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Jeffrey Shesol's Files
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Clinton Presidential Records
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Prescription Drugs Minimum Wage Departure Statement 3/9/00 [2]
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2
DRAFT MEDICARE PRESCRIPTION DRUG PRINCIPLES
We are committed to passing a meaningful prescription drug benefit this year.
This benefit should be:
Voluntary and provide incentives for private retiree health options:
Medicare beneficiaries who now have dependable, affordable coverage should
have the option of keeping that coverage. In fact, any proposal should provide
financial incentives for employers to retain and expand retiree health coverage.
Accessible to all beneficiaries through a range of options, including
traditional Medicare: A hallmark of Medicare is that all beneficiaries, even
those in rural or underserved communities, have access to dependable health
care. The same should hold true of the prescription drug benefit: all seniors,
regardless of plan choice, should be assured that they have a reliable,
accessible benefit for the premium that they pay.
Affordable to all beneficiaries and the program: Medicare should
contribute enough towards the prescription drug premium to make it affordable
and attractive for all beneficiaries but not so much to make it unaffordable to
taxpayers. While subsidies should be provided to all beneficiaries to assure
affordability and avoid adverse selection, low-income beneficiaries should
receive extra help with prescription drug premiums and cost sharing.
Competitively administered, using best private market purchasing
techniques: The management of the prescription drug benefit should mirror
the practices employed by private insurers in delivering prescription drugs.
Discounts should be achieved through competition, not through regulation or
price controls. For competition to work best, it should include a minimum
defined benefit that assures access to all medically necessary drugs and uses
cutting edge quality improvement tools. Private organizations should negotiate
prices with drug manufacturers and handle the day to day administrative
responsibilities of the benefit.
Considered in the context of broader reform: The addition of a Medicare
drug benefit should be considered as part of an overall plan to strengthen and
modernize Medicare. Medicare will face the same demographic strain as
Social Security when the baby boom generation retires. Improving its benefits
is only one step in preparing Medicare for this new century's challenges.
not who
http://www.pub.whitehouse.gov/uri-res/I2.pdi://oma.eop.gov.us/2000/2/29/21.tex.
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
February 29, 2000
PRESIDENT CLINTON RELEASES NEW STATE-BY-STATE REPORT DEMONSTRATING
URGENT NEED FOR MEDICARE REFORM
February 29, 2000
President Clinton today will release a new report, called America's
Seniors and Medicare: Challenges for Today and Tomorrow, providing a
state-by-state snapshot of the unprecedented demographic and health care
challenges confronting Medicare. It documents the success of the
current program and provides new information about its impact on women,
Americans over the age of 85, and rural beneficiaries. With this report
in hand, the President will urge Congress to move ahead this year to
modernize and strengthen Medicare and include in its reforms a long
overdue voluntary prescription drug benefit. Among the findings of
today's report:
MEDICARE HAS BEEN AN IMPORTANT ANTI-POVERTY PROGRAM FOR MILLIONS OF
AMERICANS. Poverty among the elderly has been reduced by nearly
two-thirds since Medicare was created. Medicare has contributed to this
dramatic improvement by helping seniors pay for the potentially
devastating cost of care when they can least afford it.
MEDICARE PROVIDES CRITICAL HEALTH CARE TO 38 MILLION AMERICANS. Over
thirty-three million seniors and almost 5 million people with
disabilities rely on Medicare. About 11 percent, or 4 million, of
Medicare beneficiaries are over the age of 85, and 24 percent, or 9.1
million of them live in rural areas.
-
Women beneficiaries outnumber men in all states. Over 57 percent
of these Americans -- about 22 million -- are women. This distribution
of women to men is consistent across all states, ranging from 51 to 59
percent.
-
10 percent of beneficiaries in 40 states are age 85 or older.
These 4 million beneficiaries over 85 have spent almost a quarter of
their lives on Medicare. States in the upper Midwest, including North
and South Dakota, Minnesota, Nebraska, Kansas, and Iowa, have the
highest proportion of seniors over the age of 85.
-
In 15 states, more than half of Medicare beneficiaries live in
rural areas. In fact, in Mississippi, Montana, North and South Dakota,
Vermont and Wyoming, over two-thirds of beneficiaries live in rural
areas. The 9 million beneficiaries nationwide living in rural America
typically have few to no options for managed care or prescription drug
coverage.
MEDICARE PROGRAM ENROLLMENT WILL SURGE, INCREASING THE PRESSURE TO
REFORM. About 62 million Americans will be age 65 or older in 2025,
compared to 35 million today.
The Medicare Program Continues to Face Demographic Challenges
-
In 2025, there will be 30 states with an elderly population that is
at least 20 percent of the total population -- compared to no states
today. In Florida, where 18 percent of state residents are elderly
today, about 5.5 million people -- over 25 percent of residents -- will
be elderly in 2025 as the baby boom generation retires. Nationwide,
this demographic increase is over 75 percent from 2000 to 2025, and is
over 100 percent in 15 states.
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-
Many older Americans are uninsured or have undependable health
insurance. There are 6 million people nationwide age 55 to 65 who have
no or undependable health insurance. In eight states, these individuals
are more than one third of the population age 55 to 65. They are the
fastest growing group of uninsured -- and are at great risk of becoming
sick. As the baby boom generation turns 55, there will be an even
greater access problem.
Medicare Beneficiaries Need a Prescription Drug Benefit
-
Retiree health coverage is declining. Sixteen states have 20
percent or fewer firms offering health insurance to retirees.
Nationally, 22 percent of firms offer health insurance to retirees older
than age 65. No state has more than 30 percent of firms offering
coverage. This will be lower in the future, as 25 percent fewer firms
offered retiree health coverage in 1998 than 1994, so that very few
seniors will get prescription drug coverage through former employers.
-
Individual Medigap insurance with prescription drug coverage costs
twice as much in high-cost states. The average premium for a 65-year
old for Medigap Plan H that includes drug coverage among other benefits
is about $135 but exceeds $150 per month in 9 states. The part of the
premium that is attributable to drugs alone can be $90 per month or
$1,080 per year -- for coverage that is limited to $1,250 per year with
a $250 deductible. Moreover, in most states, insurers "age rate" or
increase premiums as people get older, making insurance more expensive
when seniors can least afford to pay for it.
-
Most seniors are middle income and would not benefit from a
low-income prescription drug benefit. About 15.6 million or half (49
percent) of all elderly have incomes between $15,000 and $50,000. Only
in the District of Columbia, Louisiana, Mississippi, New Mexico, Rhode
Island, South Carolina, and Texas are there more low income than middle
class seniors. Nationwide, over half of beneficiaries without drug
coverage have incomes above 150 percent of poverty ($12,750 for a
single, $15,000 for a couple) Thus, a prescription drug benefit
targeted to low-income beneficiaries will not help most seniors.
Health Care Providers Depend on Medicare
-
Health care providers depend on over $200 billion a year in
Medicare spending, accounting for one-fifth of all funding. This does
not even count beneficiary payments which comprise nearly half of their
total health spending. Medicare spending exceeds 20 percent of all
health spending in 12 states. Nationwide, over 5,100 hospitals,
800,000 physicians and nearly 15,000 nursing homes care for Medicare
beneficiaries.
THE NEED IS CLEAR FOR THE PRESIDENT'S PLAN TO STRENGTHEN AND MODERNIZE
MEDICARE. The President's FY 2001 budget dedicates $432 billion over 10
years -- the equivalent of over half of the non-Social Security surplus
to Medicare. This plan makes Medicare more fiscally sound,
competitive and efficient, and modernizes the program's benefits by
including a long-overdue prescription drug benefit.
-
Making Medicare more competitive and efficient. Since taking
office, President Clinton has worked to reduce Medicare growth and fraud
and extend the life of the Medicare Trust Fund from 1999 to 2015. He
has proposed to build on these efforts and save $71 billion over 10
years by: 1) expanding anti-fraud policies; 2) making Medicare more
competitive, efficient and high quality; and 3) constraining out-year
program growth.
-
Dedicating $299 billion over 10 years to Trust Fund solvency. It
is impossible to pay for a doubling in Medicare enrollment through
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Co
3/6/2000 5:24 PM
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provider savings or premium increases alone. To address the future
financing shortfall, the budget dedicates $299 billion of the non-Social
Security surplus to Medicare, helping extend the Trust Fund through
2025, and reducing publicly held debt by preventing funds from being
used for tax cuts or new spending.
-
Modernizing Medicare's benefits. Unlike virtually all private
health plans, Medicare does not cover prescription drugs, and over three
in five beneficiaries lack dependable prescription drug coverage. The
President's plan:
-
Establishes a new voluntary Medicare prescription drug benefit that
is affordable to all beneficiaries and the program. The drug benefit,
which costs $160 billion over 10 years, would be accessible and
voluntary, affordable for beneficiaries, and competitively and
efficiently administered. It would also provide high-quality, necessary
medications.
-
Creates a Medicare reserve fund to add protections for catastrophic
drug costs. To build on the President's prescription drug benefit, the
budget also includes a reserve fund of $35 billion for 2006-2010, to
design protections for beneficiaries with extremely high drug spending.
The Administration plans to work with Congress to design this enhanced
prescription drug benefit. Absent consensus, the reserve will be used
for debt reduction.
-
Improves preventive benefits in Medicare. This proposal would:
eliminate the existing deductible and copayments for preventive
services, such as colorectal- cancer screening, bone mass measurements,
and mammographies.
-
Creates health insurance options for people ages 55 to 65. The
plan would allow people age 62 through 65 and displaced workers age 55
to 65 to buy into Medicare. It would require employers who drop
previously promised retiree coverage to give early retirees with limited
alternatives access to COBRA coverage until they are 65 and can qualify
for Medicare. To make this policy more affordable, the President
proposes a tax credit, equal to 25 percent of the premium, for
participants in the Medicare buy-in and a similar credit for COBRA.
###
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THE WHITE HOUSE
Office of the Press Secretary
(Chicago, Illinois)
For Immediate Release
June 30, 1999
REMARKS BY THE PRESIDENT
ON MODERNIZING MEDICARE
Chicago Cultural Center
Chicago, Illinois
11:15 A.M. CDT
THE PRESIDENT: Thank you very much, ladies and gentlemen, and good morning. I
want to say that it's wonderful for me to be back in Chicago. Most of you know how much I
love it here, and I am delighted to be here. I bring you greetings from the First Lady who I left
on my way here and who was jealous that I was coming and she wasn't, especially since I'm also
going to see the Cubs play this afternoon. And I enjoy that. And from the Vice President and all
the members of our administration who have worked so hard on this health care issue.
I want to thank Anne Willis for her remarks and her leadership for the aging community
here in Chicago. And I know that with me on the stage, and perhaps out in the audience as well,
are members of the Mayor's Advisory Council on Aging, the Cook County Board of
Commissioners, the Cook County Council, the Chicago City Council -- I thank them all for
being here.
I'd like to thank Linda Esposito for speaking on behalf of pharmacists who have to live
with the consequences of the absence of prescription drug coverage for our seniors every day and
who do their best to serve them well under very adverse circumstances. And I thought she did a
very fine job -- I thank her for being here.
And I want to thank Hanna Bratman for having the courage to get up here and tell her
story and introduce me. You know, I do this all the time. It's second nature for me. But most
people, it's pretty scary to get up in front of all of you and all those cameras and talk about your
life and talk about
your circumstances. And I thought she did a fine job, and I thank her for doing that.
I'd also like to thank these ladies on my left, Anne Thomas and her daughters, Lee
Hamilton and Laura Peterson, because they represent what I think of as the ultimate test of
Medicare, which is whether it's fair and helpful and supportive of families and our
intergenerational responsibilities -- parents to their parents to their children. And I'll say more
about that, but thank you for joining us today as well.
Ladies and gentlemen, as is so often the case when I get up to speak, the people who
spoke before me have said everything that needs to be said. One guy got up -- you know the
great story about the last speaker at a long dinner; eight people spoke and he got to speak at
10:00 p.m.; and he said, well, everything that needs to be said has been said, but not everyone
has said it. So, relax, I'm going to talk a little bit.
Let me say to all of you that we have an unprecedented opportunity and an
unprecedented responsibility to strengthen Medicare and to improve it, to modernize it, so that
no one has to make the choice that you have heard talked about, between affording health care
and affording other necessities of life; between remaining independent, or relying on your
children and undermining their ability to raise your grandchildren.
We have this opportunity because our economy is the strongest in a generation, perhaps
ever, because our country is clearly moving in the right direction, a leading force for freedom
and peace and human rights around the world, as our wonderful men and women in uniform
demonstrated in Kosovo recently. Our social fabric here is mending -- the crime rate is down;
the welfare rolls have been cut in half; teen pregnancy is down; drug abuse among our young
people is down; and a record 90 percent of our young people are immunized against serious
childhood diseases for the first time in the history of our country.
Our cities, which were once thought of as being economically depressed, are thriving
again. Chicago is exhibit A -- look at this beautiful building and this beautiful vista we have
here.
When I became President, we had a $290 billion budget deficit. The debt of our nation
had quadrupled in only 12 years. Today, we are going to be, in 1999, $99 billion in the black. We
actually projected yesterday that for the next 15 years, the surplus will be $1 trillion more than
we thought it was just six months ago.
Now, this is a great tribute to the ingenuity and the hard work of the American people,
and to the disciplined decisions that we have made, starting in 1993, to cut that deficit until we
balanced the budget and got into surplus. If we keep going on the plan I have proposed to save
Social Security and Medicare and pay down the debt, this country actually can be out of debt --
out of debt -- in 15 years for the first time since 1835.
Now, let me just say, since all of you know it's the strength of the economy that has put
people to work and raised their incomes and brought in the revenues that enabled us to save
Medicare, the reason it's a good thing for all Americans for us to be out of debt is that if we're
out of debt, it means that the government won't be competing with you and the businesspeople to
borrow money. It means interest rates will be lower -- for business loans, for car loans, for home
loans, for credit cards, for college loans.
It means, therefore, there will be more investment, more jobs, higher incomes. It means
we will be less dependent on the world for money to come into this country, so if there is another
financial problem, as there was in Asia a couple of years ago, it will have less impact on us. It
means people all over the world that we look to to buy products that are produced in Illinois and
throughout the United States will be able to borrow money more cheaply and have more money
to buy our products, to help our prosperity as we help theirs, if we get this country out of debt.
So I want to emphasize to you, everything I am proposing to do with Medicare and with
Social Security can be done in a way that gets the country out of debt for the first time since
1835. And in a global economy, it is very, very important to our children and our grandchildren
that we give them the opportunities they deserve.
Now, how are we going to do that? We have to set aside the bulk, a little more than
three-quarters of the surplus, for saving Social Security and Medicare. We need to do that, quite
apart from this prescription drug benefit -- let's talk about that. Why do we need to do that?
