaries
Are Women
100%
83%
80%
71%
59%
60%
41%
40%
29%
17%
20%
0%
65 +
85 +
100 +
Men Women
Source: U.S. Census Bureau projections for 2000. As cited in OWL Report
Total Prescription Drug Spending
For Women On Medicare Is $1,200:
Nearly 20% More Than Men
$1,210
$1,250
$1,030
$1,000
$750
$500
Men
Women
Average Total Drug Spending, 2000
Source: Actuarial Research Corporation. As cited in OWL Report
Half Of Women on Medicare
Without Drug Coverage Are
Middle Income
< 100% of
Poverty
24%
> 150% of
Poverty
50%
100-149% of
Poverty
26%
Source: Actuarial Research Corporation. As cited in OWL Report
150% of poverty is about $12,750 for a single, $17,000 for a couple in 2000
More Rural Medicare Beneficiaries
Lack Prescription Drug Coverage
48%
50%
40%
34%
% Of Beneficiaries Without
30%
Coverage
20%
10%
0%
All
Rural
SOURCE: Actuarial Research Corporation for HHS, 2000
One In Three Beneficiaries Without
Prescription Drug Coverage Lives In
Rural America
Medicare Beneficiaries
All Medicare Beneficiaries
Without Prescription Drug
Rural
Coverage
23%
Rural
34%
Urban
66%
Urban
77%
SOURCE: Actuarial Research Corporation for HHS, 2000
Rural Beneficiaries Are Less Likely To
Have Prescription Drug Coverage
Across All Income Groups
60%
52%
50%
45%
43%
45%
40%
34%
36%
28%
30%
25%
20%
10%
0%
$10,000
$10,000-30,000
$30,000-50,000
$50,000 +
All
Rural
SOURCE: Actuarial Research Corporation for HHS, 2000
TAB 6.
BREAUX-THOMAS
MEDICARE REFORM PLAN
ISSUES WITH BREAUX-THOMAS MEDICARE REFORM PLAN
In recent weeks, the Republican Leadership has claimed it does have a Medicare plan -- the
Breaux-Thomas Medicare reform plan. Under the leadership of Senator Breaux, the Bipartisan
Commission on the Future of Medicare made significant contributions towards the Medicare
reform debate. However, the final plan did not receive the necessary votes to formally report its
recommendations and has several major flaws that need to be addressed, including:
No dedication of surplus to strengthen Medicare: All experts agree that the doubling of
Medicare beneficiaries in the next 30 years cannot be accommodated through spending
reductions alone. Such cuts would be too deep to be absorbed by providers without
sacrificing quality of care for beneficiaries. Waiting to address Medicare's financing makes
the problem much harder to solve and shifts more of the burden to our nation's children.
"Premium support" proposal increases premiums for traditional Medicare, effectively
financially coercing beneficiaries into managed care: The Breaux-Thomas "premium
support" proposal caps the government contribution to private plans and traditional Medicare
based on the national average. Since traditional Medicare will be above an average that
includes managed care plans, its premium will rise nationwide - 10 to 30 percent according
to the independent Medicare actuary. This would have the effect of coercing beneficiaries
into managed care. Despite this, a significant amount of the savings achieved by this
proposal come from raising premiums for the beneficiaries who remain in traditional
Medicare.
Inadequate prescription drug benefit: The Breaux-Thomas proposal limits drug coverage
to beneficiaries with incomes below 135 percent of poverty (about $11,500 a year for a
single, $15,400 for a couple). This helps only a fraction of beneficiaries without drug
coverage; over half of beneficiaries without any drug coverage would not qualify. For
example, a widow with $19,000 in income would not qualify for assistance for coverage.
Nor would millions more beneficiaries who have expensive and/or extremely poor coverage.
Raises the age eligibility to 67 for Medicare, increasing the number of uninsured: The
most rapidly growing group of the uninsured is aged 55 to 65. Raising the Medicare
eligibility age without a policy alternative would exacerbate the problem of the uninsured.
Includes an unlimited home health and nursing home copay: Beneficiaries would be
charged 10 percent coinsurance for all home health visits - without any limits. The more
than 1 million beneficiaries who need more than 60 visits per year - who tend to be older,
sicker and widows - could pay more than $300. In addition, beneficiaries would pay about
$60 per day for the first 20 days of nursing home care which, for those without supplemental
coverage, could be a real burden.
Calls for continuation of Balanced Budget Act cuts for hospital, nursing home, and
other providers: Breaux-Thomas proposes to extend virtually every cut included in BBA.
Provides no immediate relief from BBA cuts: Unlike the President's plan, Breaux-
Thomas provides for no immediate moderation of the payment reductions in the BBA.
TAB 7.
TOP-TIER QUESTIONS AND ANSWERS
ABOUT MEDICARE REFORM
TOP-TIER MEDICARE QUESTIONS AND ANSWERS
PRESCRIPTION DRUG BENEFIT
Q1:
How do you respond to critics that charge that a new Medicare drug benefit available to all
beneficiaries is not necessary because "two-thirds" of the population already have coverage?
1
Q2:
How do you respond to opponents' arguments that the proposal represents another step toward
socialized medicine and a government takeover?
2
Q3:
Why not just target the benefit to the low-income beneficiaries who really need it?
2
Q4:
Why should the Medicare program subsidize a drug benefit for people like Ross Perot?
3
Q5:
How will beneficiaries who already have very good retiree health coverage be affected by this
proposal?
3
Q6:
Will this new prescription drug benefit cover Viagra?
4
Q7:
How do you reconcile a brand new entitlement with the need to constrain the growth of the Medicare
program?
4
Q8:
Does the prescription drug benefit impose an unfunded mandate on states?
4
Q9:
Will a prescription drug benefit eventually lead to some form of price control?
4
IMPORTANCE OF DEDICATING PART OF THE SURPLUS TO MEDICARE
Q10: Why don't you use structural changes rather than dedicating surplus to extend the life of Medicare?
5
UNCERTAINTY OF PROJECTED SURPLUS, SAVINGS, AND DRUG COSTS
Q11:
What happens if the surplus doesn't materialize?
5
Q12: How do you respond to the Congressional Budget Office (CBO) testimony that concluded that the
Administration underestimated the cost of the prescription drug benefit and overstated the plan's
savings?
5
PROVIDER REIMBURSEMENT
Q13:
How can you propose additional provider savings without restoring some of the excessive savings of
the BBA?
6
Q14:
How do you know that $7.5 billion is the right amount for correcting the overreach of the BBA? How
should this fund be allocated?
6
STRUCTURAL REFORM
Q15:
What do you say to those who say that this is about politics not substance?
6
Q16: Does this proposal qualify as real, structural reform of Medicare?
7
Q17: Does your plan suggest that Medicare can be fixed without beneficiaries have to bear any burden? 7
Q18: What is the problem with Senator Breaux and Congressman Thomas' proposal?
7
PRESCRIPTION DRUG BENEFIT
Q1:
How do you respond to critics that charge that a new Medicare drug benefit available to
all beneficiaries is not necessary because "two-thirds" of the population already have
coverage?
A:
Those who use the argument that "two-thirds" of beneficiaries do not need a Medicare
drug option are out of touch and out of date. The two-thirds number -- inaccurately used by
opponents of prescription drug coverage -- does not reflect current facts or trends in coverage
of the elderly and disabled of this nation. All one has to do is go to any senior center around
the nation to get a sense of the magnitude of this problem.
About 75 percent of Medicare beneficiaries lack decent, dependable, private-sector
coverage. Less than one-fourth of Medicare beneficiaries have retiree drug coverage,
which is the only meaningful form of private coverage. About one-third of Medicare
beneficiaries - at least 13 million beneficiaries - have no drug coverage at all. Another 8
percent purchase Medigap with drug coverage - but this coverage is expensive and inadequate.
About 17 percent have it through Medicare managed care, but plans are severely limiting
coverage. The remaining beneficiaries are covered through Medicaid and other public
programs.
The limited private coverage that exists is declining and becoming more unaffordable.
The number of firms offering retiree health coverage has declined by a staggering 25 percent in
just the last four years. Premiums for Medigap prescription drug coverage are extremely
expensive and increase with age. The most frequently purchased Medigap policy is typically
priced at two to three times the President's option, has a $250 deductible, and limits plan
payments to $1,250. Medigap premiums usually increase dramatically with age, just when
beneficiaries need the coverage the most and are least likely to have the income to afford it.
This is a particular problem for women who make up over 70 percent of those over age 85.
Public coverage is decreasing in value and becoming more unreliable. Nearly three-fifths
of all Medicare managed care plans are reporting that they will cap their drug benefits below
$1,000 in 2000. In fact, the proportion of plans with $500 or lower benefit caps will increase
by 50 percent between 1998 and 2000. Medicaid coverage is meaningful, but is available only
for those with the lowest incomes (generally less than about $6,200 for a single elderly person).