Because we have a high-class problem in America: we're all living longer. Life expectancy is
already over 76 in America. For young people growing up, their life expectancy will probably
be over 80. Anybody who lives to be 65 in America today has a life expectancy of 85. People
over 80 are the fastest-growing group of Americans.
Now, when you put that life expectancy development up next to the fact that the baby
boom generation, the biggest generation in American history until the present one in our schools
today, is getting ready to retire -- some of them, anyway. I'm the oldest of the baby boomers and
I hope I don't have to retire. But, anyway, I'm going to retire from this job, but, generally, I think
I should keep working.
But when you look at the fact that with the baby boomers retiring, the oldest of the baby
boomers -- that's me, we turn 65 in 2011, not that far away -- there are going to be a lot more
people retired relative to the number of people working, which means there will be a lot more
people drawing Social Security and a lot more people drawing Medicare relative to the number
of people working.
Now, we can make some changes in the program, but I would argue that now that we
have this surplus and we project this surplus to last into the future, and if we know it's good for
us anyway, for all Americans of all ages, to pay the debt down, we should save this much money
now to stabilize Social Security and Medicare and pay the debt off.
Now, I know there are a thousand good uses for this surplus. If I gave each of you a
piece of paper and I said name 10 things that you would like to see your country do, we might
have 100 different things on that list, and they'd all be good. But I say we should take care of
first things first, and we don't have any more important obligation -- not only to seniors, but to
their children and their grandchildren -- than to preserve the integrity of Social Security and
Medicare, and preserve the long-term economic health of this country. So I hope that all of you
will support that.
We can talk more about Social Security later, but if my proposal is accepted, we'll have
Social Security solid for way more than 50 years already, and with a few other changes, we
could take it out to 75 years; we could do something to deal with the fact that elderly women on
Social Security are far more likely to be poor, and they need some extra help; and we could lift
the earnings limitation for people on Social Security. I would like to see those things done.
But let's talk about Medicare. We should secure and strengthen and modernize
Medicare. It's been around for 34 years now. It's made health care more accessible and more
affordable. As you heard Hanna say, it's given millions of American families peace of mind by
paying for medical costs that otherwise would have bankrupted families in their later years. It
has also freed the children of Medicare's recipients from the painful choice of mortgaging their
children's future to provide a decent health care for their parents.
But you've got people living longer and the baby boomers set to retire; therefore, more
people drawing Medicare and fewer people paying in. What that means is that the trust fund will
become insolvent by the year 2015, 15 years from now.
Now, we've already done a lot to try to stave that off. When I became President in 1993,
the trust fund was supposed to become insolvent in 1999 -- this year. We've made a lot of
changes. Some of them were difficult and somewhat unpopular, but we have saved Medicare
until 2015.
But that's not enough. Keep in mind, the baby boom generation won't begin to turn 65
until 2011. Then, over the next 30 years, the number of people who are 65 or over will actually
double. So we need to lengthen the life of the Medicare trust fund, and we need to do it now.
The sooner you deal with these issues, the easier it is to deal with them. The longer we take to
deal with them, the more painful and the more expensive it will be to deal with it.
The plan I announced yesterday to secure and modernize Medicare for the 21st century
does the following things. First of all, it extends the solvency of the present Medicare program
to the year 2027. That is very important. Changes made today can keep it alive until 2027. That
will almost completely take in the baby boom generation. Not quite, but nearly. And that gives
all of our successors plenty of time to take advantage of all the increases in health care options
that I'm convinced will allow people to stay healthier even longer in the years ahead.
To do it, I propose that we use 15 percent of the budget surplus over the next 15 years.
Again I say, there are a lot of good uses for the surplus. A lot of people would like to have more
money right now. But there is nothing more important than taking care of first things first.
Keeping the economy strong by paying the debt off, and saving Medicare and Social Security, I
think are the most important things we can do, and we should do them first.
Now, we also plan to modernize the way the program works, to introduce more
innovations now used in private sector health plans: To offer seniors the chance to choose
between lower cost managed care plans for Medicare and the traditional program without forcing
the choice by having unreasonable increases in the premiums in the traditional program. To
guarantee that our seniors have the information necessary to make informed choices and that all
the available plans have certain core medical benefits necessary to preserve the integrity of the
program. To make sure that as we hold costs down, we keep quality up.
But we also, as everybody before me has said, need to modernize Medicare. One of the
ways, but not the only way, is with prescription drugs. Think of it this way: Medicine has
changed a lot. The whole health care system has changed a great deal since 1965. But Medicare
hasn't changed with it. As a consequence, the average senior citizen today is paying a larger
percent of his or her income out of pocket for health care than they were paying in 1965 -- before
Medicare came in -- primarily because of the prescription drug issue.
But think of the other challenges: A revolution in medical science has brought cures to
diseases once thought incurable, provided doctors the tools to prevent diseases from starting in
the first place, and given millions of people the chance to live not only longer, but healthier lives.
Once, the cure for many illnesses was a surgeon's scalpel. Now it's just likely to be a
pharmacist's prescription drug. Every day new drug therapies are being developed to treat
chronic conditions such as diabetes and hypertension. We have to do more to make sure all
seniors can take advantage of this medical revolution.
We also have to do more to encourage seniors to take advantage of preventive
technologies -- to take advantage of screenings for cancer, for diabetes, for osteoporosis and
other diseases. To do that, my plan will eliminate the deductible and all co-payments for these
preventive tests.
Just think of it this way: Under Medicare today, very often you can't get Medicare to pay
for screening and prevention, but you can get Medicare to pay for the far more expensive
hospitalization that would not have occurred in the first place if the screening and prevention had
been done. So this will actually save us money in the long run, as well as making people
healthier.
We also do have to make prescription drugs more available and more affordable. They
are essential to medical care. Just a few statistics: More than four out of five seniors use at least
one prescription a year. Now, for most seniors, it's much more than that. And for many seniors,
the proper regimen of pills, properly taken, at home, can spell the difference between
maintaining and active and independent life, or being hospital- or nursing home- or home-bound
for life.
If we were creating the Medicare program today, if we were starting from scratch and it
didn't exist, no one would even consider having a program without a prescription drug benefit for
the elderly and the disabled.
So what are we going to do? You heard Hanna talk about the cost of her drugs. This is a
costly issue. A month's supply of a popular blood pressure medicine costs more than $70 a
month. A cholesterol medication probably taken by some of you in this room costs about $100 a
month. When you consider that some of the newest drugs costs as much as $15 a pill, that two-
thirds -- listen to this -- two-thirds of all people over 65 suffer from two or more chronic
diseases, that one in five elderly people takes at least five prescription medications a day, the
pharmacy bills can be staggering.
Each year, more than 2 million seniors spend more than $1,000 on medication -- people
such as our friend, Anne Thomas, here to my left, whom I mentioned earlier, with her daughters.
She's from Oak Brook. Her osteoporosis prescriptions swallow up a sixth of her income, almost
17 percent. Last year, she, too, was diagnosed with asthma, but she chose not to fill her
prescription because the $300-a-month price tag was more than she could afford.
Finding the funds to pay for prescription drugs is a struggle for seniors at many income
levels, not just the poor. Indeed, of the 15 million seniors in our country that don't have any
prescription drug coverage, nearly half are middle-class Americans. And that does not count the
millions of seniors who have some prescription coverage, but the coverage is totally inadequate
or far too expensive.
The number of plans that offer coverage is declining, and those that charge high prices
and offer modest benefits are increasing. Forty percent of all older Americans without
prescription drugs let me say that again -- 40 percent are middle class. Nearly half the
uninsured live in isolated rural areas. And as I said, as drug prices rise and more private insurers
drop drug coverage altogether, about 15 million of our seniors will be uninsured within the year.
This is not the way to honor people after a lifetime of work and good citizenship. No
American should have to choose between fighting infections and fighting hunger, between
skipping doses and skipping meals, between staying healthy and paying the rent. We can do
better than that. We are now prosperous enough to do better than that.
And I say again, there are many good uses for the surplus. I have my ideas, the Congress
has their ideas. But first things first -- we have to take of this problem, and do it now.
Now, we want to make sure that this plan is financially responsible, that it can be paid
for, that it won't break the bank. Here's what we propose to do. My plan will make a
prescription drug benefit available to all Medicare recipients, but will provide extra help for
those with lower incomes. For people up to 135 percent of the poverty rate, we will waive the
co-pay and the monthly premium. But people with incomes a little higher than that, we will have
other subsidies, not quite as generous.
But for everyone, for a modest monthly premium, Medicare will pay for half of all the
prescription drug costs, over the next few years, up to a ceiling of $5,000. In the first year, we
have to start with a ceiling of $2,000, because it's a big program and we've got to put it in and
prove we can make it work. But under my plan, I will ask the Congress to approve and fund
going to a $5,000 ceiling drug benefit, half of all the costs. Now -- with no deductible.
This drug benefit is one that virtually all of our seniors can afford, and it is constructed
in a way America can afford. It will help millions and millions of people. Older and disabled
Americans will save even more on prescription drugs under our plan because Medicare's private
contractors will get big volume discounts that seniors could never get on their own. So when
they pay for half the price, that half will be a much smaller amount than would otherwise be the
case.
Now, what I would like to say not only to those of you in this room, where I suppose I'm
preaching to the saved, as we say down home, but to all Americans, including those who are not
in this room, is that this is something that is important that goes way beyond health care and way
beyond money. How can you put a price on being able to see the birth of a grandchild, or to
enjoy them as they grow up, or read to them, or take them fishing, or be active with your friends
and family? How can you put a price if you are a child on being able to know and spend time
with and enjoy your grandparents?
There is no dollar value we can put on providing the best quality of life we can. And I
want you all to understand, we can afford this. If this is not done it is because somebody made a
different decision to do something else with the money. This is not welfare. This is not some
blind gift. This is something we are doing for the integrity of families through the generations.
Our country is in the best shape it's been economically, maybe ever, certainly in a long
time. And what we're going to do now will define what kind of country we will be well into the
21st century. Are we going to squander this money we worked so hard for after only six years of
effort, turned around an unbelievable record of fiscal irresponsibility, or are we going to pay off
our debts in the bank and pay off our debts to our families -- not only to our parents and
grandparents, but to future generations. That is the question.
So I want to ask you to join me. You know, Hanna said she didn't know much about
politics -- I thought she made a pretty good political speech, myself. But she said something
that's really important. She said, you know, I don't understand why this should be a political
issue. You know, sometimes when things get real tense in Washington, you know, and some of
my friends in the other party get real excited, I say, hey, loosen up, you know. We're all getting
older, none of us are going to be here forever. People get a chance to vote every election.
Loosen up. Relax. No one escapes time and age. Republicans age just like Democrats.
People who are independents still get sick every now and then, even though they refuse
to register in a political party. This is not a political issue -- anywhere in America -- and it
should not be a political issue in Washington, D.C. This is something we can do together for the
future of America.
I want you to reach out to your representatives from Illinois. You are represented in this
state by both Republicans and Democrats in the United States Congress, more or less fairly
apportioned. I wish it were different, but there it is. You can write to them. You can call them.
You can say, do this not only for us, but do it for our children and our
future. Do it because we're all aging, and it's a high-class problem, that we're living longer.
But we have to prepare for the day when the baby boomers retire. And we should not
wait another day to provide the prescription drug benefit. And we have the money to do it. This
is simply a matter of choice. I ask you, without regard to your party, to reach out to the members
of your congressional delegation and say, this is the right choice for our future.
Thank you very much.
END
11:43 A.M. CDT
THE HENRY J.
KAISER
FAMILY
FOUNDATION
Prescription Drug Coverage for Medicare Beneficiaries
A Side-by-Side Comparison of Selected Proposals
(Proposed as of February 15, 2000)
Prepared by Health Policy Alternatives, Inc.
for
The Henry J. Kaiser Family Foundation
March 2000
This report was commissioned by the Henry J. Kaiser Family Foundation (contract #99-1397D).
THE HENRY J.
KAISER
FAMILY
FOUNDATION
Prescription Drug Coverage for Medicare Beneficiaries
A Side-by-Side Comparison of Selected Proposals
(Proposed as of February 15, 2000)
Prepared by Health Policy Alternatives, Inc.
for
The Henry J. Kaiser Family Foundation
March 2000
This report was commissioned by the Henry J. Kaiser Family Foundation (contract #99-1397D).
The Henry J. Kaiser Family Foundation, based in Menlo Park, California, is an independent national health care
philanthropy and is not associated with Kaiser Permanente or Kaiser Industries.
TABLE OF CONTENTS
Overview
Major Medicare Prescription Drug Proposals - Summary Table
iii
Major Medicare Prescription Drug Proposals - Detailed Comparison
1
Participation
3
Premiums and Subsidies
5
Drug Benefits
8
Access to Drugs
10
Drug Pricing
14
Participating Entities
14
Pharmacy/Pharmacist Provisions
18
Federal Government and Financing
19
Relationship to Current Coverage
22
Other
25
Definitions
27
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - SUMMARY TABLE
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
General approach
Universal entitlement to a sub-
Universal entitlement to drug
Universal entitlement to drug
Universal entitlement to premi-
Provides matching funds to
sidy for drug coverage provided
coverage under new Medicare
coverage under Medicare Part B,
um subsidies for beneficiaries
states for drug coverage for
through Medicare plans, with
Part D, administered through
administered through private
who purchase drug insurance,
low-income beneficiaries, and
enhanced subsidies for low-
private entities with enhanced
entities, with enhanced subsi-
with enhanced premium subsi-
establishes new federal
income. Effective January 1,
subsidies for low-income.
dies for low-income. Effective
dies for low- income ("SPICE"
reinsurance program to provide
2003.
Effective January 1, 2003.
July 1, 2000.
program). Effective January 1,
enrollees in qualified private
2000.
plans with stop-loss protection
for drug expenses.
PARTICIPATION
Participation/enrollment
Voluntary. Enrollment process
Voluntary. Enrollment process
Voluntary (is part of Part B):
Voluntary. Enrollment overseen
Voluntary. State program is
overseen by Medicare Board.
same in manner and timing as
by SPICE Board.
voluntary for states and for
Part B.
beneficiaries; enrollment done
by states. Stop-loss protection
is administered through qualified
private plans that provide the up
front coverage.
PREMIUMS AND SUBSIDIES
Beneficiary premiums/
No Part B premium. Government
Enrollees pay Part D premium;
Enrollees pay Part B premium;
Enrollees pay 75% of SPICE
No beneficiary premiums for
government subsidies
pays 88% of national weighted
subsidized 50% by government.
subsidized 75% by government.
plan premiums; 25% govern-
either state programs or stop-
average premium (NWAP) for
ment subsidy.
loss component of private
core benefits plus 25% of actu-
coverage. State programs are
arial value of drug benefit. Drug
subsidized by federal and state
subsidy is taxable as income.
dollars. 100% federal subsidy
for stop-loss protection.
Government subsidies -
For incomes to 135% of poverty,
100% subsidy for drug premium
100% subsidy for Medicaid
100% premium subsidy for
100% subsidy for low-income
Low-income population
government pays 100% of low-
and cost-sharing for those with
"wraparound" coverage (drug
those with incomes to 150% of
up to 200% of poverty in state
est cost plan with drugs. Sliding
incomes to 135% of poverty.
premium, cost-sharing, other
poverty. Partial premium sub-
programs; 100% subsidy for
scale subsidy of 25 to 50% of
Partial drug premium subsidy
drugs) for incomes to 135%
sidy (in addition to the 25%
stop-loss for all beneficiaries
actuarial value of drug benefit
for those with incomes to 150%
of poverty.
general subsidy) for those with
with qualified private coverage,
for incomes between 135-150%
of poverty.
incomes to 175% of poverty.
including the low income.
of poverty.
Financing of low-income
Existing federal/state match
Existing federal/state Medicaid
Existing federal/state Medicaid
100% federal.
SCHIP match rate for state pro-
subsidies
rates apply to Medicaid drug
match rates apply to drug subsi-
match rates apply.
gram for those with incomes
subsidies for cost-sharing
dies (premiums and cost-shar-
below 150% of poverty;
assistance for drugs for the fully
ing) for those under 100% of
Medicaid match rate for those
dual eligible. Otherwise 100%
poverty, otherwise drug subsi-
between 150-200% of poverty.
federal.
dies are 100% federally
Stop-loss is 100% federal.
financed.
Collection of premiums and
Same as current law for
Same as for Medicare Part B
Same as for Medicare Part B
Responsibility of SPICE Board.
State program operates like
distribution of subsidies
Medicare Part B and QMB/SLMB
and for QMB/SLMB programs.
and for QMB/SLMB programs.
SCHIP. Subsidies for stop-loss
programs.
New process for group retiree
New process for group retiree
provided through contracts with
plan subsidies.
plan subsidies.
qualified private plans.
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - SUMMARY TABLE
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
DRUG-BENEFITS
Standard or variable benefit
Variable, subject to actuarial
Standard.
Standard.
Variable, subject to minimum set
Variable; defined by states sub-
package
value requirement.
by NAIC with SPICE Board
ject to federal minimum stan-
approval.
dards. Stop-loss benefits vary
subject to underlying private
coverage.
Annual drug deductible
Variable, subject to actuarial
None.
$200.
Variable, subject to SPICE
None in state programs. Not to
value requirement.
Board's minimum package
exceed $500 (indexed) in private
requirements.
plans underlying stop-loss.
Coinsurance/copayment
Variable, subject to actuarial
50%.
Up to 20%.
Variable, subject to SPICE
None in state programs for
value requirement.
Board's minimum package
those up to 120% of poverty,
requirements.
not to exceed $5 or 20% for
those up to 200% of poverty.
Not to exceed 50% in plans
underlying stop-loss.
Annual benefit limits or cap
Variable, subject to actuarial
$2,000 in 2003, phased-up to
Medicare would pay up to
Variable, subject to SPICE
No durational limits lower than
value requirement.
$5,000 in 2009, including cost-
$1,700 in drug costs, including
Board's minimum package
Medicaid in state programs. No
sharing ( indexed after 2009).
cost-sharing, (annually indexed).
requirements.
limits for stop-loss coverage.
Stop-loss (coverage of drug
expenditures over a specified
Drug coverage not included in
Sets aside $35 billion reserve
Medicare pays 100% of covered
Variable, subject to SPICE
State programs must have
annual threshold)
the stop-loss requirement. May
fund to provide an unspecified
drug costs after annual out-of-
Board's minimum package
$1,500 stop-loss threshold for
be offered by a plan as part of
benefit for catastrophic drug
pocket drug spending reaches
requirements.
those subject to coinsurance.
the drug benefit.
expenses for years 2006-2010.
$3,000 (indexed).
Federal stop-loss protection
applies once out-of-pocket drug
costs reach $1,500 in underlying
private plans.
ACCESS TO DRUGS
Covered drugs
To be defined by plan sponsors.
All therapeutic classes of drugs
FDA-approved prescription
Determined by NAIC, taking into
Scope of covered drugs in state
Does not mandate types of
and biologics (with exceptions
therapies including insulin and
consideration the Medicaid
programs must meet Medicaid or
drugs that must be covered.
comparable to those in
biologics.
definition.
other benchmark coverage. Cov-
Medicaid).
ered drugs for stop-loss is defined
by the underlying coverage
Formulary rules
Formularies permitted. No
No government formulary.
No government formulary; bene-
Formularies allowed if based on
In state programs, scope and
rules specified.
Contracting entities could use
fit managers could use formula-
the medical needs of enrollees,
quality must equal benchmark
formularies if medically neces-
ries that meet certain conditions.
conforms to other rules, and is
plans. In stop-loss program,
sary drugs were guaranteed.
approved by SPICE Board.
defined by underlying coverage.
No provision.
Contracting entities required to
Contracting entities required to
Private insurers required to have
In state programs, must comply
Appeals process
have grievance and appeals pro-
have grievance and appeals pro-
grievance and appeals proce-
with scope and quality of bench-
cedures similar to M+C plans.
cedures similar to M+C plans.
dures similar to M+C plans.
mark plans. In stop-loss pro-
gram, defined by underlying
coverage.
iv
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - SUMMARY TABLE
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
DRUG PRICING
Drug pricing requirements
No provision.
Discounts obtained by benefit
Benefit managers would obtain
No provision.
State programs may not apply
managers would have to be
discounts comparable to those
federal rebate systems. Stop-
passed through to beneficiaries.
given to large private sector pur-
loss program prices determined
chasers.
by underlying coverage.
Access to price discounts once
No provision.
Yes.
Yes.
No provision.
Not applicable to either state
limit is reached
programs or stop-loss program.
PARTICIPATING ENTITIES AND PHARMACY PROVISIONS
Contracts with private entities
Private plan sponsors contract
HCFA awards one contract to
HCFA awards contracts to at
Private insurers, M+C plans and
State programs must pay premi-
with the Medicare Board to pro-
private entity in each area.
least 2 private entities in each
group retiree coverage sponsors
ums for low-income enrollees in
vide high-option plans. HCFA
area.
approved by SPICE Board.
qualified M+C or group plans.
must contract with any willing
HHS must contract with private
qualified private entities to pro-
entities to operate stop-loss pro-
vide drug benefit for HCFA-
gram. Entities will contract with
sponsored high option plans.
sponsors of underlying cover-
age.
Drug Utilization Review (DUR)
No provision.
Requires DUR.
Requires DUR procedures based
No provision.
State programs must meet
requirements
on model developed by HHS.
quality requirements. DUR for
stop-loss determined by under-
lying plans.
Pharmacy access rules/reim-
No provision.
Must contract with all pharma-
Services must be offered at
No provisions.
State programs must meet
bursement requirements
cies meeting standards.
retail pharmacies throughout the
access requirements of bench-
Dispensing fees must be high
service area. Benefit managers
mark plans. Access/reimburse-
enough to assure most pharma-
must compensate pharmacists
ment for stop-loss determined
cies participate.
for counseling services.
by the underlying coverage.
V
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - SUMMARY TABLE
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
FEDERAL GOVERNMENT AND FINANCING
Federal financing/Trust funds
Combines Part A and Part B
Establishes Part D account in
Finances as part of Part B.
Would establish SPICE Trust
The bill amends the Public
Trust Funds. Limits general
Part B Trust Fund. Drug benefit
Funding options include possible
Fund to receive net revenues
Health Service Act and does not
fund financing to 40% of total
funding from budget surplus,
tobacco settlement, increased
from increase in tax on tobacco
affect Medicare Trust Funds nor
Medicare expenditures without
Medicare program savings, and
tobacco taxes, budget surplus or
products and on-budget surplus
create new trust funds.
Congressional action. No other
premiums.
Medicare savings.
appropriations.
financing specified.
Administration
Creates Medicare Board as inde-
HCFA administered through con-
HCFA administered through con-
Establishes a SPICE office in
State program is administered
pendent agency. HCFA would be
tracts with private entities.
tracts with private entities.
HHS outside of HCFA and
by states. Stop-loss is operated
reorganized.
administered by SPICE Board.
by private entities with HHS con-
tract.
RELATIONSHIP TO EXISTING COVERAGE
Traditional FFS Medicare
HCFA must offer Medicare FFS
Adds voluntary drug coverage
Adds voluntary drug coverage to
Beneficiaries in FFS Medicare
Beneficiaries in Medicare FFS
as a standard option plan. Also
under a new Part D.
Part B.
would receive subsidies for pur-
may participate in state program
must offer high option plan in all
chase of private drug coverage.
or stop-loss if they meet qualifi-
areas.
cations.
Medicare+Choice (M+C)
Private entities must offer at
M+C plans must include at least
M+C plans must include at least
M+C plans may qualify for sub-
State programs must pay M+C
least a high option plan in areas
the standard drug benefit.
the standard drug benefit.
sidy if they include at least the
drug premiums for low-income
in which they wish to partici-
minimum SPICE coverage.
if coverage is qualified. M+C
pate.
plans may participate in stop-
loss if drug coverage is quali-
fied.
Employer-sponsored retiree
No provision.
Retiree health plans may qualify
Retiree health plans may qualify
Retiree health plans may qualify
State programs must pay group
health coverage
for partial subsidy if they include
for subsidy if they include at
for subsidy if they include at
plan drug premiums for low-
at least the standard drug bene-
least the standard drug benefit.
least the minimum SPICE cover-
income if coverage is qualified.
fit.
age.
Group plans may participate in
stop-loss if drug coverage is
qualified.
Medicare supplemental cover-
Only enrollees in standard
Medigap packages changed to
Some Medigap packages revised
New SPICE drug-only package,
New guaranteed issue rules
age (Medigap)
option HCFA plan-may buy or
conform to new benefits; study
to provide supplemental drug
with variable benefits, estab-
related to participation in state
renew Medigap policies.
of possibility of "gap" drug COV-
coverage.
lished.
program. Medigap plans may
erage.
participate in stop-loss if drug
coverage is qualified.
Establishes one-time 6 month
open enrollment period for pur-
chase of Medigap with drug
coverage.
vi
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
1
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS --- DETAILED COMPRISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
PARTICIPATION
Eligibility for coverage
All aged, disabled, and ESRD
All aged, disabled and ESRD
All aged, disabled and ESRD
All aged, disabled, and ESRD
State program: Low-income
beneficiaries enrolled in both
beneficiaries would have the
beneficiaries eligible to enroll in
beneficiaries entitled to benefits
aged, disabled, and ESRD bene-
Part A and Part B would be eligi-
option to enroll in a government
Part B would be eligible for
under Medicare Part A and
ficiaries entitled to Part A,
ble to enroll in a high option
subsidized prescription drug
Medicare prescription drug COV-
enrolled under Part B would be
enrolled in Part B, or both.
Medicare plan that includes pre-
plan under Part D of the
erage.
eligible for federal assistance in
Excludes inmates of state insti-
scription drug coverage.
Medicare program.
purchasing private prescription
tutions and those eligible for
drug coverage.
state health benefits.
Stop-loss: Beneficiaries entitled
to Parts A, B, or C, who are
enrolled in qualified drug cover-
age (i.e, M+C, Medigap, or
employer group plan).
Entitlement
All Medicare beneficiaries would
All Medicare beneficiaries opting
All Medicare beneficiaries opting
All Medicare beneficiaries would
State program: In participating
be entitled to a subsidy for drug
to enroll in Part D would be enti-
to enroll in Part B would be enti-
be entitled to a full or partial
states, low income beneficiaries
coverage if they enrolled in a
tled to drug benefits.
tled to drug benefits.
subsidy of a private drug insur-
are entitled to drug assistance
high option plan.
ance premium.
as defined by the state in com-
pliance with federal standards.
Stop-loss: Beneficiaries with
qualified drug coverage would
be entitled to stop-loss cover-
age.
Mandatory or voluntary
Voluntary. Beneficiaries would
Voluntary, in that beneficiaries
Voluntary to the extent that Part
Voluntary.
State program: Voluntary for
participation
choose from among standard
would elect to enroll in Part D
B is voluntary. Provides a waiv-
states and for beneficiaries.
and high option plans offered in
(the drug coverage) in the same
er option for those with equal or
Stop-loss: Voluntary enrollment.
their area.
way and at the same time as for
better private coverage who
Sponsors of qualified private
Part B.
wish to enroll in Part B without
coverage voluntarily contract
the drug coverage.
with the government to provide
the stop-loss coverage.
3
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPRISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Enrollment process
The Medicare Board would
Beneficiaries would have a one-
Beneficiaries enrolled in Part B
The SPICE Board would estab-
State program:
establish an enrollment process
time opportunity to enroll in Part
and not enrolled in a M+C plan,
lish enrollment procedures,
Enrollment would be a state
based on the M+C process
D (without penalty). For 2003,
must enroll with a contracting
using rules similar to rules for
responsibility.
including provision for informa-
beneficiaries may enroll during
entity in order to receive covered
M+C enrollment and disenroll-
Stop-loss: Beneficiaries would
tion and open enrollment and
the November 2002 M+C annual
outpatient drugs. The Secretary
ment. The SPICE Board would
enroll in qualified private drug
disenrollment opportunities.
election period. After 2002, the
would establish rules similar to
also establish rules for a penalty,
coverage (Medigap, M+C, or
Beneficiaries would have the
option to enroll coincides with
M+C rules for enrollment and
in the form of a reduced subsidy
group plans) in the same man-
option to enroll in a high option
enrollment in Part B upon
disenrollment. The Secretary
amount, for those beneficiaries
ner as under current law.
plan upon becoming eligible for
Medicare eligibility. Exceptions
would develop a procedure for
who enroll in a SPICE plan other
Medicare, during the annual
apply for active workers or
default enrollment of beneficiar-
than during open enrollment
enrollment period, and at other
retirees losing retiree coverage
ies that fail to enroll, and proce-
opportunities. No penalty
times as specified by the
who could enroll later without
dures for beneficiaries who
would apply to enrollees in M+C
Medicare Board.¹ All plan spon-
financial penalty.
reside in more than one area
plans that discontinue drug COV-
sors, including HCFA, would be
during a year.
erage, if the beneficiary enrolls
required to offer at least one
in a SPICE plan at the next avail-
high option plan that includes
able opportunity.
coverage for outpatient prescrip-
tion drugs and annual stop-loss
protection for the core Medicare
benefits.
Information
The Medicare Board is responsi-
The Secretary would conduct an
The Secretary would be required
The SPICE board would dissemi-
State program:
ble for providing information to
educational campaign on the
to broadly disseminate informa-
nate information similar. to M+C
beneficiaries. Information would
new drug benefit during 2002.
tion to beneficiaries on the drug
information activities about
States must address outreach in
be disseminated on an annual
Drug benefit information would
coverage.