And, because of "welfare" stigma and other reasons, this program only enrolls 40 percent of the
low-income elderly who are eligible.
The President's proposed drug benefit offers all beneficiaries another option.
Beneficiaries can choose to take it, choose to keep their current coverage, or choose to
remain uncovered. The same critics opposing this proposal are usually the advocates of more
health care choices. This benefit is simply a new option.
1
Q2:
How do you respond to opponents' arguments that the proposal represents another step
toward socialized medicine and a government takeover?
A:
The proposed drug benefit is purely voluntary. Beneficiaries can choose to take it, to
keep their current coverage, or to remain uncovered. No one can credibly argue this is a
government take-over; it is simply another choice for beneficiaries. Since 75 percent of
beneficiaries lack reliable, affordable, decent private sector coverage, this option is clearly
needed.
Prescription drug coverage is essential to a modern Medicare program. No one designing
the Medicare program today would exclude prescription drug coverage. It is as central to
health care as hospital care was in 1965. The President's proposal simply provides an option to
access this critically necessary benefit.
Those who oppose the President's proposal are making the exact same arguments that
opponents of Medicare's creation did over 34 years ago. It is striking how similar the
arguments against the new prescription drug option are to the arguments that many
Republicans used against the passage of Medicare in the first place. Clearly, Medicare has not
led to "socialized medicine."
Q3:
Why not just target the benefit to the low-income beneficiaries who really need it?
A:
Over 50 percent of beneficiaries without prescription drug coverage are middle class.
Those who argue we should design a benefit for just the lower income ignore the fact that such
an approach would leave out millions of beneficiaries in desperate need of help. Fully 54
percent of all beneficiaries without coverage have incomes over 150 percent of poverty -- over
$17,000 a year for couples. And this number does not include the millions of middle-class
seniors and Americans with disabilities who have excessively expensive, inadequate and
declining drug coverage.
The President's proposal provides special assistance to low-income beneficiaries.
Beneficiaries with income below 150 percent of poverty would not pay premiums, and those
with income below 135 percent of poverty would not pay coinsurance for prescription drugs.
Ironically, some of the same Republicans who suggest that any drug benefit should be
targeted to the poor just supported the House Ways and Means Committee tax deduction
provision that provides the greatest assistance to wealthier beneficiaries. Despite their
rhetoric of concern about the poor, the House Republicans just passed a bill that allows seniors
to take a tax deduction for Medigap premiums. This helps higher income beneficiaries like
Ross Perot, but would leave out millions of beneficiaries since over 55 percent of seniors have
no tax liability and would be ineligible for this tax break. Indeed, while Republicans feel that
the middle class should be denied help on drug coverage, its House plan would give 4 times
more in tax relief to the top 1 percent (families making over $340,000) than to the entire
bottom 60 percent of taxpayers.
2
Q4:
Why should the Medicare program subsidize a drug benefit for people like Ross Perot?
A:
This argument is nothing but a red herring used by those who are opposed to a
prescription drug option for the millions of middle-class seniors who need it.
People making this argument are seeking to cut off prescription drug assistance at only $12,750
for a single, $17,000 for a couple - leaving the millions in the middle class with no coverage or
weak coverage out in the cold. This is the real issue: a debate between those who want to
provide an option to all beneficiaries so that middle-class seniors have access to affordable
prescription drug coverage and those who believe that seniors making over $17,000 are like
Ross Perot and don't need any help.
Moreover, many beneficiaries who are sick -- regardless of income -- cannot access
affordable insurance. Premiums in the private Medigap market increase with age and, except
when beneficiaries initially turn age 65, are usually medically underwritten. As such, seriously
ill patients without coverage today cannot get coverage at virtually any price. In the absence of
a new Medicare prescription drug benefit option, we are sentencing too many seniors who have
worked hard and played by the rules to a Medigap market that will not provide the coverage
that they need.
Q5:
How will beneficiaries who already have very good retiree health coverage be affected by
this new proposal?
A:
Since the new Medicare drug benefit is optional, the less than one-fourth of Medicare
beneficiaries who are fortunate enough to have good retiree health coverage can - and
likely will -- keep their current coverage. The prescription drug benefit is simply another
choice, but it is an important alternative to even those beneficiaries with retiree coverage. This
is because, over the last 4 years, the numbers of firms offering retiree health coverage has
declined by 25 percent. Under the President's plan, if a beneficiary chooses to stay in his or
her current plan and the firm subsequently drops the coverage, he or she will have the ability to
opt for the Medicare option.
Most importantly, the plan provides new financial incentives to firms to keep and
increase their commitment to private retiree health coverage. The plan provides firms
that are offering prescription drug benefits, which are at least as good as the Medicare option,
an estimated $11 billion over 10 years in assistance if they continue or start to offer private
health coverage. This policy is designed to slow down the trend of firms dropping their retiree
health coverage and to provide incentives for employers not now offering to do so.
3
Q6:
Will this new prescription drug benefit cover Viagra?
A:
In general, the private sector contractors who will manage the Medicare drug benefit will be
required to cover prescriptions that are determined to be medically necessary, including Viagra.
However, as is the case in the Medicaid program and with other private insurers, the private
contractors who manage the Medicare benefit could require doctors to get prior authorization
before prescribing drugs for which there are documented abuses.
Q7:
How do you reconcile a brand new entitlement with the need to constrain the growth of
the Medicare program?
A:
The prescription drug benefit is not a stand-alone initiative; it is part of a broader reform
package that modernizes Medicare, makes it more competitive and efficient, and dedicates part
of the surplus to Medicare to keep it solvent until 2027. It is simply not credible to suggest that
the Medicare program can be modernized without adding the option for prescription drug
coverage. Prescription drugs today are as important as hospital care was when Medicare was
created. Having said this, the drug benefit is designed in a way that is affordable to both the
program and the beneficiaries it serves.
Q8:
Does the prescription drug benefit impose an unfunded mandate on states?
A:
The prescription drug benefit both relieves states from their current coverage of very low-
income elderly and asks states to share in paying for the premiums and cost sharing for poor
elderly, as they do for Medicare Part B premiums and cost sharing. All states currently provide
prescription drug coverage to Medicare beneficiaries who also qualify for Medicaid (known as
"dual eligibles"). Some states cover prescription drugs for all poor elderly. Since Medicare
will take over primary responsibility for drug coverage, the states will receive a windfall that
will be used to pay for the prescription drug benefits' premiums and copayments for all poor
beneficiaries. The Federal government would pay 100 percent of the cost of drug premiums
and copayments for those beneficiaries with income between 100 and 150 percent of poverty.
Q9:
Will a prescription drug benefit eventually lead to some form of price control?
A:
No. The prescription drug benefit will be administered by contracting with private sector
benefit managers just like virtually all private health insurers and employers do. There are no
price controls. Pharmacy benefit managers (PBMs) and other entities have developed and
successfully employed innovative management tools to offer affordable, high quality,
prescription drug coverage. Recognizing that drug therapy holds great promise, the plan does
not include price controls that would discourage research and development.
4
IMPORTANCE OF DEDICATING PART OF THE SURPLUS TO MEDICARE
Q10: Why don't you use structural changes rather than dedicating surplus to extend the life of
Medicare?
A:
Both structural reforms and new financing are needed to significantly extend the life of
Medicare. We need to make Medicare a more competitive and efficient program - but all
experts agree that it is impossible to rely only on provider payment reductions to extend the life
of the Medicare trust fund for any significant length of time, given the doubling of Medicare
enrollment that will occur as the baby boom generation retires. Medicare Part A spending
growth per beneficiary would have to be limited to less than 3 percent per beneficiary in every
year to get to 2027 without the surplus dedication. This rate is about 60 percent below
projected private health insurance spending per person. Moreover, since this growth rate is
below general inflation, the value of Medicare spending per beneficiary would erode.
Providers are already concerned that the BBA cuts were excessive, making it highly unlikely
that significant additional savings could be achieved.
Dedicating over $300 billion to Medicare solvency has the additional effect of buying down the
debt faster - it contributes to eliminating public debt entirely by 2015. This would make
America debt-free for the first time in the last 160 years.
UNCERTAINTY OF PROJECTED SURPLUS, SAVINGS, AND DRUG COSTS
Q11: What happens if the surplus doesn't materialize?
A:
The uncertainty of projections is exactly why the most responsible approach to allocating the
surplus is dedicating most of it to meet our existing obligations in Social Security and
Medicare. If the surplus turns out to be less than our forecast projects, it will translate into a
less significant extension of the trust fund. In contrast, if the surplus is fully spent on a tax cut,
the consequence of misestimates means deficits and new taxes.
Q12: How do you respond to the Congressional Budget Office (CBO) testimony that concluded
that the Administration underestimated the cost of the prescription drug benefit and
overstated the plan's savings?
A:
The Administration's economic team and the HCFA Actuary did a thorough and careful
analysis in developing a cost estimate for the President's plan. The Medicare Actuary is the
same independent and respected career expert who has been cited repeatedly by Republicans in
the past for his estimates on the Medicare Trust Fund. The Clinton Administration's health and
economic forecasts have been consistently more conservative than actual experience.
5
PROVIDER REIMBURSEMENT
Q13: How can you propose additional provider savings without restoring some of the excessive
savings of the BBA?
A:
We are certainly not ignoring the concerns that have been raised by providers in the wake of
the implementation of the BBA. At the President's direction, HHS will implement
administrative actions that would relieve unnecessary burdens that could undermine the ability
of providers to deliver quality services. In addition, the proposal explicitly provides for a $7.5
billion quality assurance fund to help smooth out problems that Congress and the
Administration decide, based on objective evidence, have resulted in harm to beneficiaries.
Although the reform proposal includes proposals to constrain out-year spending, they are much
more moderate than those included in the BBA and those recommended by the Republicans on
the Medicare Commission. They do not include any hospital outpatient department savings,
disproportionate share hospital payment reductions, nursing home savings, and new home
health care provider savings.
Q14: How do you know that $7.5 billion is the right amount for correcting the overreach of the
BBA? How should this fund be allocated?
A:
The $7.5 billion set aside was designed to be responsive to legitimate provider concerns
without opening the door to unsubstantiated complaints. It is based on a serious analysis of a
range of provider concerns, but there is no one specific package of provider modifications that
is linked to this amount. While there have been a number of concerns raised, we believe it is
premature to assign any specific policy or funding amount to any one provider group. We need
additional evidence to make informed decisions, and we look forward to working with the
Administration in a collaborative and constructive manner.
STRUCTURAL REFORM
Q15: What do you say to those who say that this is about politics not substance?
A:
The President's plan represents a serious proposal to strengthening and modernizing both
Social Security and Medicare. The surplus provides a golden opportunity for members of both
sides of the aisle to contribute to the development of important reforms essential to these
important programs. It serves no one's interest - Democrats or Republicans - to ignore
challenges facing the program.
6
Q16: Does this proposal qualify as real, structural reform of Medicare?
A:
The proposal represents a bold initiative to strengthen and modernize the Medicare program
and prepare it for the challenges of the 21st century. Its inclusion of traditional fee for service
reforms, true competition between managed care plans, and savings from providers and
beneficiaries alike, a new drug benefit, the elimination of all copayments and deductibles for
all preventive services, and an explicit dedication of 15 percent of the surplus to extend the life
of the trust fund can be defined as nothing short of comprehensive reform. This has been
validated by experts such as Robert Reischauer, former director of the Congressional Budget
Office, who says that the President's proposal will "restructure Medicare at its root." (New
York Times, July 1, 1999).
Q17: Does your plan suggest that Medicare can be fixed without beneficiaries have to bear any
burden?
A:
The Medicare reform plan asks all affected parties to contribute to the solution. Both
beneficiaries and providers will help offset the costs of the drug benefit through a new clinical
lab copayments, indexing the Part B deductible to inflation, and outyear provider savings. The
additional costs are financed through savings in the surplus that have been largely achieved
through our aggressive efforts to curb waste, fraud and abuse in the program.
Q18: What is the problem with Senator Breaux and Congressman Thomas' proposal?
A:
Although the plan outlined by Senator Breaux and Congressman Thomas in March has made
an important contribution to the Medicare debate, it has serious flaws that must be addressed,
including:
No dedication of the surplus to strengthen Medicare, passing on the inevitable financing
crisis to our children;
Higher premiums for traditional Medicare in its so-called premium support program, which
has the effect of implicitly, financially coercing beneficiaries into managed care;
A totally inadequate, means-tested prescription drug benefit. More than half of
beneficiaries without drug coverage today would not be eligible;
Raising the age eligibility which would increase the uninsured;
An unlimited home health and nursing home copay;
Continuation of the Balanced Budget Act cuts without relief in the early years.
7
PRESIDENT CLINTON URGES CONGRESS TO RECONSIDER
LARGE TAX CUT AND ADDRESS THE CHALLENGES FACING
MEDICARE
July 1 1999
Speaking to the Communications' Workers of America, the President urged the Congressional
Republican Leadership to reconsider their proposal to use the entire surplus for a tax cut without
dedicating one dollar to extending the life of the Medicare Trust Fund. He emphasized the
unique historical opportunity that the nation has to secure Medicare's financial stability for a
quarter of a century and to provide for a long-overdue prescription drug benefit. He also
outlined the consequences of Republican plan by highlighting how difficult it would be to
strengthen Medicare without the use of the surplus, how it would have a negative effect on the
national debt, and its severe underfunding of priorities like military readiness and education.
MEDICARE FACES UNPRECEDENTED FINANCING CHALLENGES. The next
century will double Medicare's enrollment, from 40 to 80 million by 2035.
Medicare Is Insolvent Nearly Two Decades Before Social Security. Not only does
Medicare face the same demographic tidal wave of baby boom generation retirees as
Social Security, but it has to adapt to health innovations and challenges of an aging
society. Without change, Medicare will run out of funding in 2015 - 19 years before
Social Security's projected insolvency.
Medicare's Need For New Financing Is Inevitable. The current financing structure for
Medicare was not - and cannot - accommodate a doubling of Medicare's enrollment.
Insolvency May Come Sooner Than 2015. At least half dozen times in the last 25
years, the prognosis for Medicare worsened from one year to the next. Given this
uncertainty, securing financing now that extends the life of Medicare by another decade
can protect against unexpected shortfalls.
PRESIDENT'S PLAN DEDICATES $374 BILLION OVER 10 YEARS TO
STRENGTHEN MEDICARE. The President's commitment to Medicare would lengthen
the solvency of Medicare until 2027.
Surplus Helps Secure Medicare For The Next Quarter Century. About $328 billion
would contribute to solvency, building on the Medicare reforms in the President's plan.
Only A Fraction Of The Surplus Dedicated To The Prescription Drug Benefit. The
amount from the surplus that explicitly finances the prescription drug benefit is about $45
billion over 10 years - less than one-eight the amount dedicated to Medicare, one-
twentieth the on-budget surplus, and less than the amount that the President dedicated to
expanding children's health insurance coverage in 1997 ($48 billion over 10 years).
REDUCES PUBLIC DEBT. By locking away most of the surplus dedicated to Medicare:
The Medicare Surplus Dedication Contributes To The President's Framework That
Eliminates Public Debt by 2015. Without locking away the Medicare amount in its
Trust Fund, less public debt would be bought down. Buying down debt also helps boost
national savings which leads to lower interest rates, a larger capital stock, a more
productive workforce, a higher standard of living, and an enhanced ability to finance
current Medicare obligations.
NO REASONABLE WAY TO GET SAME IMPROVEMENT WITHOUT SURPLUS.
The President is deeply committed to addressing Medicare financing challenges now - not
passing the problems along to our children and grandchildren. Without additional financing:
Growth Rate Per Beneficiary Would Have To Be Held Below General Inflation -
Resulting In A Real Cut In Medicare. Medicare Part A spending growth per
beneficiary would have to be limited to less than 3 percent per beneficiary in every year
to get to 2027 without the surplus dedication. This rate is about 60 percent below
projected private health insurance spending per person (7.3 percent). Moreover, since
this growth rate is below general inflation, the value of Medicare spending per
beneficiary would erode. These projections help explain why virtually every independent
health analyst agrees that Medicare cannot be significantly strengthened without adding
outside financial support such as the surplus.
NO OTHER PLAN ACHIEVES PRESIDENT'S GOALS.
No Commitment From The Republican Leadership To Medicare. There has not been
a single Republican Leadership proposal this year that dedicates any funding from the
surplus for Medicare, proposes specific, responsible reforms to make Medicare more
competitive or efficient, or adds a meaningful prescription drug benefit to Medicare.
Breaux-Thomas Proposal Would Not Get Close To 2027. According to their own
estimates, the Breaux-Thomas proposal would produce programmatic savings of only
about $66 billion over 10 years ($127 billion without the Medicaid low-income drug
benefit). As such, its Part A programmatic savings would total $50 to 60 billion. This
small effect on the Trust Fund occurs despite including problematic proposals like:
Premium Support which mostly saves by raising premiums for traditional Medicare;
Raising Age Eligibility To 67 where savings may come at the cost reducing coverage;
Larger Provider Payment Reductions which extend most of the BBA policies or find
other, equivalent savings;
Home Care And Nursing Home Copays.