SPICE plans and coordinate
their state plans.
basis as part of the enrollment
be provided to beneficiaries
information activities with the
Stop-loss: No provision.
process. The Medicare Board
annually as part of the annual
Secretary. Information on the
must establish standards for
information process.
SPICE program would also be
information and provide grants
provided through the Health
to Medicare Consumer
Insurance Information,
Coalitions to conduct informa-
Counseling and Assistance
tion programs coordinated at the
programs.
federal, state and local levels.
1
The bill sponsors have indicated that they intend to require a one-time opportunity to enroll in a high option plan. Once enrolled in a high option plan, a beneficiary could choose to enroll in any high option
plan during the annual and special enrollment periods.
4
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPRISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
PREMIUMS AND SUBSIDIES
Beneficiary premiums
There would be no separate pre-
Beneficiaries would pay a premi-
Beneficiaries would pay 25% of
Premiums for the SPICE private
State program:
mium for drug coverage.
um equal to 50% of the cost of
the cost of the drug benefit
insurance products would be
State programs must pay drug
Beneficiaries who enroll in a
the benefit. The beneficiary pre-
through an increased Part B
determined by the market, sub-
portion of M+C or group plan
high option plan. would pay the
mium is estimated by HCFA to
premium. Beneficiaries with
ject to applicable state insurance
premiums for qualified low-
difference between the govern-
be $26 per month in 2003,
actuarially equivalent drug COV-
laws. Premiums for coverage
income beneficiaries enrolled in
ment contribution (i.e., 88% of
rising to $51 in 2009. (Premium
erage under another plan could
under M+C plans would be part
those plans offering qualified
the NWAP plus the applicable
does not include costs for the
have the portion of the Part B
of their adjusted community
drug coverage. Qualified
subsidy for drug coverage) and
potential catastrophic benefit.)
premium attributable to drug
rates. Premiums for employer
coverage may not otherwise
the premium for the plan of their
coverage waived, unless that
sponsored coverage would be
impose beneficiary premiums
choice. There would no longer
coverage was provided by an
determined per ERISA rules.
or enrollment fees.
be a Part B premium.
employer sponsored group
Stop-loss: Beneficiaries must
health plan of M+C plan that
pay any applicable premiums for
received Medicare payments
the required underlying drug
towards that coverage.
coverage; there are no
beneficiary premiums related
to the stop-loss coverage.
Government subsidies-
In general, the government
For the Medicare population in
For the Medicare population in
In general, Medicare beneficiar-
State program: For low-income
Medicare population in general
contribution for core Medicare
general, the government would
general, the federal government
ies would receive a subsidy
only, not applicable to the
benefits would be 88% of the
subsidize 50% of the annual
subsidy would be the same as
equal to 25% of the "applicable
Medicare population in general.
NWAP. There would be an
costs of the outpatient drug
for Part B (75% of the annual
cost" (i.e., the premium for pri-
additional subsidy for high
benefit. (Not known whether
costs of the benefit).
vate coverage; the actuarial
Stop-loss: All beneficiaries
option plans (i.e., those with
this would also apply to the
value of the drug portion of a
enrolled in qualified Medigap,
drug and stop-loss coverage)
potential catastrophic drug
M+C plan's adjusted community
M+C, or group plans receive
-
equal to 25% of the actuarial
coverage.)
rate; or the actuarial value of the
100% federally subsidized stop
value of the drug benefit. The
drug portion of an employer-
loss coverage.
drug subsidy amount would be
sponsored plan). If there are
taxable as income.
insufficient funds in the SPICE
Trust Fund, the subsidy will be
reduced as necessary but not to
less than 10%.
5
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPRISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Government subsidies
Beneficiaries with incomes
Medicaid would pay Medicare
Medicare would pay the Part B
Individuals with incomes under
State program: States choosing
Premium assistance for low-
between 135 and 150% of
Part D drug premiums for those
premium for those with incomes
150% of poverty would receive a
to participate must provide
income population
poverty enrolling in high option
with annual incomes to 135% of
to 135% of poverty (i.e., QMBs
100% subsidy for their drug
assistance to those without
plans would receive a sliding
poverty. Medicaid would provide
and SLMBs). SLMB eligibility in
premiums; those with incomes
Medicaid drug coverage who
scale subsidy of between 25 and
a partial drug premium subsidy
general would be increased from
from 150 to 175% of poverty
have incomes below 120% of
50% of the actuarial value of the
for those with incomes between
120% to 135% of poverty begin-
would receive a subsidy based
poverty and meet an asset test
drug benefit. Those with
135% and 150% of poverty.
ning July 1, 2000. The category
on a sliding scale. If there were
no more stringent than under
incomes below 135% of poverty
The Medicaid match rate for
of qualifying individuals (QI1)
insufficient funds in the SPICE
Medicaid. States may extend
would receive a subsidy equal to
costs of those above 100% of
established in the Balanced
Trust Fund, and the general sub-
eligibility and receive federal
100% of the premium for the
poverty would be 100% federal.
Budget Act of 1997 for those
sidy had been reduced to 10%,
funds for those up to 200% of
lowest cost high option plan
Existing match rates would
between 120% and 135% of
the Board would reduce eligibili-
poverty.
available to them. Medicaid pre-
apply below 100% of poverty.
poverty would be repealed. The
ty levels until funds would be
Stop-loss: Low-income benefici-
mium assistance requirements
existing federal/state match
adequate. If there were insuffi-
aries would receive subsidized
for dual eligibles (fully dual,
rates would apply.
cient funds for any enhanced
stop-loss coverage only if they
QMB, SLMB, QI1s) for core
subsidies, the Board would sus-
were enrolled in a Medigap,
Medicare benefits would contin-
pend payment of all subsidies
M+C, or group plan offering
ue similar to current law (see
and report to Congress.
qualified drug coverage.
below) and existing federal/state
match rates would apply.
Subsidies for high option plan
benefits (i.e., drugs and stop-
loss) for all beneficiaries with
incomes below 135% of poverty
would be 100% federal.
Government subsidies
Medicaid programs would have
Medicaid would pay drug cost-
States would have to provide
No provision.
State program: State programs
Cost sharing assistance for
to cover all cost-sharing
sharing for those with annual
low-income beneficiaries (i.e,
may not impose cost-sharing on
low-income population
required by the Medicare plan in
incomes to 135% of poverty.
QMBs and SLMBs) wrap-around
those with incomes to 120% of
which a fully dual eligible benefi-
The Medicaid match rate for
drug coverage equivalent to the
poverty, and only limited coin-
ciary is enrolled (including cost
costs of those above 100% of
state's Medicaid drug benefit.
surance/copayments on those
sharing for drugs): As under
poverty would be 100% federal.
This means the state Medicaid
with higher incomes.
current law, Medicaid programs
Existing match rates would
program would pay the Part B
Stop-loss: There are no special
would have to cover additional
apply below 100% of poverty.
premium and cost-sharing for all
provisions for the low-income.
drug costs for dual eligibles to
Medicare covered drugs, as well
The stop-loss coverage applies
the extent they are consistent
as the total costs for all drugs
after the beneficiary incurs the
with the state's Medicaid plan.
covered by the state's Medicaid
threshold amount of out-of-
Existing federal/state match
program but not covered by
pocket drug expenses in a year.
rates would apply.
Medicare, for beneficiaries with
incomes to 135% of poverty.
Existing federal/state match
rates would apply.
6
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Collection of premiums and
The Medicare Board would be
Premiums would be deducted
Premium costs, incorporated
Premiums would be collected by
State program: States would
distribution of subsidies
responsible for transmitting
from Social Security checks the
into the Part B premium, would
the private insurance issuers,
pay premiums directly to plans
information to the Social
same as they are for Part B pre-
be deducted from Social
M+C plans, or employer spon-
for low-income beneficiaries
Security Administration SO that
miums. Medicaid subsidies
Security checks as they are
sors of retiree coverage. The
enrolled in qualified M+C or
beneficiary premium obligations
would likely work similarly to
today for Part B premiums.
SPICE Board would establish the
group coverage.
could be calculated and deduct-
current QMB/SLMB program.
Low-income subsidies would be
manner and time for providing
Stop-loss: Plans would collect
ed from social security checks.
Retiree plan subsidies would be
administered similarly to the
subsidy payments. Subsidies
premiums from beneficiaries for
Subsidies would be provided
paid to the sponsor or to the
current QMB/SLMB program.
would be paid only if the
the underlying drug coverage.
through the process for making
drug benefit manager for the
No detail provided on how
issuers, M+C plans, or employer
The Secretary of HHS would
payments to plans. Subsidies
retiree plan.
employer subsidies would be
sponsors provide assurance that
contract with one or more pri-
through Medicaid would flow as
paid.
amounts otherwise charged to a
vate entities to operate the stop-
under current law.
beneficiary would be reduced by
loss program. The private enti-
the amount of the subsidy. For
ties would negotiate agreements-
group retiree plan participants in
with sponsors of the qualified
plans that charge a premium
underlying drug coverage for
less than the subsidy amount;
benefit payments.
the SPICE Board is to establish a
procedure whereby those benefi-
ciaries would receive some
financial assistance.
7
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
DRUG BENEFITS
Standard or variable benefit
Plans could vary benefits SO
Standard benefit package for
Standard benefit package, with
Variable benefit packages
State program: Variable; states
package
long as they meet the tests of
FFS Medicare. M+C or retiree
variations allowed for copay-
allowed. A "threshold" (i.e., mini-
define benefits in accordance
actuarial value and are con-
plans must at least provide the
ments up to 20% of the costs of
mum) level of benefits would be
with federal minimum stan-
structed to not encourage
standard benefit as a minimum.
the drug. M+C or retiree cover-
defined by NAIC, taking into
dards.
adverse selection. In 2003, the
Some variation in coinsurance
age must meet or exceed the
account drug benefits provided
Stop-loss: Variable; benefits
actuarial value for drugs in high
payments would be allowed.
standard minimum benefit.
under FEHBP and other large
defined by private plan sponsors
option plans must equal $800.
(See below.)
group health plans, and
in accordance with federal mini-
Thereafter, the amount would be
approved by the SPICE Board.
mum standards.
indexed annually to reasonable
increases in drug costs.
Annual drug deductible
No standard benefit structure;
No annual drug deductible.
$200 (not indexed).
No standard benefit structure;
State program: No deductible
subject to Board approval.
minimum benefits to be deter-
allowed for qualified coverage.
mined by NAIC.
Stop-loss: Deductible may not
exceed $500 in 2000 (indexed
annually to the growth in per
capital drug spending).
Beneficiary coinsurance/
No standard benefit structure;
50% coinsurance.
Copayments/coinsurance of no
No standard structure; minimum
State program: No copays or
copayment
subject to Board approval.
Contracting entities could offer
more than 20% of the contract-
benefits to be determined by
coinsurance for those with
reduced coinsurance as part of
specified costs of drugs would
NAIC.
incomes to 120% of poverty; no
their bid proposal so long as
apply until the beneficiary
more than the greater of $5 or
access or quality were not
reached the annual benefit limit.
20% coinsurance for those with
undermined.
(E.g., the beneficiary would pay
incomes above 120% of poverty
up to $300 of the first $1,700 of
(sliding scale based on family
drugs after paying the $200
income is permitted).
deductible.)
Stop-loss: No copays or coin-
surance once the Stop-loss COV-
erage is in effect.
8
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Annual-benefit limits or cap
No standard benefit structure;
Drug costs (including benefici-
Drug costs (including deductible
No standard structure; minimum
State program: No maximum
subject to Board approval.
ary coinsurance):
and beneficiary coinsurance) of
benefits to be determined by
annual, lifetime, or other dura-
$1,700 in 2000 (indexed annual-
NAIC.
tional limits are allowed unless
2003, 2004-$2,000
ly thereafter to the change in per
the limits are no lower than
2005, 2006-- $3,000
capita Medicare drug costs).
imposed under the State's
Drug costs would be based on
Medicaid program.
2007, 2008-- $4,000
the contract specified prices.
Stop-loss: No limits.
2009 -- $5,000
2010 on -$5,000+CPI
Stop-loss (coverage of drug
Stop-loss coverage for drugs is
No annual stop-loss.
Stop-loss coverage would apply
No standard structure; minimum
State program: No stop-loss
expenditures over a specified
not included in the stop-loss
In his FY2001 budget, the
once annual out-of-pocket
benefits to be determined by
required for qualified coverage.
annual threshold)
coverage required of high-option
President has reserved $35 bil-
expenses for covered drugs
NAIC.
Stop-loss: Underlying qualified
plans. Presumably stop-loss
lion over the years 2006-2010 to
reached $3,000 (or $4,200 in
drug coverage must have no
could be offered by a Medicare
add protections for catastrophic
total drug costs assuming 20%
more than $1,500 annual out-of-
plan as part of the high option
drug costs. Details are to be
coinsurance), Medicare would
pocket limit (indexed annually
drug benefit.
negotiated with Congress.
pay the entire costs of covered
to growth in per capita drug
outpatient drugs provided to the
spending.)
beneficiary by their drug benefit
manager for the remainder of
the year. The stop-loss amount
is indexed for years after 2000
to the annual change in per capi-
ta Medicare drug costs. The
Part B premium would not count
towards out-of-pocket expenses
for drugs.
9
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
ACCESS TO DRUGS
Covered drugs
Not specified. Presumably
All therapeutic classes of drugs
FDA-approved therapies that are
To be determined by NAIC, sub-
State program: Self-adminis-
would be up to the plans, sub-
(and smoking cessation drugs).
dispensed by prescription,
ject to SPICE Board approval.
tered outpatient prescription
ject to minimum requirements
Exceptions based on Medicaid
including insulin and biologics,
NAIC to take into consideration
drugs (including insulin and
established by the Medicare
exceptions, such as drugs for
that are reasonable and neces-
the definition of covered drugs
insulin supplies) and excluding
Board.
weight loss or gain, fertility, cos-
sary to prevent or slow the dete-
under Medicaid (which includes
items covered by Medicare, not
metic or hair growth, cough or
rioration of, and improve or
insulin and biologics), and, if
available under the state's
cold relief, vitamins and miner-
maintain the health of covered
appropriate, permit optional COV-
Medicaid plan, or furnished for
als and non-prescription drugs.
individuals.
erage of drugs (except smoking
the purpose of causing death.
cessation agents) not covered
Scope and quality of drug cover-
by Medicaid.
age (excluding cost-sharing
rules) must be equivalent to
state's Medicaid program, a
benchmark plan, or approved by
the Secretary of HHS.
Benchmarks include FEHBP
BlueCross/BlueShield standard
option, a state employee plan; or
HMO plan with greatest com-
mercial enrollment.
Stop-loss: Covered drugs are
those covered by the underlying
qualified Medigap, M+C, or
group coverage.