SUNTUM_M@A1
07/22/99 03:13:00 PM
Record Type:
Record
lots Lotsq
To:
See the distribution list at the bottom of this messa
CC:
Subject: remarks at Medicare conversation
Medicare
smhs
THE WHITE HOUSE
Office of the Press Secretary
(Lansing, Michigan)
For Immediate Release
July 22, 1999
REMARKS BY THE PRESIDENT
IN CONVERSATION ON MEDICARE
Lansing Community College
Lansing, Michigan
11:45 A.M. EDT
THE PRESIDENT: Thank you, and good morning. I would like to
begin by saying I am honored to be here. I thank all of you for coming.
Somebody fell out of the chair -- are you all right? (Laughter.) I wish I
had a nickel for every time I've done that. (Laughter.) You okay now? Good.
(Laughter.)
Well, this is appropriate. I want to thank your Attorney General,
Jennifer Granholm, for joining us; and Mayor Hollister, the state legislators,
county commissioners and city council members who are here. And I thank
President Anderson of the Lansing Community College for making me feel so
welcome here.
I love community colleges, and I'm going to go visit with some of
the students after I finish here, and I'm going to tell them they should also
be for this. The younger they are the more strongly they should feel about
this, what we're trying to do here. (Applause.)
I would like to thank our sponsors today, the National Committee
to Preserve Social Security and Medicare -- the President, Martha McSteen; the
Executive Vice President, Max Richtman, are here. I thank the National
Council of Senior Citizens and their Executive Director, Steve Protulis, who
is here. The Older Women's League National Board President, Betty Lee Ongley;
Judith Lee of the Older Women's League; John DeGostino (phonetic) of the
Michigan State Council of Senior Citizens.
I'd also like to thank in her absence your
Congresswoman, Debbie Stabenow, who was going to come with me
today, but they're voting on an issue which is very critical to
whether we can do what I hope to do with Medicare. But she has
been a wonderful supporter of our efforts to preserve Medicare
and to add the prescription drug benefit. And I know she did a
study here in this district on seniors' prescription drug options
and cost, and some of you may have been responsible for the
position she is now taking in Washington. But I am very, very
grateful for it. And I know Debbie's mother, Ann Greer, is here.
So I thank her for coming.
And let me say to all of you -- and I want to thank
Jane for doing this. You know, I met her about three minutes
ago, and I -- she's got to come out here with me and do this
program. And I think the odds are she'll do better than I will.
(Laughter.) So I'm not worried.
Let me say, today I want to have this opportunity to
talk with all of you -- we have people of all ages here -- about
the great national debate going on not only in Washington, but in
our country -- a debate that we never thought we'd be having.
You know, I came to Lansing first when I was running for
President in 1992, and the people of Michigan have been very good
to me and to Hillary and to Vice President and Mrs. Gore. I'm
very grateful for that.
But it occurred to me if I had come here in '92 and I
said, I want you to support me because if you do we've got a $290
billion deficit today, but I'll be back here in six years and
we'll talk about what to do with the surplus -- (applause) --
now, I think it's fair to say that if I had said that people
would have said, he seems like a nice young man, but he's
terribly out of touch -- (laughter) -- he doesn't have any idea
what he's talking about. This guy is too far gone to have this
job. But that's what we're doing here.
Six and a half years ago, Michigan's unemployment rate
was 7.4 percent. Today, it's 3.8 percent. We've gone from a
$290-billion deficit to a $99-billion surplus. And we have done
it with a strategy that focused on cutting the deficit, balancing
the budget, eliminating unnecessary spending, but continuing to
invest in education and training. For example, we've almost
doubled our investment in education and training in the last six
years while we have cut hundreds of programs and reduced the size
of the federal government to its smallest point since 1962, when
President Kennedy was in office. So I think that's very
important. And the tax relief which has been given in the last
six years in focused on families and education.
I asked the President of this college when I came in, I
asked him what the tuition was, because now our HOPE Scholarship
tax credit give a $1,500 year tax credit to virtually all the
students in our country. And that makes community college free,
or nearly free, to virtually all the students in community
colleges in our country. It's an important thing.
But we've worked hard and the American people have
worked hard. Now we have the longest peacetime expansion in
history, with 19 million new jobs. We have the lowest minority
unemployment rates ever recorded. And we have to ask ourselves,
we've worked very hard as a country for this -- what are we going
to do with it? And I have argued that, at a minimum, we ought to
meet our biggest challenges -- the aging of America, the
obligation to keep the economy going, and the obligation to
educate and prepare our children for the 21st century.
Today, we're going to talk primarily about the aging of
America and Medicare. But I want to emphasize what a challenge
that is. The number of people over 65 will double between now
and the year 2030 -- will double. The fastest-growing group of
people in the United States in percentage terms are people over
80. Any American today who lives to be 65 has a life expectancy
of about 82.
Children being born today, when you take into account
all of the things that can happen -- illness, accident, crime,
everything -- have a life expectancy of 77 from birth now. We
expect to unlock the genetic code with the Human Genome Project
in the next three to four years, and it then will become normal
for a young mother taking a baby home from the hospital to have a
genetic map of that baby's body which will be a predictor of that
baby's future health. It will be troubling in some ways. It
will say, well, this young baby girl has a strong predisposition
to breast cancer. But it will enable you to get treatment, to
follow a diet, to do other things which will minimize those
risks; will say, this young boy is highly likely to have heart
disease at an earlier-than-normal time, but it will enable us to
prepare our children from birth to avert those problems. So this
is a very important thing.
The first thing I want to say to all of you and those
of you who are in the senior citizens' groups will identify with
this -- this is a high-class problem we have. This is a problem,
the aging of America, that is a high-class problem. It means
we're living longer and better. I wish all of our problems were
like this. It has such -- sort of a happy aspect to them.
But it does mean that there will be new challenges for
our country, and it means, among other things, that we'll have,
percentage-wise, relatively fewer people working and more people
drawing Social Security and Medicare.
When you look at the Social Security system, it's
slated to run out of money in about 34, 35 years. It ought to
have a much longer life expectancy than that. Everybody -- it's
fine for the next 35 years, but I've offered a plan to increase
the life of the Social Security trust fund for at least 54 years
and to go further if the Congress will go with me.
I have offered a plan to increase -- when I became
President, the Medicare trust fund was slated to go broke this
year. And we took some very tough actions in 1993 and again in
1997 to lengthen the life of the trust fund -- actions which, I
might add, most hospitals with significant Medicare caseloads,
and teaching hospitals which deal with a lot of poor folks,
believe went far too far. And we're going to have to give some
money back to those hospitals in Michigan and throughout the
country. But we now have 15 years on the life of the Medicare
trust fund. Under my proposal, we would take it out to 2027, and
that will give plenty of time for future Congresses and
Presidents to deal with whatever challenges develop in the
Medicare program after that.
Now, to do that and to do it without cutting our
commitment to education, to biomedical research, to national
defense, we have to devote most of the surplus to Social Security
and Medicare. We will still have funds for a substantial tax
cut, but not as big as the one being offered in Washington today,
which spends all the non-Social Security tax surplus funds on a
tax cut.
I believe the wise thing to do is to take care of the
21st century challenge of the aging of America, to do it in a way
that does not require us to walk away from the education of our
children; and under my plan, because we would save most of the
surplus, the side benefit we'd get is that in 15 years we could
actually take the United States of America out of debt for the
first time since 1835. (Applause.)
Now, why is that important -- and it's more important,
I would argue, than at any time in my lifetime. I was raised to
believe that a certain amount of debt for a country was healthy;
that just like businesses are always borrowing money to invest in
new business, a certain amount of debt was healthy. The
structural deficit has been terrible. The idea that we
quadrupled the debt in 12 years was an awful idea, because we
were borrowing money just to pay the bills.
But I'd like to ask you all to think about this,
because I don't think most Americans have focused on this part of
the plan, the idea of being debt-free. We live in a global
economy. Money can travel across national borders literally at
the speed of light. We just move it around in accounts.
Interest rates are set, therefore, in a global context. If we
become debt-free and we, therefore, don't borrow any money in
America just from the government, that means everybody else's
interest rates will be lower. That means for businesses, lower
business borrowing rates; it means more businesses, more jobs,
easier to raise wages. For families it means lower home mortgage
rates, lower credit card payment rates, lower car payment rates,
lower college loan rates.
It means that we will secure the economic strength of
America in ways that are unimaginable to us now. It means that
if other parts of the world get in trouble, the way Asia did a
couple of years ago, we'll be less vulnerable. And the people
that are in trouble and need to borrow money will be able to get
it at lower interest rates and they'll get up and go on again and
be able to do business the us again.