10
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Formulary rules
Formularies are allowed. No
No government formulary but
If formularies were used: physi-
Formularies would be allowed if
State program: Scope and quali-
other provisions related to
contracting entities could estab-
cians and pharmacists would
they were based on the medical
ty of drug coverage (including
formularies are included.
lish formularies. In creating a
have to participate in develop-
needs of beneficiaries; there was
exclusions or limitations and the
formulary, the entity would be
ment of the formulary; at least
an appeals process for access to
application of any formulary)
required to use medical panels
one drug from each therapeutic
medically necessary drugs not
must be equivalent to state's
with outside experts free of any
class would have to be included;
on the formulary; the appeals
Medicaid program, a benchmark
conflict of interest and objective
and the entity would have to dis-
procedures could not impose a
plan, or approved by the
criteria in selecting drugs for the
close to beneficiaries and
significant financial burden on
Secretary of HHS. Benchmarks
formulary.
providers the nature of the for-
the beneficiary or delay the pro-
include FEHBP
mulary restrictions, including
vision of medically necessary
BlueCross/BlueShield standard
drugs and copayment amounts
drugs; and enrollees were noti-
option, a state employee plan; or
for different drugs. Entities
fied of any changes in the for-
HMO plan with greatest com-
could establish higher copays
mulary at least 60 days prior to
mercial enrollment.
for non-formulary drugs (up to
the effective date of the change.
Stop-loss: Determined by the
the 20% copay limit) except
underlying qualified Medigap,
when the non-formulary drug
M+C, or group coverage.
was determined by the prescrib-
Access on a timely basis to new
ing provider to be medically
outpatient prescription drugs as
indicated. Entities could also
they become available would
educate providers about medical
also be required.
and cost benefits of formulary
products and request pre-
scribers to consider formulary
products prior to dispensing a
nonformulary drug, so long as
the request did not unduly delay
provision of the drug.
11
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Access to drugs not on
No provision.
Guaranteed when medically
Contracting entities would have
There would have to be an
State program: Scope and quali-
formulary
necessary.
to provide overage of non-for-
appeals process for access to
ty of drug coverage (including
mulary drugs when recommend-
medically necessary drugs not
exceptions to the application of
ed by prescribing providers.
on the formulary.
a formulary) must be equivalent
to state's Medicaid program, a
benchmark plan (see above), or
be approved by the Secretary of
HHS.
Stop-loss: Determined by the
underlying qualified Medigap,
M+C, or group coverage.
Cost containment strategies
Cost control mechanisms
A contracting entity could
A contracting entity could
Entities could use reasonable
State program: Scope and quali-
customarily used in employer-
establish appropriate incentives
employ mechanisms to provide
cost containment methods, such
ty of drug coverage must be
sponsored plans are allowed.
for generic substitution; use
benefits economically including
as formularies, mail order
equivalent to state's Medicaid
These include formularies, tiered
formularies, and reduce
the use of formularies,
services, and generic
program, a benchmark plan (see
copayments, selective contract-
coinsurance (under certain
alternative distribution methods,
substitution, consistent with
above), or be approved by the
ing, and mail order pharmacies.
conditions) and use other cost
generic drug substitution and
specific requirements of law.
Secretary of HHS. Federal
containment strategies subject
use of incentives to encourage
rebate systems may not be
to limitations and guidelines.
beneficiaries to select cost-
applied.
effective drugs or less costly
Stop-loss: The Secretary, or pri-
means of receiving drugs.
vate entities operating the stop-
loss program, may not deny or
limit payment based on the
drugs covered by the sponsor of
the underlying coverage.
12
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Appeals process
No provision.
Grievance and appeal proce-
Contracting entities would be
There would have to be an
State program: Scope and quali-
dures that apply to M+C plans
required to have procedures to
appeals process in place for
ty of drug coverage (including
would apply to the extent they
ensure timely review and resolu-
access to drugs not on a formu-
exceptions to the application of
are relevant.
tion of denials of care and com-
lary which would provide at least
a formulary) must be equivalent
plaints by enrollees (and those
the same level of protection as
to state's Medicaid program, a
acting on their behalf),
provided with respect to benefits
benchmark plan (see above), or
providers, and pharmacists in
under M+C plans.
be approved by the Secretary of
accordance with requirements
HHS.
comparable to those for M+C
Stop-loss: Determined by the
plans. Enrollees would have to
underlying qualified Medigap,
be provided with information on
M+C, or group coverage.
the appeals process at time of
enrollment.
Treatment of outpatient drugs
Reimbursements for drugs
Reimbursement rates for outpa-
Reimbursements for drugs
Reimbursements for drugs
State program: Drugs covered
already covered by Medicare
already covered by Medicare
tient drugs covered by Medicare
already covered by Medicare
already covered by Medicare
by Medicare are excluded from
would remain the same as part
Part B would be reduced to 83%
would remain the same.
would remain the same.
State program coverage.
of the core benefit package.
of AWP. Payments for EPO
Stop-loss: No provision.
would be reduced by 10%.
Coverage of immunosuppres-
No provision.
Permanently extend coverage for
The time limitation on Medicare
No provision.
State program: No provision.
sive drugs under Medicare
immunosuppressive drugs for
Part B coverage of immunosup-
Stop-loss: No provision.
Part B
48 months. (Beneficiaries
pressive drugs would be elimi-
could obtain additional months
nated, effective upon enactment.
of coverage under Part D with
Part D cost-sharing.)
13
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
DRUG PRICING
Drug pricing requirements
No provision.
Beneficiaries would get the same
Contracts would only be award-
No provision.
State program: No provision
discount that the private group
ed if the Secretary determined
except for prohibition on appli-
purchaser who manages the
that the average cost (excluding
cation of federal rebate systems.
benefit gets. Prices would be
cost-sharing) for covered outpa-
Stop-loss: No provision except
negotiated between contracting
tient drugs provided through the
that the Secretary, or private
entities and the manufacturers.
contract is comparable to the
entities operating the stop-loss
The contracting entity would be
average cost charged (exclusive
program under contract with
paid a fee for managing the
of cost-sharing) by large private
HHS, may not deny or limit pay-
benefit.
sector purchasers for such
ment based on the drugs COV-
drugs.
ered or the amount paid by the
sponsor of the underlying cover-
age.
Access to price discounts once
No provision. Presumably
Beneficiaries would continue to
Beneficiaries would continue to
Depends upon benefit structure
State program: No provision.
limit is reached
would depend upon the benefit
have access to the discount
have access to the discounti
of each plan.
Stop-loss: Prices are deter-
structure of each plan.
price after they reached their
price after they reached their
mined by the underlying quali-
annual limit.
annual limit.
fied policy and terms would not
change once the stop-loss COV-
erage became effective.
PARTICIPATING ENTITIES
Eligible entities
Private entities sponsoring
Pharmacy benefit management
Any entity the Secretary deter-
Entities eligible to sponsor
State program: States decide
Medicare plans would determine
companies (PBMs), retail drug
mined to be appropriate, includ-
SPICE drug coverage would
entities, if any, with which to
how to provide the benefit.
chains, health plans, states
ing PBMs; wholesale and retail
include M+C plans, private
contract to operate State pro-
HCFA would be required to con-
(through Medicaid mecha-
pharmacist delivery systems;
insurers, and sponsors of group
gram. Must pay premiums for
tract with private entities includ-
nisms), or multiple entities in
insurers; other entities; or any
health plans.
low-income enrolled in M+C or
ing insurers, PBMs, chain phar-
collaboration would be eligible
combination of entities could
group plans offering qualified
macies, groups of independent
to contract with Medicare to
contract to administer the drug
coverage.
pharmacies, and other entities
administer the drug benefit.
benefit.
Stop-loss: Private carriers or
deemed appropriate by the
other qualified entities.
Medicare Board.
14
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Contracts with private entities
HCFA would be required to con-
Competitive bidding every 2 to 3
HCFA would solicit bids and
No contracts with private entities
State program: States could
tract with "any willing qualified"
years for one contract to be
award contracts to private
are envisioned under this bill.
contract with private entities to
entity to provide the drug benefit
awarded in each geographic
entities for the provision of
However, drug coverage
provide qualified drug coverage.
for the HCFA sponsored high
area. Areas would be designat-
outpatient drugs in an area. At
(provided by M+C plans, SPICE
States could retain the risk or
option plans, subject to meeting
ed so as to have enrollment
least 2 contracts would be
Medicare supplemental policies,
contract with risk-bearing enti-
all requirements and Medicare
sufficient to encourage
awarded in an area, unless only
or group health plan sponsors)
ties to provide the coverage.
Board approval. Private entities
efficiency. A sufficient number
one bidder met minimum
would have to receive approval
Stop-loss: The Secretary of HHS
contracting with HCFA to provide
of areas would be designated to
standards. Contracts would be
of the SPICE Board in order for
must contract with carriers or
the drug benefit must bear full
prevent market domination by
for at least 2, and not more than
it to qualify for subsidy
other qualified entities to oper-
financial risk for the drug
only a few entities. The
5, years. Bids would have to
payments on behalf of enrollees
ate the stop- loss program. Risk
benefit.
Medicare program would retain
specify copayment amounts to
[unclear if this would be a
would be borne by the federal
the risk for the cost of the
be charged for covered drugs.
"contract"]. Risk would be borne
government.
benefit, although incentives and
In areas where there were no
by each entity offering a SPICE
risk sharing arrangements are
contracts with eligible entities,
plan.
allowed.
HCFA would develop a
procedure to provide covered
drugs to beneficiaries. Regional
areas would be established by
HCFA, taking into account the
number of eligible beneficiaries
in an area in order to encourage
participation by entities.
Contracts could be based on
shared risk, capitation, or
performance.
15
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Conditions of participation for
Existing M+C rules and any
Contracting entities would have
Contracting entities would have
The SPICE Board would estab-
State program: No provision.
contracting entities
additional rules imposed by the
to meet quality and access
to comply with the following
lish the application procedures,
Stop-loss: No provision.
Medicare Board would apply to
standards including, but not
standards: provide information
conditions for approval, and the
Medicare plans. Private entities
limited to: strategies to encour-
necessary to carry out the
period (no less than 1 year) for
contracting to provide the drug
age appropriate use of drugs;
bidding process, including data
which approval of SPICE plans
benefit for HCFA sponsored high
use of outside experts to create
necessary to determine if drug
would be valid. Approval could
option plans would have to
the formulary; use of objective
costs are comparable to those of
be denied or revoked in cases
assume full risk for the drug
criteria in selection of formulary
large purchasers, and data
where the Board determined the
benefit.
drugs; open and fair dealing with
regarding utilization,
entity offering the coverage was
manufacturers; publication of
expenditures, and costs;
purposefully engaged in
cost containment criteria related
establish educational programs
favorable risk selection activities.
to patient care; submission of
meeting the Secretary's criteria;
Coverage must be for outpatient
data on costs and utilization;
ensure that drugs are accessible
drugs only, not otherwise
capacity and pharmacy access
and convenient, including having
covered by Medicare, and no
standards; grievance and
emergency services available 24
pre-existing condition exclusions
appeals processes; and other
hours a day, 7 days a week, and
could be applied.
consumer protections.
having services offered at a
sufficient number of retail
pharmacies and to the extent
feasible, at retail pharmacies
throughout the service area;
comply with rules for the
provision of benefits; and
comply with clinical quality
standards as determined by the
Secretary, developed in
consultation with appropriate
medical specialty societies and
based on current standards
of care.
16
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Drug Utilization Review (DUR)
No provision.
Contracting entities and
The contracting entity would be
No provision.
State program: Scope and quali-
requirements
pharmacies would be required to
required to have procedures in
ty of drug coverage must be
use DUR and meaningful clinical
place to ensure appropriate
equivalent to state's Medicaid
criteria to assure quality and
utilization of drug benefits and
program, a benchmark plan (see
strategies to encourage
avoidance of adverse drug
above), or be approved by the
appropriate use of medications.
reactions. Also, the Secretary
Secretary of HHS.
would be required to develop a
Stop-loss: DUR requirements of
model educational program to
the underlying private coverage
assure appropriate prescribing
continue to apply once the stop-
and dispensing of drugs and use
loss threshold is reached.
of drugs by beneficiaries. The
program would have to include
on-line prospective review
available 24 hours a day, 7 days
a week; counseling beneficiaries
regarding proper use of drugs
and interactions and contra-
indications; methods to identify
and educate providers,
pharmacists and beneficiaries
regarding instances of
unnecessary or inappropriate
prescribing, instances or
patterns of substandard care,
potential adverse drug reactions,
inappropriate use of antibiotics,
appropriate use of generics and
the importance of following the
instructions of the prescriber.
Confidentiality
No provision.
No provision.
Contracting entities that
No provision.
State program: No provision.
maintain individually identifiable
Stop-loss: No provision.
health information would be
required to safeguard the
privacy of the information; and
maintain records in an accurate
and timely manner; and assure
timely access to information by
enrollees.
17
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
PHARMACY/PHARMACIST PROVISIONS
Pharmacy access rules
No provision.
Contracting entities would be
Services would have to be
No provisions specific to
State program: Determined by
required to negotiate and
offered at a sufficient number of
pharmacies, however, benefits
the state.
contract with all pharmacies
retail pharmacies and to the
must be accessible and conven-
Stop-loss: Determined by the
meeting minimum standards.
extent feasible, at retail
ient to all enrollees.
underlying private plan.
They would be required to have
pharmacies throughout the
necessary information systems
service area.
to process transactions
electronically.
Pharmacy reimbursement
No provision.
Dispensing fees would have to
No provision.
No provision.
State program: Determined by
be high enough to ensure partic-
the state.
ipation by most pharmacies.
Stop-loss: Determined by the
underlying private plan.
Pharmacist counseling
No provision.
No provision.
Contracting entities would have
No provision.
State program: Determined by
reimbursement
to compensate pharmacists for
the state.
providing counseling.
Stop-loss: Determined by the
underlying private plan.
18
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
FEDERAL GOVERNMENT AND FINANCING
Federal Trust funds
Part A and Part B Trust Funds
Part D would be established as a
The new drug benefit would be
A SPICE Trust Fund would be
State program: No trust fund
are merged into the Medicare
separate account in the SMI
funded out of the Medicare SMI
established. Certain provisions
involvement.
Trust Fund in 2003. A new
(Part B) Trust Fund. Premiums
( Part B) Trust Fund.
related to the HI Trust Fund
Stop-loss; No trust fund
"programmatic solvency" test is
for Part B and Part D would be
would apply to the SPICE Trust
involvement.
established whereby the Trust
calculated separately.
Fund, except that the SPICE
Fund is deemed insolvent in any
Bill is drafted as an amendment
Board and the Secretary of the
to the Public Health Service Act.
year in which expenditures
Treasury would be the Board of
exceed the sum of HI taxes,
Trustees, and the annual report
beneficiary premiums, and
on the status of the Trust Fund
general fund revenues (capped
would be part of the SPICE
at 40% of expenditures).
Board's annual report.