This is a very good thing to do. But it can only be
done if we set aside the vast majority of the surplus to fix
Social Security and Medicare. You can still have a tax cut,
focused on helping families save for their retirement or any
number of the other things that have been discussed within the
range we can afford, focused on helping people pay for long-term
care, focused on helping working families pay for child care.
And, I would hope, focused on helping us modernize our schools
for the 21st century and giving business people big incentives to
invest in the small towns, rural areas, urban neighborhoods and
Indian reservations that still haven't gotten any new business
investment in this recovery of ours.
But the fundamental decision is: Are we going to do
these things? Now, there does seem to be agreement in Washington
-- let's start with the good news -- there does seem to be an
agreement in Washington that we should set aside the portion of
the surplus produced by your Social Security tax payments for
Social Security. And if that, in fact, happens, under the way
that the Republicans and the Democrats have agreed on so far, we
will pay down the debt, we will continue to pay down the debt,
but we won't pay it off. And we won't extend the life of the
Social Security Trust Fund, as I would under my plan. But still,
that's something.
There is yet no agreement in Washington over setting
aside a significant portion of the surplus to save and modernize
Medicare. So today, we're here to talk about that. But I wanted
you to have a feeling for how the Medicare proposal fits into the
proposal to save Social Security, to keep investing in education,
to have a modest tax cut, and to make the country debt-free. I
want you to think about it, because the big debate is, what are
we going to do with the surplus?
And I don't even agree with the timing of what's going
on in Washington; I don't think we should even be talking about
the tax cut until we figure out what it costs to save Social
Security, what it costs to save and modernize Medicare, what we
have to do to keep the government going. (Applause.)
How would you feel -- now, one of my staff members, who
happens to be from Michigan, said to me the other day, this is
kind of like a family sitting around the kitchen table and said,
let's plan the fancy vacation of our dreams and then talk about
how we're going to make the mortgage payment. (Laughter.) Hope
we've got enough left over. So that's where we are.
To evaluate whether you agree or not, we need to talk
about what needs to be done about Medicare. So I'd like to tell
you what I think. The first thing my plan would do is to devote
a little over a third of the non-Social Security portion of the
surplus, $374 billion over the next 10 years, to strengthen
Medicare by extending the life of the trust fund to 2027. Now, I
think that is very, very important, because, keep in mind, all
the baby boomers will start turning 65 in the year 2011. That's
not that far away. To young people, that may seem like a long
way away. The older you get, that seems like the day after
tomorrow. (Laughter.) And we've waited a long time.
The last time we had a surplus was 1969. This is a
once in a lifetime opportunity we have here to deal with this.
So if we run it out to 2027 and then further complications arise,
or difficulties or challenges present themselves, there will be
time for future Congresses and Presidents to deal with them
without having to take drastic action. So that's the first thing
-- run the trust fund out to 2027.
No serious expert on Medicare believes that we can
stabilize Medicare without an infusion of new revenues. The
second thing we do is to employ some of the best practices in
health care today: competition and other practices now in the
private sector, to keep costs down that don't sacrifice quality
and don't require people to be forced out of the fee-for-service
Medicare plan if they don't want to be, into a managed care plan.
We leave free choice open. No requirement. (Applause.)
The third thing about this plan that's gotten the least
publicity but is potentially very important for our country is
that we allow people between the ages of 55 and 65 who aren't
working anymore or don't have health insurance on the job and
don't have retiree health insurance to buy into Medicare in a way
that doesn't compromise the stability of the program. I think
that is terribly important. That's a huge problem in our country
today and a growing one. People who are out of the work force or
working for very small businesses without employer-sponsored
care, who can't get any health insurance because of their age or
their previous health condition.
The fourth thing the plan does is to modernize the
benefits of Medicare to match the advances of modern medicine.
That means, first, encouraging seniors and disabled Medicare
beneficiaries to take greater advantage of the available
prevention mechanisms in our country, preventive tests for
cancer, for osteoporosis, for other conditions, by eliminating
the deductible and the copay from those tests and paying for it
by charging a modest copay for lab tests that are often overused.
Now, why is this important? Well, if somebody develops
osteoporosis, a severe case and goes to the hospital and has a
prolonged medical regime under Medicare, the taxpayers pay for
all of it. But very often, the prevention is not done because of
the costs involved. It'll be far less expensive over the long
run to spend a little more on prevention now and keep people out
of the hospital and the expensive payments we're going to pay if
we don't do that. Very important issue. (Applause.)
And then, we provide, for the first time, for a
voluntary and affordable prescription drug benefit. Basically,
we propose to start with a $24 a month premium to pay half the
drug cost, up to $2,000, phasing up over the next five or six
years to a $5,000 ceiling, with the premium going up that way, in
a graduated way. For seniors at 135 percent of poverty or less,
we would waive the premium and the copay, and then the premium
would be phased-in, up to 150 percent of poverty. So there would
be subsidies there.
Now, there are those who say, well, this is good, but
I've got a good retiree health plan with prescription drugs, and
if you offer this my employer will drop it and it's better than
this deal. Well, I want you to know that one of the things we've
done in here is put substantial subsidies in here to employers
who offer drug benefits to their retirees. So I think it is less
likely that they will drop the benefits, not more -- because
they're going to get a real incentive to keep the employer-based
retiree programs. The second thing I want to say, again, is this
is an entirely voluntary program.
Now, the other big criticism of this program has been
that, well, they say, two-thirds of the people have prescription
drugs already who are retired. That is misleading. That is only
accurate by a stretch, and let me explain what I mean by that.
We have a report we are releasing today that shows that 75
percent of older Americans lack decent and dependable private
sector coverage for prescription drugs. And the problem is
getting worse.
Fewer than one in four retirees, 24 percent, have drug
coverage from their former employers. Now, the number of
corporations offering prescription drug benefits to retired
employees has dropped by a quarter, 25 percent, just since 1994.
Eight percent of the seniors have Medigap drug policies. But as
all of you know, Medigap premiums explode as people get older,
when they most need the benefits and can least afford the higher
prices.
Here in Michigan, for example, seniors over 85 must pay
over $1,100 a year in Medigap premiums for drug coverage, not
counting the $250 deductible. Those high costs are especially
hard on women, who tend to have lower incomes than men because
they didn't have as many years paying into Social Security or
retirement primarily. Seventy-two percent of the Americans over
85 are women. Seventeen percent of seniors have drug benefits
through Medicare managed care plans. But three-fifths of these
plans cap the benefits at less than $1,000 a year.
And listen to this, in just the last two years, the
percentage that capped drug benefits at only $500 per year has
grown by 50 percent. Anybody that's got any kind of medical
condition at all will tell you it doesn't take very long to run
through $500.
So what does this mean? it means that the vast
majority of our seniors either have no drug coverage or all, or
coverage that is unstable, unaffordable and rapidly disappearing.
It means, therefore, that we need a drug plan for our seniors
that is simple, that is voluntary, that is available to all and
that is completely dependable.
Securing and modernizing Medicare I believe is the
right thing to do for our seniors, but I also think it's the
right thing to do for all the young people here. And for the
next generation, the young parents in their 30s and 40s. Why?
First, because it guarantees we can get out of debt by 2015 -- I
explained why that's a good idea.
Second, because if we do this and we stabilize Social
Security and Medicare, we will ease the burden on the children of
the baby boom generation who will be raising our grandchildren.
It is a way of guaranteeing the stability of the incomes of the
children of the seniors on Medicare. And I think that is
profoundly important.
Now, I've already explained that that's what our budget
does. Today the Congress is voting, the House of Representatives
is voting on the Republican tax plan which basically would
spend virtually the entire non-Social Security surplus on a tax
cut. And it would cost a huge amount of money, not just in this
10 years, but it triples in cost in the next 10 years, it
explodes.
And you say, I don't want to think about that. I want
to think about today. You have to think about that. The baby
boomers will be retiring in the second decade -- in the second
decade of the century we're about to begin. And we have to think
about that. This plan would give us no money to stabilize or
modernize Medicare, and it would require substantial cuts in
education, in national defense, in biomedical research, in the
environment. And I predict to you that the environment will be a
bigger and bigger issue for us all to come to grips with in the
years ahead.
So we have to figure out what we're going to do. I
believe that this plan that's being voted on in Washington will
not enable us to pay off our debt; it will not do anything to add
to the life of Social Security and Medicare; it will require huge
cuts in our other investments and taking care of our kids. And I
will veto it if it passes. (Applause.)
But the question is what are we going to do. You all
know that we fight all the time in Washington because that's what
you hear about. But I would like to reiterate that we joined
together to pass welfare reform -- and I did, I vetoed two bills
first because they took away the guarantee of food and medicine
for the poor kids. But I passed the welfare reform bill that
required able-bodied people to go to work and provided extra help
for child care, for transportation, for training and education
for people on welfare. We now have the lowest welfare rolls in
30 years -- the lowest welfare rolls in 30 years. (Applause.)
And big majorities of both parties in both Houses of
Congress voted for it. We fought over the budget for two years,
but in '97 we passed a bipartisan balanced budget amendment, with
big majorities in both parties of both Houses voting for it. And
the results have been quite good.
So don't be discouraged. You just have to send a clear
message. We are capable of working together to do big things.
Yesterday, 50 economists, including six Nobel Prize winners,
released a letter supporting my approach. Maybe it's easier for
me because I'm not running for election, but I don't think that's
right. I trust the American people to support those people in
public life who think of the long run, who tell them the truth,
who say, I realize it would be popular to spend this surplus, but
we've waited 30 years for it and we now have 30 years worth of
challenges out there facing us and we cannot afford to squander
that.
So what I hope to do today is to answer your questions
and hear your stories, and let's explore whether or not we really
need to do these things for Medicare, and whether or not they
really will help not only the seniors, but the non-seniors in the
country. And if you disagree, you ought to say that, too. But
my concern now is for what America will be like in 10 years, or
20 years, or 30 years.
We've got the country fixed now, it's working fine,
everybody is going to be all right now in the near-term. The
economy is working, things are stable, we're moving in the right
direction. But we now have a once in a generation opportunity to
take care of our long-term challenges and I believe we ought to
do it.
Thank you very much. (Applause.)
MS. SOUTHWELL: Now, with your plan, what's the period
of time before it's in effect and working? Because I think --
hurry! The checking account is going down, the savings.
THE PRESIDENT: Well, it will take us -- it takes a
couple of years first of all, we can stabilize the plan
immediately. If Congress passed the law and I sign it, we'll
have the funds dedicated and we can set the framework in motion
today that would do all the big things.
To put the prescription drug benefit in effect, it's a
complicated thing, as you might imagine, millions and millions of
people involved - it will take probably a year, maybe a little
longer, two years, to actually start it.
But where we propose to start would be with a premium
of $22 a month and a co-pay of 50 percent up to $2,000, but it
would go up to $5,000. And I think it's very important to get up
to a higher level. But we have to learn to administer it and
make sure we've got the cost estimates right and all of that. So
it would be fully in effect at $5,000 about five years after we
start.
MS. ALDRIDGE:
And you did touch on the baby
boomer question, too. Does it concern you? Have you started to
think about what's going to happen in the future and what might
happen when you reach your senior years?
MS. SOUTHWELL: Yes, we're already thinking about
that. And my daughter-in-law just last week said, will there be
Social Security when we get there. And it's up to our
government.
THE PRESIDENT: The answer to that is, there certainly
should be. There's no reason for us to let the trust fund run
out in 2034. What I have proposed to do, just so you'll know, is
-- what I propose to do is to allow the Social Security taxes
that you pay, which presently have been covering our deficit
since 1983 -- as big as these deficits have been, they'd have
been even bigger if it hadn't been for Social Security taxes.
You need to know that, because when we put the last Social
Security reform in, in 1983, we did it knowing that we would be
collecting more. I wasn't around then, but they did it knowing
they would be collecting more than they needed, and the idea was
to have the money there when the baby boomers retired, as well as
to relieve the immediate financial crisis.
Now, if you do that, you can pay down the debt some.
But in order to lengthen the life of the trust fund, what I have
proposed to do is, as the debt goes down, the interest we pay on
the debt goes down. Obviously, you know, if you've got smaller
debt, you have smaller interest payments. Well, you should know
that for most of the last 10 years, about 15 cents on every
dollar you pay in taxes comes right off the top to pay interest
on the debt.
So what I want to do, as the debt goes down, I want to
take the difference in what we used to pay and what we've been
paying and put that into the Social Security trust fund to run
the life of the trust fund out to 2053. And I've made some other
proposals and will make some more, because I'd like to see us
take it all the way out to 2075. That would be, in the ideal
world, we'd have 75 years in the Social Security trust fund.
That's what I'd like to see and I'm working on it. But if you
get over 50 years, we'll be in pretty good shape, and I'm hoping
we'll do that.
THE PRESIDENT: You might be interested to know that
the drug companies, a lot of them are worried about it and
they've come out opposed to my plan -- even though there's no
price control in my plan. But if we represent you and millions
of other people like you, we'll have a lot of market power, we'll
be able to bargain for better prices. And I think that's a good
thing, not a bad thing.
The other thing you should know is -- maybe most of you
do know this -- I didn't know this until a few years ago and my
former Senator, David Pryor, who is very interested in seniors
and drug prices told me this, and then when I became President
and began to manage the budget, I confirmed it -- Americans
sometimes pay many times higher prices for drugs than Europeans,
for example, pay for the same drugs. So our companies are only
too happy to sell in the European market at cost because -- much
lower cost - and they make money doing it because they recover
all the cost of developing new drugs from Americans. And then
the Europeans put actual price controls on them and they sell
anyway.
Now, I honor the research and development of new drugs
by our pharmaceutical companies. The government spends billions
of dollars every year supporting such research and we should. If
America is on the cutting edge, maybe it's worth a premium for
it. But I also believe that elderly people on fixed incomes
should not be bankrupt for doing it.
That's what this -- so what I'm trying to do is to
strike the right balance here. I want to hold down future
increases as much as we can, not by price controls, but by using
the market power of the government. And we'll have to be
reasonable because we're not going to put those companies out of
business and we're not going to stop them from doing research
because we'd be cutting off our nose to spite our face. We
wouldn't do that. But we would be able to give people like you
some protection, as well as the guarantee of coverage. And I
think it will be a good thing.
MR. WITT: That's exactly what I'm getting at, Mr.
President, because my sister-in-law is a nurse and they go to
Texas every year and they go across the border and buy the same
prescriptions at a fraction of the cost of what we're paying here
in Michigan. And I read in the paper where they can do the same
thing in Canada. So what I'm getting at is I think that the
government should start purchasing these prescription drugs, many
of them, and make them available to seniors, the same way they
are in the hospitals, at a fraction of the cost that we as
seniors are paying. We're subsidizing a lot of other things out
of our meager retirement income.
THE PRESIDENT: You are subsidizing the pharmaceuticals
made in America, sold in virtually every other country in the
world, because they're made here and you're paying higher prices
for them than people in other places.
As I said, I understand their argument - they say,
well, why shouldn't we go in there and sell if we can make some
money, but we have to recover our drug development costs. I'm
sympathetic to a point, but not to the point that people like you
can't have a decent living. So I think this will be a good
compromise and I hope the pharmaceutical companies will
reconsider their opposition. It would be a good thing, not a bad
thing, if we had the market power of large-bulk purchasers to
hold these prices down to.
THE PRESIDENT: You can actually figure out pretty much
what this plan would do for you. If you have, let's say, $2,000
a year in drug costs - let's take the first year the plan goes
in -- let's say you've got $2,000 a year in drug costs, and let's
say your income is over 150 percent of the federal poverty level
-- 150 percent of the federal poverty level is $17,000 a couple
for seniors - then, you would pay $1,000 for the drugs and $24 a
month for the premium, which is $288 a year, which is $1,288, so
you'd save $712 a year.
Now, if your income is under 135 percent of the federal
poverty level, which is $15,000 a couple, you would save $2,000 a
year because you wouldn't have to pay the copay or the monthly
premium. We've tried to take care of the really -- the kind of
people you're talking about at your complex who don't have enough
to live on. I wish I knew the numbers for seniors living alone.
I just don't have it in my head; I should, but maybe somebody
will slip it to me before I end.
If somebody, one of the people here with me, if you'll
slip me the numbers for what the 135 and the 150 percent of the
poverty level is for single seniors, I'll tell you what that is,
but you can figure it that way.
MS. FRETELL: It's just disheartening to see people
have to choose between their dignity or their quality of life and
their health. And I just feel that the program is a good start
towards providing meaningful pharmacy services to older
Americans. I think once older Americans have those drugs, it's
very essential that they're used appropriately, because right now
we're spending - for every dollar that we pay in prescription
drug costs, we're spending one dollar to treat problems because
those medications are used inappropriately. And that's where my
role as a pharmacist really is important, is making sure that
those medications are used appropriately, because we all know
that they can save lives and improve quality of life, and
decrease overall medical costs.
MS. ALDRIDGE: Are you hearing that a lot around the
country?
THE PRESIDENT: A lot. And let me just say to all of
you, this fine, young woman is representative of where the
pharmacists of our country are. I want to I said that I
regretted the fact that the drug manufacturers were opposing our
program because they're afraid it will hold costs down too much.