Sufficient funds are transferred
prior to 2003 from the HI Trust
Fund to HCFA to provide initial
capitalization and reserves for
the HCFA-sponsored plans.
Federal financing
Financing comes from the HI
The new Part D benefit would be
The bill summary specifies the
An amount of funds equivalent
State program: State entitle-
tax, beneficiary premium
financed through beneficiary
following options for financing:
to the net revenues received
ment directly appropriated from
payments, and general revenues.
premiums, federal budget
recovery of Medicare costs
from an increase in taxes on
general revenues. States would
General revenues may not
surplus, Medicare provider
attributable to tobacco-related
tobacco products called for in
receive the enhanced SCHIP
exceed 40% of Medicare
payment reductions, and from
diseases; an increase in the
the bill would be appropriated
match rate for beneficiaries with
program expenditures without
savings in Medicare from
federal tobacco tax; allocation of
to the SPICE Trust Fund. In
incomes to 150% of poverty;
Congressional action. Also, the
implementation of competition
the budget surplus; or savings
addition, on-budget surplus
the regular Medicaid match rate
Medicare Board is authorized to
and efficiency initiatives.
from more comprehensive
funds would be authorized to be
for beneficiaries with incomes of
assess a fee on Medicare plans
Medicare reform legislation.
appropriated to the Trust Fund.
150 to 200% of poverty. The
to cover the operating costs of
The increases in taxes on tobac-
match rate for outreach and
the Board. These fees would not
CO products would include,
administration would be the
be subject to appropriations.
among taxes on other tobacco
enhanced SCHIP match rate
No other financing sources are
products, a 55 cents per pack
subject to a limit.
identified.
increase on cigarettes.
Stop-loss: Funds directly appro-
priated from general revenues.
19
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Congressional Budget Office
No estimate available.
1999 CBO estimate: The drug
No estimate available.
No estimate available.
State program: No estimate
(CBO) cost estimate
benefit would cost $168.2 billion
available.
over 2000-2009 ($136 billion for
Stop-loss: No estimate available.
Medicare and $32 billion for
Medicaid).
Administration
A Medicare Board is established
HCFA would administer a bid-
HCFA would administer the bid-
A SPICE Office would be estab-
State program: Administered by
as an independent agency. It
ding process and selectively
ding process and award con-
lished within HHS outside of
the States. Administrative
would have 7 members,
contract with one private entity
tracts with private entities to
HCFA, and run by a SPICE
expenditures are limited to 10
appointed by the President with
in each area to administer the
administer the drug benefit;
Board. The Board would also
percent of total payments
approval of the Senate, for 7
drug benefit.
HCFA would develop a process
conduct a number of ongoing
(except the limit is 20% for the
year terms. The Chair would be
to administer the benefit in areas
studies related to the SPICE pro-
first fiscal year).
elected by the Board. Board
where there were no eligible
gram and issue an annual report
Stop-loss: The Secretary of
staff would be exempt from civil
drug benefit managers.
including a report on the status
HHS enters into contracts with
service rules and pay grades.
of the SPICE Trust Fund, and
private carriers or other qualified
The Board would be exempt
recommendations regarding the
entities to operate the program.
from Executive Branch over-
level of financial assistance to be
The private entities negotiate
sight. The Board would oversee
made in the subsequent year.
agreements with issuers of qual-
the entire Medicare program
The Board would be composed
ified coverage (Medigap, M+C,
including enrollment, plan nego-
of 7 members appointed by the
and group health plans) to pro-
tiations, beneficiary information
President, with the advice and
vide the benefits.
and education, etc. The Board
consent of the Senate. Board
would submit an annual report
membership would have to
to Congress. HCFA would be
include representation of
reorganized into 2 Divisions: one
consumers, private health
to run the HCFA-sponsored
insurers, HCFA, and state
plans and one to administer
insurance commissioners. The
Medicaid and other HCFA func-
Secretary of HHS would be a
tions. Until 2008, HCFA would
non-voting, ex officio member.
submit an annual business plan
Members would have 6 year
to Congress to be acted upon. In
terms (staggered). The
2005, a "fast track" procedure
Chairperson would be
for Congressional action is pro-
designated by the President
vided.
(and could not be the
representative of HCFA).
20
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Who bears risk for
Plan sponsors would have to
The federal government would
Contracts could be based on
Risk would be borne by each
State program: State programs
utilization/cost?
bear full risk, including HCFA.
bear most of the risk for cost
shared risk, capitation, or
plan offering SPICE coverage.
would either bear the risk or
The risk for the drug benefit pro-
and utilization. Contracting enti-
performance.
contract with private risk-bear-
vided by HCFA plans must be
ties would have some contractu-
ing entities to provide the drug
borne by the entities with which
al incentives to control cost and
coverage.
HCFA contracts to provide the
utilization. Medicare would test
Stop-loss: Risk is borne by the
benefit. Each HCFA-sponsored
the use of bonuses, withholds,
federal government.
plan must be independently self-
or risk corridors to control
sustaining.
costs.
21
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
RELATIONSHIP TO CURRENT COVERAGE
Traditional FFS Medicare
Beneficiaries wishing to remain
Beneficiaries enrolled in FFS
Beneficiaries enrolled in Part B
Beneficiaries enrolled in FFS
State program: State drug
in traditional FFS Medicare
Medicare could elect to enroll in
of FFS Medicare would be COV-
Medicare could obtain private
assistance would be available to
would have the option of
Part D and obtain the standard
ered by the new Medicare drug
SPICE drug coverage and a
low income beneficiaries in FFS
enrolling in a HCFA-sponsored
Medicare Part D drug benefit.
benefit unless they had equiva-
receive a subsidy for its
Medicare who are not receiving
standard plan (i.e., traditional
lent drug coverage and opted to
premium.
Medicaid prescription drug
FFS Medicare) or a HCFA-spon-
waive out of the Part B drug
coverage.
sored high option plan that
coverage.
Stop-loss: Federally subsidized
would have drug and stop-loss
stop-loss protection would be
coverage in addition to core
available to beneficiaries in FFS
Medicare benefits. HCFA must
Medicare who enroll in qualified
sponsor a standard option plan
Medigap or group drug coverage
and at least one high option plan
and pay the premiums for the
throughout the U.S. There
underlying coverage.
would no longer be a Part B.
premium; instead, beneficiary
premium obligations would
depend upon the plan chosen
and the amount of its premium
in relation to the government
contribution. Beneficiaries in
areas where the only options are
HCFA-sponsored plans would be
assured of not paying more than
12% of the NWAP for core ben-
efits coverage. Those choosing a
high option plan with drug
coverage would receive a sub-
sidy for the drug portion of the
premium.
22
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Medicare+Choice (M+C)
M+C plans would have to con-
M+C plans would have to offer
M+C plan enrollees would be
M+C plans could offer SPICE
State program: State programs
form to new rules, such as those
at least the standard drug
provided a benefit equivalent to
coverage and, if plans obtained
must pay any premium for drug
on benefits and premium bids.
benefit and the cost of the
or greater than the Medicare
approval of the SPICE Board,
coverage for qualified low-
M+C plan sponsors would have
benefit would be included in
Part B benefit through their M+C
M+C enrollees would received
income beneficiaries enrolled in
to offer at least a high option
their bid proposals. The same
plan. No specific changes to
subsidies for the drug coverage.
M+C plans offering qualified
plan in all areas where they wish
plan payment rules would apply
M+C provisions are included in
drug coverage.
to participate. They could also
as apply to bids for the non-Rx
the bill.
Stop-loss: M+C plans offering
offer a standard option plan.
Medicare benefits (i.e., full
qualified drug coverage may
payment up to lesser of bid or
enter into agreements with
96% of cost of government drug
entities operating the federally
benefit). M+C enrollees would
subsidized stop-loss program.
have to pay any amounts in
M+C plan must agree to provide
excess of the government
necessary information for pay-
payment amount.
ment of benefits above the stop-
loss threshold for enrollees.
Employer-sponsored retiree
No provisions directly related to
A subsidy equal to 67% of the
If drug coverage under a retiree
Employer-sponsored retiree
State program: State programs
health coverage
employer-sponsored retiree
government subsidy amount
plan was equivalent or better
health plans could offer SPICE
must pay any premium for drug
health coverage.
would be given to employers
than Medicare coverage, the
coverage and qualify to receive
coverage for low-income benefi-
offering drug benefits equal to
retiree plan sponsor could con-
subsidies if plans obtained
ciaries enrolled in group health
or better than the standard ben-
tinue that coverage and receive
approval of the SPICE Board.
plans offering qualified drug
efit to all retirees without dis-
payments from Medicare.
coverage.
crimination based on age or
Payments could not exceed
Stop-loss: Group health plans
health status. Unsubsidized
what would be paid to a private
offering qualified drug coverage
employer costs would be tax
entity serving similar enrollees
may enter into agreements with
deductible as a business
in the same service area. The
entities operating the federally
expense on the same basis as
employer plan would have to
subsidized stop-loss coverage
current law. Standards would
comply with any necessary
program in which the group plan
be equivalent to those for M+C
requirements specified by the
agrees to provide necessary
plans. Retirees with employer-
Secretary. If there was a
information for payment of ben-
sponsored drug coverage would
contractual obligation on the
efits above the stop-loss thresh-
not pay the Part D premium. If
sponsor to provide drug cover-
old for enrollees in the group
retiree drug coverage is
age, to reimburse or compen-
health plan.
dropped, retirees would have a
sate beneficiaries during the life
one-time option to enroll in Part
of the contract for the drug
D without penalty.
portion of the Part B premium,
or, for plans in existence prior to
enactment that provide drug
coverage, the employer plan
would be required to reimburse
the drug portion of the Part B
premium for at least one year
from the date of participation.
23
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Medicare supplemental
After 2003, only beneficiaries
The Secretary of HHS and the
The standard Medigap policies
Existing Medigap packages
State program: Three changes
coverage (Medigap)
enrolled in the HCFA-sponsored
NAIC would look at the feasibili-
would be revised by the NAIC
would be revised to include an
are called for regarding Medigap
standard option plan could
ty of providing "gap" drug cover-
and the Secretary to add supple-
outpatient drug only package,
guaranteed issue requirements:
purchase or renew Medigap
age through Medigap (cover the
mentary drug coverage which
the "SPICE Medicare supplemen-
(1) Medigap issuers must guar-
policies.
coinsurance and provide cover-
complements the new Medicare
tal policy." Benefits in a SPICE
antee issue a non-drug Medigap
age above the annual cap).
drug benefit to "an appropriate
policy could vary above the
plan to enrollees who have
Medigap packages would be
number of policies." They would
threshold established by NAIC.
Medigap drug plans and who
modified to conform with the
have to ensure that policies pro-
No other Medigap packages
become eligible for a State pro-
new drug benefit.
viding such coverage remain
could include any outpatient
gram assistance and therefore
affordable for beneficiaries.
drug coverage. New Medigap
terminate their Medigap drug
packages could be substituted
coverage; (2) Medigap issuers
for the 3 eliminated packages.
must guarantee issue a Medigap
Policies issued prior to the
drug plan to beneficiaries who
effective date of SPICE could be
lose their state drug program
renewed. Nonduplication rules
eligibility if they had a Medigap
would be clarified to permit
drug plan prior to enrolling in
SPICE policies to be sold to indi-
the state plan; and (3) Medigap
viduals with Medigap plans with-
issuers must guarantee issue all
out drug coverage and to M+C
Medigap drug plans to aged
plan enrollees without drug COV-
beneficiaries during a one-time,
erage, and Medigap policies
6 month open enrollment period
could be sold to those with
designated by the Secretary of
SPICE coverage. Insurers of
HHS.
existing Medigap plans H, I, and
Stop-loss: Medigap insurers
J would have to notify policy-
offering qualified drug coverage
holders within 60 days that they
may enter into agreements with
could purchase comparable
entities operating the federally
Medigap coverage without
subsidized stop-loss coverage
drugs, or could retain their cur-
program in which the group plan
rent policy but would be ineligi-
agrees to provide necessary
ble to purchase SPICE coverage.
information for payment of ben-
The SPICE Board and NAIC
efits above the stop-loss
would conduct a study on the
threshold.
feasibility of allowing Medigap
plans to include drug coverage
and be eligible for SPICE subsi-
dies.
24
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Medicaid
For dual eligibles entitled to
Medicaid would subsidize 100%
For the low-income, SLMB
No provisions related to
State program: No changes to
Medicare premium assistance
of the Medicare drug premiums
eligibility in general would be
Medicaid.
Medicaid. Dual eligibles with
under current law (fully dual eli-
and cost-sharing for drugs for
increased from 120% to 135%
drug coverage under Medicaid
gible, QMBs, SLMBs, QI1s),
those up to 135% of poverty.
of poverty beginning July 1,
are not eligible for the state drug
Medicaid programs would pay
Medicaid would pay a partial
2000. The QI1 category
assistance programs.
the lesser of 12% of the NWAP,
drug premium subsidy for those
established in the BBA for those
Stop-loss: Does not affect
or the amount of beneficiary
between 135% and 150% of
between 120% and 135% of
Medicaid. Stop-loss relates only
obligation for the HCFA-spon-
poverty. The regular Medicaid
poverty would be deleted.
to beneficiaries with private,
sored standard plan in the area
federal/state match rate would
States would be required to
qualified Medigap, M+C, or
in which the beneficiary resides.
apply for those up to 100% of
provide QMBs and SLMBs
group health plan coverage.
For the fully dual eligible,
poverty; the federal match rate
wrap-around drug coverage
Medicaid programs would pay
would be 100% for all others.
equivalent to the state's
all cost-sharing associated with
Medicaid drug benefit. This
all benefits in the Medicare plan
means the state Medicaid
in which the beneficiary is
program would pay the Part B
enrolled, and any additional drug
premium and cost-sharing for all
costs to the extent they would
Medicare covered drugs, as well
be covered under the state's
as the total costs for all drugs
Medicaid plan. State Medicaid
covered by the state's Medicaid
programs would not be required
program but not covered by
to cover cost-sharing for drugs
Medicare, for beneficiaries with
for QMBs. The existing
incomes to 135% of poverty.
federal/state match rates would
Existing federal/state Medicaid
apply.
match rates would apply.
OTHER
Effective date
The competitive premium sys-
January 1,2003
July 1, 2000 unless otherwise
In general, January 1, 2000.
State program: January 1,
tem would be effective January
specified for certain provisions.
2000.
1, 2003. Medicare Board estab-
Stop-loss: January 1, 2000.
lishment and HCFA reorganiza-
tion would occur within 6
months of enactment so that
transition can take place.
25
MAJOR MEDICARE PRESCRIPTION DRUG PROPOSALS - DETAILED COMPARISON
Breaux/Frist
Clinton
Kennedy/Stark
Snowe/Pallone
Bilirakis/Peterson
Studies
The Medicare Board must
No studies are proposed other
The GAO would be required to
The SPICE Board would be
State program: No provision.
conduct a study and report to
than for Medigap.
conduct a study and report by
required to conduct ongoing
Stop-loss: No provision.
Congress by January 1, 2002,
January 1, 2001, on the
studies on the administration of
on the need for maintaining
implementation of the competi-
SPICE; provision of information
enrollment under only Part A
tive bidding process, including
to beneficiaries on SPICE; ways
or only Part B for some
an analysis of the reduction in
that drug utilization can be used
beneficiaries; special rules for
hospital visits resulting from
to improve care; potential sav-
ESRD beneficiaries; and the
outpatient prescription drug
ings in federal health programs
need for a one-time open
coverage, prices paid for drugs
due to outpatient drugs; trends
enrollment period for high-
by Medicare compared to other
in premium increases; integra-
option plans.
private and public sector
tion of SPICE into a reformed
programs, any other savings
Medicare; affordability of SPICE
resulting from the coverage, and
coverage; impact of drug cover-
education and counseling activi-
age provided by M+C plans and
ties.
group health plans; and the
appropriateness of the levels of
financial assistance provided for
SPICE coverage. The Board is
to include a detailed statement
on the study issues in its annual
reports. The Board is also to
study, with NAIC, the feasibility
of allowing non-SPICE Medigap
plans to offer drug coverage.
Medicare Payment Advisory
MedPAC must review and com-
No provision.
MedPAC membership is
No provision.
State program: No provision:
Commission
ment to Congress on the busi-
increased to 19 members, and
Stop-loss: No provision.
(MedPAC)
ness plan submitted to Congress
expertise on the commission is
every year by HCFA, as must
expanded to include areas of
CBO and GAO.
pharmacology and prescription
drug benefit programs.
26
DEFINITIONS
Contracting Entity - This term refers to the pharmacy benefit manager, health insurer, retail drug chain, or other qualified entity that would contract with Medicare under the Clinton or
Kennedy/Stark proposals to administer the new Medicare drug benefit.
Dual Eligible - General term for low-income Medicare beneficiaries who qualify for some degree of Medicaid assistance. "Full" dual eligibles qualify for full Medicaid benefits because
they are sufficiently poor to meet Medicaid's income and resource eligibility standards (they are receiving cash assistance through Supplemental Security Income (SSI) program or
because their medical and long-term care expenses cause them to spend down to Medicaid eligibility levels). For these beneficiaries, states provide the full range of Medicaid benefits as
well as typically pay Medicare's Part B premium. Other categories of dual eligibles who qualify for some but not full Medicaid assistance are as follows:
QMB - Qualified Medicare Beneficiary. A Medicare beneficiary with an income below 100% of the federal poverty level and limited assets. Medicaid pays Medicare part B
premium and all Medicare required cost-sharing.
SLMB - Specified Low Income Beneficiary. A Medicare beneficiary with an income between 100 and 120% of the federal poverty level and who has limited assets. Medicaid
pays the Medicare Part B monthly premium.
QI1 - Qualifying Individual. A Medicare beneficiary with-an income between 120 and 135% of the federal poverty level and who has limited assets. Medicaid pays the
Medicare Part-B monthly premium on a first-come, first served basis.
QI2 - Qualifying Individual. A Medicare beneficiary with an income between 135 and 175% of the federal poverty level. Medicaid pays a portion of the Medicare Part B
premium for individuals on a first come, first served basis.
FEHBP - The Federal Employee Health Benefit Program is the program of private health insurance options available to federal employees, annuitants, and dependents.
FFS Medicare - The traditional fee-for-service Medicare program, sometimes referred to as original or traditional Medicare.
HCFA - Health Care Financing Administration. This federal agency is responsible for administering the Medicare and-Medicaid programs. It is part of HHS.
HHS - U.S. Department of Health and Human Services.
M+C - Medicare+Choice. Medicare beneficiaries may currently elect to enroll in an M+C plan as an alternative to traditional, fee-for-service Medicare (also known as original Medicare),
if one is available in their area. An M+C plan is a private plan that has contracted with HCFA to provide the Medicare benefit package. A majority of M+C plans also offer benefits that
are not covered by traditional Medicare, including coverage for outpatient prescription drugs.
Medigap - This is the popular name given to a private health insurance policy designed to supplement the coverage provided by the traditional fee-for-service Medicare program and
that meets certain federal standards. Medigap plans fill gaps in coverage resulting from Medicare cost-sharing requirements. They also reimburse for some services not covered by
Medicare.
NAIC - The National Association of Insurance Commissioners is the trade association for the nation's state insurance commissioners. The NAIC develops model standards for
nsurance policies which are adopted on a voluntary basis by the states.
27
THE HENRY 1.
KAISER
FAMILY
FOUNDATION
The Henry J. Kaiser Family Foundation
2400 Sand Hill Road
Menlo Park, CA 94025
650-854-9400
Facsimile: 650-854-4800
Washington Office:
1450 G Street, N.W., Suite 250
Washington, DC 20005
202-347-5270
Facsimile: 202-347-5274
http://www.kff.org
Additional free copies of this report (#1541) are available on our website or through
our publications request line at 800-656-4533.
DATAWATCH
Beyond Survey Data: A
Claims-Based Analysis
Of Drug Use And
Spending By The Elderly
Spending for prescription drugs is not distributed evenly across
the elderly population; elders with common chronic diseases
tend to generate the highest spending.
by Earl P. Steinberg, Benjamin Gutierrez, Aiman Momani, Joseph A.
Boscarino; Patricia Neuman, and Patricia Deverka
ABSTRACT: Previous estimates of Medicare beneficiaries' total and out-of-
pocket spending on outpatient prescription drugs have largely been based on
data from the 1995 Medicare Current Beneficiary Survey and have focused on
how expenditures vary among beneficiaries with different demographic charac-
198
DRUG USE &
SPENDING
teristics. This paper reports the results of an analysis of prescription claims
from 1998 for more than 375,000 elderly persons whose prescription benefit
was managed by Merck-Medco Managed Care. In addition to examining how
total and out-of-pocket drug spending in a well-insured population varies by age
and sex, we report how total and condition-specific drug spending varies for
elderly persons with ten common chronic diseases. Our results illustrate the
highly skewed nature of prescription drug spending, even among those with
drug coverage, and underscore the particularly high cost burden that pharma-
ceuticals place on elderly people with chronic diseases.
EDICARE WAS ENACTED IN 1965 with the goal of elimi-
M
nating economic barriers to the receipt of necessary health
care for the elderly. Consideration was given to inclusion
of a prescription drug benefit in Medicare at that time, and again in
1967 by a Task Force on Prescription Drugs appointed by President
Earl Steinberg is vice-president of Covance Health Economics and Outcomes Services Inc.
in Washington, D.C., and adjunct professor of medicine and health policy and management
at the Johns Hopkins University in Baltimore. Benjamin Gutierrez is director, outcomes
design and evaluation, in the Center for Outcomes Measurement and Performance Assess-
ment (COMPA) at Merck-Medco Managed Care (MMMC) in Franklin Lakes, New Jer-
sey. Aiman Momani is senior manager and Joseph Boscarino is a senior director there.
Patricia Neuman is a senior policy analyst and director of the Medicare Policy Project at
the Henry J. Kaiser Family Foundation in Washington, D.C. Patricia Deverka is vice-
president of COMPA.
HEALTH AFFAIRS Volume 19, Number 2
2000 Project HOPE-The People-to-People Health Foundation, Inc.
DRUG USE 0 SPENDING
Lyndon Johnson. In both cases, however, no such benefit was pro-
vided, nor has one been added since then.
From a clinical perspective, the lack of a prescription drug benefit
when Medicare was implemented did not constitute as much of a
barrier to effective health care as it does today. In the late 1960s
comparatively few of the prescription drugs available had clinically
significant effects on the chronic diseases that are prevalent among
the elderly. Since then, however, researchers have made much prog-
ress in understanding the pathophysiology of many chronic dis-
eases. Combined with major advances in our ability to identify and
create new pharmaceutical products, this has resulted in an enor-
mous increase in the number of drugs that are available for both
chronic and acute diseases.
Most of our current impressions of total and out-of-pocket pre-
scription drug spending by the elderly are based on data collected in
the Medicare Current Beneficiary Survey (MCBS).¹ Despite special
efforts in the MCBS to minimize errors in beneficiaries' recall, con-
cerns about possible underestimation of expenditures remain.²
Moreover, even the most recent reports on drug spending by or on
behalf of Medicare beneficiaries are based on 1996 MCBS data. In
addition, previous reports based on MCBS data provide little insight
DATAWATCH
199
into the association between particular chronic diseases and drug
spending.
To expand the public's understanding of prescription drug use
and spending among elderly persons with drug coverage, we ana-
lyzed prescription drug claims from 1997-1998 for elderly persons
whose drug coverage was managed by a pharmacy benefit manage-
ment (PBM) firm: In addition to examining drug use, and total and
out-of-pocket spending by persons in different age and sex catego-
ries, we examined patterns of drug spending by elderly persons with
common chronic diseases. Our findings thus complement previous
analyses and provide insight into the potential economic impacts of
alternative designs for a Medicare prescription drug benefit.
Study Methods
Data source. Our data were obtained from Merck-Medco Man-
aged Care (MMMC) LLC, a PBM that manages prescription bene-
fits for approximately fifty-one million Americans. MMMC clients
include managed care organizations, indemnity insurers, corporate
employers, organized labor, and government. The specific data used
in this analysis are derived from MMMC's Research Convenience
Sample (RCS) database; a longitudinal, claims-level database that
contains data from a nonrandom sample of MMMC clients. Criteria
for inclusion of clients in the RCS are as follows: (1) The client must
HEALTH AFFAIRS March/April 2000
DATAWATCH
have given MMMC permission to use its prescription claims data in
aggregate-level analyses; (2) all prescription claims (both retail and
mail-order) for the client's beneficiaries must be available; (3) all
eligible beneficiaries must be accounted for, even if they did not use
their drug benefit during the period of observation; and (4) the age,
sex, and geographic distribution of the clients' covered lives should
approximate that of MMMC's overall book of business.
Our study sample was drawn from the 1.4 million persons in the
RCS, from thirty-five clients, who had continuous drug coverage
throughout 1997 and 1998. Only one client had a maximum reim-
bursable amount (that is, a cap on the amount of coverage it pro-
vided) as part of its drug benefit. For this-client, beneficiaries who
obtained their prescriptions through MMMC still received a dis-
count on their prescriptions after their cap was reached. Conse-
quently, although this cap increased the covered individuals' out-of-
pocket spending, it did not affect our estimates of their total drug
spending. Beneficiaries from this client accounted for less than 5
percent of our study population.
Eligibility criteria and period of observation. To be included
in our sample, persons had to have had continuous prescription
200
DRUG USE &
coverage from 1 January 1997 through 31 December 1998 and to have
SPENDING
been at least age sixty-five on 1 January 1998. Prescription claims
from 1997 were used to select persons for inclusion in analyses of
members with particular medical conditions. All other analyses of
prescription use by persons in our study sample were performed
using 1998 claims. Since all persons in our sample had continuous
coverage throughout 1998, we had a full year of observation for each
person in our analysis. Thus, the results of our analysis of RCS data
were not biased by any seasonal differences in use of drugs.
Particular medical conditions. We developed algorithms
that could be used to identify persons who had any of ten of the
most common chronic diseases among the elderly: nonarrhythmic
cardiovascular disease, any cardiac rhythm disorder, hyper-
lipidemia, asthma/chronic obstructive pulmonary disease (COPD),
diabetes, arthritis, depression, cancer, osteoporosis (females only),
and acid-peptic disease. Three common combinations of chronic
diseases also were assessed: nonarrhythmic cardiovascular disease
plus (1) COPD; (2) diabetes; and (3) diabetes and hyperlipidemia.
Because diagnosis data were not available for people in the RCS,
we used pharmacy claims data to "map" particular drugs to particu-
lar medical conditions. To be considered to have a particular condi-
tion, a person had to have had two or more drug claims on different
days during 1997 for one or more drugs mapped to that condition.
While the use of a-particular drug can serve as a specific marker
HEALTH AFFAIRS Volume 19, Number 2
DRUG USE 0 SPENDING
for a particular disease (as in insulin for diabetes), some drugs are
commonly used to treat more than one condition. We therefore
defined the medical conditions on which we focused with the vari-
ous uses of particular drugs in mind. For example, instead of exam-
ining hypertension, congestive heart failure, and angina separately,
we combined these conditions in a "nonarrhythmic cardiovascular
disease" category. Even so, some of the clinical categories we con-
structed based on prescription claims alone inevitably overesti-
mated the number of persons who have a particular condition. For
example, some antidepressant drugs that we used to identify per-
sons with depression also can be used to treat other conditions (for
example, pain caused by nerve damage in patients with diabetes).
Reliance on drug codes alone to identify persons with particular
chronic diseases also is limited by the fact that some patients with a
chronic disease may not take any prescription drug for it. For exam-
ple, a patient with diabetes that is managed with diet control alone
would not be identified as having diabetes using our methodology.
We reduced the impact of this limitation by assigning people to a
medical-condition category based on their drug use in 1997 and
reporting on their use during 1998. As a result, some of those we
assigned to particular conditions on the basis of the drugs they used
DATAWATCH
201
in 1997 had no overall or condition-specific drug use in 1998.
Calculating expenditures. The total expenditures we report
reflect the average wholesale price (AWP) of the drugs that were
dispensed, plus a dispensing fee.⁴ The out-of-pocket expenses that
we report equal the copayment plus any deductible paid by the
beneficiary.
Use of generic drugs. The rate of use of generic drugs was
calculated for all drugs that were dispensed and for dispensed drugs
that were mapped to particular medical conditions. The former was
calculated as the number of prescriptions dispensed that were for
generic products as a percentage of all drugs dispensed for which
there were both brand-name and generic products available ("multi-
source" drugs). The rate of use of generic drugs for specific medical
conditions was calculated as the number of prescriptions for generic
drugs mapped to each condition as a percentage of the total number
of prescriptions mapped to each condition, with the analyses re-
stricted to multisource drugs.
Study Results
Although the age and sex distributions of our study sample are
similar to those of Medicare beneficiaries age sixty-five and older,
our sample is somewhat younger, with a lower proportion of per-
sons age eighty-five and older and a higher proportion of persons
HEALTH AFFAIRS March/April 2000
DATA WATCH
ages sixty-five to seventy-four, compared with all Medicare benefi-
ciaries age sixty-five and above (Exhibit 1). In addition, although we
are unable to assess the overall health status and income distribu-
tion of persons in our sample, elderly persons with employer-
sponsored drug coverage are thought to be healthier and to have
higher incomes than the Medicare population as a whole.5 Both of
these differences would be expected to reduce drug spending in our
population compared with that of all Medicare beneficiaries.