The pharmacists who see the real, live evidence of this problem
have been, I think, the most vociferous supporters of this whole
initiative of any group not directly involved in getting the
benefits, and I can't thank you enough. Thank you. (Applause.)
But, wait, let me say one other thing. She made
another point the I didn't make in my remarks that I would like
to make to you. She said, you know, say it was your grandmother
or something, if she doesn't take this medication she'll have to
go to the hospital.
Now, suppose there were no Medicare program. Suppose
President Johnson hadn't created Medicare 34 years ago and we
were starting out today. Does anybody here even question that if
we were creating Medicare today, prescription drugs would be a
part of it? If we were starting all over again? Thirty-four
years ago, we didn't have anything like the range of medicines we
have today that could do anything like the amount of good and do
anything like the amount of prolonging our lives, our quality of
life, keeping us out of the hospital.
And here's the bizarre thing about this, if we manage
this program right over the long run, it's going to be a cost
saver because we'll be -- if you've got $2,000 in drug costs,
that's a lot -- that's what her costs are -- that $2,000; how
long does it take you to run up $2,000 in hospital bills? A lot
less than a year. A lot less than a week.
So I think that's another point that ought to be made
when this debate is unfolding, that, yes, this will be -- it's a
new program, so it will cost money. But eventually, particularly
if Heather is right and we can make sure a higher percentage of
our people use these drugs properly, you will save billions of
dollars in avoided hospital stays -- which we pay for. That's
the irony of this whole thing. That's the other reason I'm for
all these preventive tests being provided for free, because we
don't pay for the preventive tests, but when you don't get them
and you go to the hospital, we do pay for that.
So I think anything we can do to make people healthier
and keep them out of the hospital and keep them out of more
extensive and expensive care is a plus. So thank you very much.
(Applause.)
MS. ALDRIDGE: And it's interesting to note, since
1965, how far we have come in preventative medicine and what we
would do today to maybe help somebody with a disease or a
condition. It would be totally different 35 years ago.
THE PRESIDENT: It's amazing. The average life
expectancy in this country is almost 77 years now. I mean, that
shows you how far we've come in just 34 years.
THE PRESIDENT: First, let me say that we have made
dramatic increase in medical research one of the priorities for
the last two years for the millennium. We're trying to double
funding for the National Cancer Institute and eventually double
funding for all the National Institutes of Health.
And Vice President Gore gave a speech in Philadelphia
about 10 days, or so, ago now, where all the major associations
involved in the fight against cancer came to talk about long-term
plans that would really give us a chance of finding cures for
many, many types of cancer. I think it will be a big national
priority in the years ahead. And he gave, I thought, a very good
speech about what should be done to take advantage of what we
already know is out there on the horizon, just by accelerating
our investments and making sure we're doing the proper testing
and the proper range of population.
I'm quite encouraged about it. I think a lot of the
big breakthroughs will come after I leave office. But I hope
that the groundwork is laid now, will bring them sooner. And I
think one of the things that I hope will be a big part of the
debate for all of you for all the elective offices when we come
up in the year 2000 -- I say this not in a partisan way, because,
actually, we've had very good Republican as well as Democrat
support for the National Institutes of Health funding -- but I
think this should be a major issue and a subject of debate that
all of us should talk about as Americans: What is our commitment
over the long run to doing this kind of research and getting the
answers as quickly as we can.
THE PRESIDENT: Let me say -- I think we're mostly
talking about this prescription drug issue today. But don't
forget, as important as it is, the most important thing that
we're doing is securing Medicare for 27 years. We've got to get
-- the basic program has to be secure, because that would
literally, as many people as are terrifically burdened by this
prescription drug benefit, if anything happens to the solvency of
Medicare, or we have to adopt some draconian changes that raise
the cost of the program so much that it's as out of reach as the
drugs are now for people, the consequences would be disastrous.
So let's not forget we have two things to do. We've got to
stabilize and modernize and secure the Medicare program itself
for the next 27 years as well as add this drug benefit.
And you made that point very eloquently and I thank
you.
MRS. SILK:
What can we as citizens do to help
you persuade the Congress?
THE PRESIDENT: I think tell the Congress that the
country's doing well now and that, yes, you would like to have a
tax cut, but you will settle for a smaller one rather than a
bigger one if the money goes to save Medicare and Social Security
and keep up our investment in the education of our children and
pay the debt off. I think that's a simple message. (Applause.)
Let me just say this. You know, Americans are a
country -- we are famously skeptical about the government, you
know. All those jokes, "I'm from the government, I'm here to
help you," and you slam the door and the guy says -- and I heard
the debate last night in the House of Representatives, and the
people that are for giving the surplus back to you in the tax cut
will -- they say, it's your money, don't let them -- i.e. us --
don't let them spend it on their friends. We'll we're spending
it on Medicare, Social Security and education and defense.
That's us, that's all of us, that's not our friends.
I mean, I hope you're my friends, but that's -- and I
think what you have to say is that the country has become
prosperous by looking to the future, by getting the deficit down,
by getting our house in order, by getting this budget balanced,
by investing in our people. And now, we have these big
challenges.
If this debate in Washington is about, you know, my tax
cut's bigger than your tax cut, well, that's a pretty hard debate
to win, you know? But if the debate is, yes, our tax cut is more
modest, although it's quite substantial, but the reason is we
think since we've got this big aging crisis looming and since
we've never dealt with the prescription drug issue, that we ought
to stabilize Social Security and Medicare, save enough money to
do our work in education and medical research and the environment
and defense and still have a modest tax cut, I think we can win
that argument, and I think -- you know, you really just need to
let people know, I don't think this should be a hostile debate at
all. I think you need to genuinely, in a very open and
straightforward way, tell all your representatives and senators
of all parties that you believe now is the time to look to the
long run.
If America were in economic trouble now, if people were
unemployed, if they were having terrible trouble, maybe we should
have a big tax cut to help people get out of the tights they're
in. But now that the country is generally doing well, we ought
to take the money and make sure we don't get in a tight in the
future. If you can just say that in a nice way, I think -- I'm
trying to keep the temperature down on this debate and get people
to think. I want to shed more light than heat. Usually, our
political debates in Washington shed more heat than light. And
you can help a lot. Just be straightforward and tell people
that's what you think.
MS. ALDRIDGE: And when you tell your lawmakers, write
them a letter, send them an e-mail.
THE PRESIDENT: Write them a letter, send them an
e-mail, send them an fax, do something to -- and.say, I'm just a
citizen, but I want you to know that I will support you if you
save most of the surplus to fix Social Security and Medicare and
mae America debt-free. I will take the smaller tax cut and I
don't want you to have to cut education or national defense or
medical research or any of those other things. Let's do this in
a disciplined way, in a common-sense way. I think you just tell
him that that's what you want him to do, and don't make it a
partisan issue, don't make it a -- I don't want Americans do get
angry over this.
Like I said, this is a high-class problem. You would
have laughed me out of this room if I had come here seven years
ago and said, vote for me, I'll come back and we'll have a debate
on what to do with the surplus. So let's be grown up about this
and deal with it as good citizens.
THE PRESIDENT: Yes, I thank you for that. I agree
with that. Let me say, if you think about it, every time we do a
big change in this country, the people that are doing pretty well
under the status quo normally oppose it. And in the 15th
century, the great Italian statesman, Machiavelli, said there is
nothing so difficult in all of human affairs than to change the
established order of things, because the people who will benefit
are uncertain of their gain, and the people who will lose are
afraid of their loss.
Well, I don't think they will necessarily lose. Once
they go back to what this gentleman said over here about it, and
let's put what he said and what you said together. The profit
margins may go down some on heavily-used drugs where we have the
power to bargain per drug; but the volume will surely go up.
That's the point you're trying to make.
Look, none of us have an interest in putting the
American pharmaceutical companies out of business. They're the
best in the world and they're discovering all these new drugs
that keep us alive longer. And I wouldn't -- we'll never be in a
position where we're going to try to do that. But I've seen this
time after time after time -- not just in health care, in lots of
other areas. It will be fine if we just have to get the point
where they can't kill it. I think the pharmacists will help us,
and I think if we keep working, we'll wind up getting some
pharmaceutical executives who will eventually come out for it,
too, once they understand that nobody has a vested interest in
driving them out of business, we all want them to do well and
keep putting money into research and the increased volume -- if
the past is any experience of every other change, the increased
volume of medicine going to seniors who need it will more than
offset the slightly reduced profit margins from having more
reasonable prices.
Thank you very much.
*****
MR. GRAHAM: My daughter is 44 years old, she has
rheumatoid arthritis. She cannot get medical insurance. Now,
she is fit, she plays golf a couple of times a week, and I think
she should be able to buy into Medicare because she is refused
insurance.
THE PRESIDENT: But she's not designated disabled?
MR. GRAHAM:
I beg your pardon?
THE PRESIDENT: Medicare covers certain - the
disability population - she's not disabled enough to cover, to
qualify.
MR. GRAHAM:
Correct.
THE PRESIDENT: I don't know if I can solve that or
not. I'll have to thank about it. (Laughter.)
MS. ALDRIDGE: But you obviously have other people that
you know that are dealing with the same type of issue that you
are right now, is that correct?
MR. GRAHAM:
Well, I know a lot of people that
are in the same situation. Although I have supplemental
insurance, there's no guarantee that that supplemental insurance
will continue. Because in our retirement, that's a part of it,
but there's nothing in writing that says we're going to get it
forever.
THE PRESIDENT: Let me say one thing. You said you
wanted Medicare to be around another 32 years. Another point I
should have made that I didn't about taking the trust fund out 27
years, you think how much health care has changed in the last 27
years. The likelihood is, it will change even more in the next
27 than it has changed in the last 27. And we may be caring for
ourselves at home for things that we now think of as terminal
hospital stays. They may become normal things where you give
yourself medication, you give yourself your own shots, you do all
the stuff that we now think of that would be unimaginable.
I think if we can get it out that far, the whole way
health care is delivered will change so dramatically that the
people who come along after me and the Congress and in the White
House will have opportunities to structure this in a different
way that will be even more satisfying to the people as well as
being better for their health.
But that's why, to go back to what you said, I want us
to do this prescription drug thing. I think it is critically
important. But we also have to remember that we've got to
stabilize the trust fund. We've got to take it out. It ought to
be more than 25 years. When you look ahead, you know it's going
to be there. Thank you.
THE PRESIDENT: Well, if it was up to me, I would
remove the age limits, the earnings limits on Social Security
recipients, because I think that's another good thing they ought
to do. But it ought to be voluntary; you shouldn't have to do it
just to pay for your medicine.
I promised the lady over there who said most of the
people who lived in your place were single. Now, keep in mind,
we start out with the premium of $24 a month, and that premium
covers half the prescription drug costs, up to $2,000 a year. It
will go eventually to a premium of about $44 a month that will
cover half prescription drug costs up to $5,000 a year. And I
think it's important to get up above $2,000, because a lot of
people really do have big-time drug costs.
Now, the people who wouldn't have to pay the premium or
the copay are people below 135 percent of poverty. That's
$14,000 for a couple, but $11,000 for individuals. That's a lot
of folks. And then, if you're up to $12,750 for an individual or
$17,000 for a couple, your costs would be phased in, so there
would be some benefit there.
But nearly everybody would be better off unless they
have a good -- the only plans that are better than this, by and
large, are those that you got from your employer if your employer
still covers prescription drugs. This is totally voluntary.
Nobody has to do this. And we also have funds in here to give
significant subsidies to the employers who do this to encourage
them to keep on doing it and to encourage other employers to do
it. So I think it's a well-balanced program and a good way to
start.
DR. SHAHNI:
-- I can tell you, Mr. President,
the list is very long of these patients who are out there
suffering because they cannot afford these medications. Drug
costs in this nation are skyrocketing. They are having dire
consequences on the health care system. We do need to do
something. We strongly support your health care plan.
The second point I wanted to make, Mr. President, is
the Medicare -- the payment system to the hospitals is having
dire consequences in our urban areas. The Detroit Medical Center
and Henry Ford Health System are premiere centers in the state of
Michigan. We are one of the best centers for taking care of
health care, and they are losing money -- $80 million to $100
million -- and it cannot go on. If something happens to
institutions like this in our area, we know the consequences on
our patients are going to be very, very serious.
We urge you to look at that part of the Medicare also
because if something happens to them, where will our patients go?
So, thank you very much for listening to me. (Applause.)
THE PRESIDENT: I'd like to make two points after your
very fine statement. First, on the second point you raised, I
had a chance to discuss that yesterday at my press conference.
When we passed the Balanced Budget Bill in 1997, the -- we had to
say, how much are we going to spend on Medicare over the next
five years. And we estimated what it would take to meet our
budget target. Then, the Congressional Budget Office said, no,
it will take deeper cuts than that, and we said if you do that it
will cost a lot more money. But we had to do it the way they
wanted.
Now, this is not a partisan attack; nobody did this on
purpose. There was an honest disagreement here. But it turned
out that our people were right, and so actually more money was
taken out of the hospital system in America than was intended to
take out. And to that extent by a few billion dollars, not an
enormous amount, but the surplus in that sense is bigger than it
was intended to be. And we have got to correct that. I have
offered a plan that will at least partially take care of it and
we're now in intense meetings with people who are concerned about
it; we are going to have to do that.
Now, let me make the point about the person you said,
the gentleman who died. I was aghast -- last week, we had
another health care debate on the patients' bill of rights, and
one of the people who was against our position said, these people
keep using stories -- you know, anybody can tell a story, that's
not necessarily representative.
Well, first of all, I don't know about you, but I think
people's stories are -- I mean, that's what life is all about.
What is life but your story. (Applause.) And, secondly, I --
but the point I want to make is this doctor -- the most important
point this doctor has made is that the man who died is not an
unusual case. That is the point I want to make. And that's --
the pharmacists, Heather was making the same point -- there are
lots of people like this.
And let me just use the example you mentioned.
Diabetes is one of the most important examples of this,
complications from diabetes can be, as you know, dire and can be
fatal. And you have a very large number of older people with
adult-onset diabetes that has to be managed. It is expensive,
but people can have normal lives.
The patients have to do a lot of the management of
diabetes. They have to do it. And if they don't do their
medication, the odds that something really terrible will happen
before very long are very, very high. Almost 100 percent.
But if you look at the sheer numbers of people with
diabetes alone, just take diabetes, then the story is about
statistics, too, big numbers of people.
I thank you very much, sir.
She says we've got to quit. You've been great. Are
you going to be the heavy? I should be the heavy.
MS. ALDRIDGE: No, they told me I had to tell you to be
quiet. I said, really? (Laughter.) I bet there are some
Republicans that might like that job.
THE PRESIDENT: Republicans -- Hillary would like it.
A lot of people would like it. (Laughter.)
MS. ALDRIDGE: We are, indeed, out of time. So sorry,
but they're telling me and I have to take my cues. But, Mr.
President, we want to thank you so much for being here. And did
you have some closing remarks that you'd like to make to us?
THE PRESIDENT: I just wanted to say again, this is a
wonderful moment. We told some sad, heart-wrenching stories
today, and I wish I could hear from all of you. But keep in
mind, this is a great thing. Our country is so blessed now.
We've got the lowest peacetime unemployment in 40 years; the
longest peacetime economic expansion in history. We've got this
big surplus, the biggest one we've ever had. We think it will
last for a decade or more. More, really, as long as we don't
mess up the budget.
We have to decide. I already said what to me the
choice is -- it is your money. If you want it back now, you can
tell your elected representatives. Nobody can say you didn't pay
it in, you want it back. I don't quarrel with that. But I think
it is much better for you to stabilize Social Security and
Medicare, add the prescription drug benefit at a price we can
afford, let people 55-65 pay into it who don't have health
insurance, have a modest tax cut that doesn't undermine our
ability to do that or our ability to invest in education and
medical research and defense -- and get the country debt-free.
You'd be amazed how many really wealthy businessmen
come up to me and say, you raised my taxes to balance the budget
back in '93 -- we did the top 1 percent, 1.5 percent got an
income tax increase -- and I was mad at the time, but I made so
much more money in the stock market than I paid in taxes, it's
not funny.
Low interest rates make people money. The flip side of
that is if interest rates went up 1 percent in this country, it
would cost you more money than I can give you in a tax cut if you
borrow any money for anything.
So what I think we have to say -- I just want you to
think about this, and then communicate your feelings. And again,
do it in a friendly way. Do it in the tone we've been talking
about today. Tell them the stories you know, Doctor. Every
doctor, every nurse, every pharmacist, every family should sit
down and take the time -- I know you think that members in the
Congress and the White House, the President -- I have a thousand
volunteers at the White House, most of them just read mail. And
then I get a representative sample of that mail every two or
three weeks. And we all calibrate that. And the members of
Congress, you'd be amazed how many members of Congress actually
read letters that they get. They do have an impact.
So these faxes and e-mails and letters and telephone
calls, they register on people, especially if they're not done in
a kind of harsh, political way, but just saying, this is what I
think is right for our country. And I hope you'll do it.
Thank you and God bless you. (Applause.)
END
1:00 P.M. EDT
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