Many in our study sample were taking medications for the
chronic conditions on which we focused. Approximately half of
them, for example, used medication for nonarrhythmic cardiovascu-
EXHIBIT 1
Characteristics Of Study Population Compared With Medicare Population As A Whole
Study population
Medicare population
Characteristic
Number
Percent
Number
Percent
Age (years)
65-74
220,251
58.6%
18,377,041
53.1%
75-84
126,984
33.8
12,036,056
34.8
85 and older
28,245
7.5
4,214,195
12.2
65 and older
375,480
100.0
34,623,354
100.0
Sex
Male
174,405ᵇ
46.4
14,541,808
42.0
Female
198,207ᵇ
52.8
20,081,545
58.0
Medical condition
Nonarrhythmic cardiovascular disease
181,207
48.3
Over 40%ᶜ
Cardiac rhythm disorder
27,190
7.2
Approximately 10%c
Hyperlipidemia
54,001
14.4
'a
Asthma/COPD
31,895
8.5
6-13%ᶜ
Diabetes
28,414
7.6
Approximately 12%c
Arthritis
60,621
16.1
45-50%ᶜ
Depression
38,547
10.3
2-3%ᵉ
Cancer
12,168
3.2
'a
Osteoporosis
45,493
23.0
30'-50%
Acid-peptic disease
51,644
13.7
Approximately 30%c
Nonarrhythmic cardiovascular plus COPD
21,888
5.8
'a
d
Nonarrhythmic cardiovascular plus diabetes
21,383
5.7
'a
Nonarrhythmic cardiovascular plus
hyperlipidemia and diabetes
6,309
1.7
'a
SOURCES: Authors' analysis of Merck-Medco Managed Care data plus references noted below.
NOTES: Beneficiaries were assigned to medical conditions based on their prescription use in 1997. COPD is chronic obstructive
pulmonary disease.
a Based on the 1996 Medicare Current Beneficiary Survey (MCBS). The proportion of males and females is among Medicare
beneficiaries age sixty-five and older. The estimated prevalence of chronic disease is among persons age sixty-five and older.
b Data on the sex of 2,868 persons (0.8 percent) were missing.
C National Center for Health Statistics, Vital and Health Statistics, Series 10, no. 20 (Hyattsville, Md.: NCHS, 1996).
di
Not available.
e
NIH Consensus Conference, "Diagnosis and Treatment of Depression Late in Life," Journal of the American Medical Association
(26 August 1992): 1018-1024; and B. Lebowitz et al., "Diagnosis and Treatment of Depression Late in Life: Consensus
Statement Update," Journal of the American Medical Association (8 October 1997): 1186-1190.
f
Females only.
g A. Looker et al., "Prevalence of Low Femoral Bone Density in Older U.S. Women from NHANES III," Journal of Bone and Mineral
Research (May 1995): 796-802.
HEALTH AFFAIRS Volume 1-9, Number" 2
DRUG USE 0 SPENDING
lar disorders. Because of the methodology we employed, our esti-
mates of the prevalence of some chronic diseases (such as diabetes
and arthritis) are substantially lower than those based on national
surveys or epidemiological studies. The most important factor con-
tributing to these differences is likely to be the large number of
persons with each of these diseases who are not taking a prescrip-
tion medication for their disease(s). Some of the difference, however,
may reflect better-than-average health among the persons in our
sample.
Total drug spending. Approximately 18 percent of our sample
did not purchase any prescription drugs during 1998 (Exhibit 2).
Interestingly, those age eighty-five and older were much more likely
not to have purchased any drugs than those ages sixty-five to eighty-
four. Males were 50 percent more likely than females not to have
purchased any drugs. In addition, females spent more, on average,
than did males at all percentiles, except for the top 1 percent of
spenders.
Among all' persons in our sample, the average total expenditure
for prescription drugs in 1998 was $1,099 (AWP). Among the 82
percent of persons in our sample who filled at least one prescription
during 1998, the average total drug spending in 1998 was $1,343,
DATAWATCH
203
while the median expenditure was $895 (AWP for both). Mean
annual spending among persons who did use prescription drugs
increased slightly with age; the increase in median expenditures as
age increased tended to be a bit higher.
The distribution of total spending among persons who filled at
least one prescription during 1998 suggests that the 20 percent of
such persons who generated the highest expenditures for prescrip-
EXHIBIT 2
Annual Total Expenditures On Outpatient Prescription Drugs For Insured Elderly
Persons, By Age And Sex, 1998
Percent
Mean expenditures
Distribution among persons with expenditures
with no
All
Persons with
20th
50th
80th
95th
99th
expenditures
persons
expenditures
percentile
percentlie
percentile
percentlle
percentlie
Age (years)
65-69
17.6%
$1,023
$1,242
$210
$771
$1,971
$4,018
$6,752
70-74
16.3
1,119
1,337
260
881
2,134
4,162
6,702
75-84
18.3
1,156
1,415
314
994
2,264
4,164
6,440
85 and older
27.0
1,048
1,436
357
1,045
2,293
4,030
6,127
65 and older
18.2
1,099
1,343
265
895
2,146
4,111
6,597
Sex
Maleᵃ
21.4
1,015
1,292
227
834
2,059
4,072
6,705
Fémale
14.1
1,188
1,383
299
948
2,215
4,143
6,514
SOURCE: Authors' analysis of Merck-Medco Managed Care data.
NOTE: Data reflect utilization in 1998 and average wholesale price.
a
Age sixty-five and older.
HEALTH AFFAIRS March/April 2000
DATAWAICH
tion drugs that year generated more than $2,000 in drug expendi-
tures. Each of the top 5 percent of spenders generated more than
$4,000, while each of the top 1 percent of spenders generated more
than $6,500 (all based on AWP).
Spending by disease category. The percentage of persons
with any of the chronic diseases we examined who had no drug
spending over a twelve-month period was much lower than that for
all persons in our data set and was fairly constant across all of the
medical conditions we considered (Exhibit 3). Mean total annual
spending on prescription drugs (AWP) by persons with the chronic
diseases we examined who filled at least one prescription during
1998 ranged from approximately $1,600 to more than $3,000 and
thus were 50-200 percent higher than the mean spending for all
persons in the data set. Median total spending within the chronic-
disease categories we examined ranged from $1,141 to $2,627. More
than 25 percent of persons in the disease categories generated at
least $2,500 in total drug spending (AWP) in 1998; each of the top 1
percent of spenders generated $7,000-$10,000.
Out-of-pocket spending. The percentage of all persons with
no out-of-pocket spending (37.5 percent) was approximately twice
as high as that of persons who had no drug spending at all (18.2
EXHIBIT 3
Annual Total Expenditures On Outpatient Drugs For Insured Elderly Persons, By
Medical Condition, 1998
Percent
Mean expenditures
Distribution among persons with expenditures
Medical
with no
All
Persons with
20th
50th
80th
95th
99th
condition
expenditures
persons
expenditures
percentile
percentile
percentlie
percentile
percentlle
Nonarrhythmic
cardiovascular disease
2.1%
$1,668
$1,704
$474
$1,243
$2,598
$4,638
$7,174
Cardiac rhythm disorder
2.2
2,009
2,055
592
1,542
3,139
5,397
8,242
Hyperlipidemia
1.7
2,017
2,050
641
1,617
3,109
5,282
7,898
Asthma/COPD
2.0
2,159
2,204
646
1,653
3,376
5,830
8,720
Diabetes
2.0
2,278
2,324
731
1,790
3,548
5,950
8,845
Arthritis
1.6
1,906
1,938
573
1,459
2,968
5,126
7,778
Depression
2.1
2,245
2,293
702
1,760
3,480
5,947
8,921
Cancer
2.4
2,209
2,264
701
1,678
3,240
5,814
9,545
Osteoporosisᵃ
1.1
1,591
1,609
424
1,141
2,480
4,561
7,057
Acid-peptic disease
1.8
2,263
2,305
772
1,808
3,471
5,791
8,719
Nonarrhythmic cardio-
vascular plus COPD
1.7
2,454
2,496
869
1,949
3,766
6,271
9,292
Nonarrhythmic cardio-
vascular plus diabetes
1.7
2,525
2,567
912
2,057
3,856
6,311
9,228
Nonarrhythmic cardio-
vascular plus hyper-
lipidemia and diabetes
1.3
3,057
3,098
1,120
2,627
4,686
7,282
10,000
SOURCE: Authors' analysis of Merck-Medco Managed Care data.
NOTES: Data reflect utilization in 1998 and average wholesale price. Conditions are identified on the basis of prescription claims
during 1997. COPD is chronic obstructive pulmonary disease.
a Females only.
HEALTH AFFAIRS - Volume 19, Number 2
DRUG USE 0 SPENDING
percent) (Exhibit 4). Even among persons with the common chronic
diseases we examined, more than 20 percent had no out-of-pocket
spending (Exhibit 5). This is partly because two of the thirty-five
clients from whose beneficiaries our sample was drawn (28 percent
of our sample) required no copayment under certain circumstances.
Only 13.7 percent of the beneficiaries from the other thirty-three
clients had no out-of-pocket spending in 1998.6 Further evidence of
the relatively generous drug benefits provided to persons in our
sample is our finding that those who had any drug spending spent
only $164 per year out of pocket on average ($213 if the two clients
without copayments are excluded).
Even with such good coverage, however, more than 5 percent of
persons in our data set spent $500 or more out of pocket during
1998. As expected, this percentage was higher for persons with any
of the chronic conditions we examined. Of those who spent $1,000
or more out of pocket, 80 percent had nonarrhythmic cardiovascular
disease, 20 percent had diabetes, and about one-third had arthritis.
We examined the use of generic versus brand-name drugs, overall
and among drugs used to treat the chronic diseases on which we
focused. The proportion of all multisource drugs dispensed that were
generic products was about 87 percent and was constant across age
DATAWATCH
205
groups. Also, this proportion decreased slightly as people's annual
total and out-of-pocket spending increased, most likely because the
most expensive drugs are brand-name drugs. Finally, the proportion
of condition-specific multisource drugs that were dispensed as
brand-name products varied across the medical conditions we ex-
amined. Brand-name use was highest for drugs used to treat diabetes,
hyperlipidemia, cardiac rhythm disorders, and osteoporosis, and lowest
for drugs used to treat acid-peptic disease and depression.
EXHIBIT 4
Annual Out-Of-Pocket Expenditures On Outpatient Prescription Drugs By Insured
Elderly Persons, By Age And Sex, 1998
Percent with no
Mean expenditures
Distribution among persons with expenditures
out-of-pocket
All
Persons with
20th
50th
80th
95th
99th
expenditures"
persons
expenditures
percentlie
percentile
percentile
percentle
percentlie
Age (years)
65-69
40.3%
$115
$139
$0
$64
$227
$532
$1,005
70-74
39.5
125
149
0
72
248
560
1,031
75-84
34.4
149
182
3
105
297
630
1,139
85 and older
32.9
173
237
45
159
369
726
1,295
65 and older
37.5
134
164
0
86.
269
592
1,084
Sex
Male
42.2
117
149
0
70
245
555
1,058
Female
32.5
150
175
0
99
287
618
1,099
SOURCE: Authors' analysis of Merck-Medco Managed Care data.
a Figures reflect the percentage of persons with no pharmaceutical claims in 1998, as well as those who had claims but were
enrolled in plans that provided first-dollar coverage.
HEALTH AFFAIRS March/April 2000
DATAWATCH
EXHIBIT 5
Annual Out-Of-Pocket Expenditures On Outpatient Prescription Drugs By Insured
Elderly Persons, By Medical Condition, 1998
Percent with no
Mean expenditures
Distribution among persons with expenditures
Medical
out-of-pocket
All
Persons with
20th
50th
80th
95th
99th
condition
expenditures
persons
expenditures
percentlie percentile percentile percentile percentlie
Nonarrhythmic
cardiovascular disease
24.0%
$198
$202
$0
$120
$327
$678
$1,214
Cardiac rhythm disorder
22.3
250
256
0
162
410
829
1,476
Hyperlipidemia
28.5
195
198
0
114
334
683
1,227
Asthma/COPD
24.5
240
245
0
143
408
825
1,425
Diabetes
21.2
275
280
0
184
452
889
1,569
Arthritis
23.8
208
212
0
124
349
713
1,272
Depression
21.0
269
274
0
171
450
897
1,516
Cancer
27.9
206
211
0
112
340
739
1,351
Osteoporosisᵃ
26.5
197
199
0
116
332
695
1,217
Acid-peptic disease
25.8
228
232
0
130
387
802
1,398
Nonarrhythmic cardio-
vascular plus COPD
23.21
270
274
0
174
461
891
1,529
Nonarrhythmic cardio-
vascular plus diabetes
20.8
302
307
0
212
496
951
1,676
Nonarrhythmic cardio-
vascular plus hyper-
lipidemia and diabetes 24.9
301
305
0
213
503
954
1,669
SOURCE: Authors' analysis of Merck-Medco Managed Care data.
NOTES: Figures reflect the percentage of persons with no pharmaceutical claims in 1998, as well as those who had claims but
were enrolled in plans that provided first-dollar coverage. Data reflect utilization in 1998 and average wholesale price. Conditions
are identified on the basis of prescription claims during 1997. COPD is chronic obstructive pulmonary disease.
a Females only.
Discussion And Policy Implications
Total spending on prescription drugs in the United States is esti-
mated to have been $90.6 billion in 1998 With elderly persons
thought to account for one-third of these expenditures, spending on
prescription drugs by Medicare beneficiaries probably exceeded
$30 billion in 1998 If, as some have predicted, the increase in drug
spending in 1999 compared with drug spending in 1998 turns out to
be as high as 18 percent, rather than the 15.4 percent increase experi-
enced between 1997 and 1998, drug spending by Medicare benefici-
aries may have exceeded $35 billion in 1999.⁸
Our analysis of prescription drug use and spending in 1998 by
elderly persons makes two specific contributions. First, since our
analysis is based on actual prescription claims, it complements ear-
lier analyses based on survey data, which were thought to under-
estimate actual expenditures. Second, we have provided insight into
drug spending among elderly persons with common chronic
diseases.
Our finding that 18.2 percent of elderly persons with employer-
sponsored drug coverage spent nothing on prescription drugs in
1998 is consistent with previous estimates that about 85 percent of
Medicare beneficiaries filled at least one prescription in 1992 and
that 86.4 percent did so in 1995.9 The average per capita drug spend-
HEALTH AFFAIRS Volume 19, Number 2
DRUG USE o SPENDING
ing observed for persons in our sample ($1,099 based on AWP),
however, is a bit lower than previous estimates. If one assumes that
a PBM obtains a weighted average discount off of AWP of 14-30
percent, our observed mean of $1,099 (based on AWP) would corre-
spond to actual expenditures of $769-$945.10 Based on MCBS data,
it was estimated that in 1995 the average total drug spending (ac-
tual, not AWP) was $600 per capita for all Medicare beneficiaries
and $732 for those with employer-sponsored drug coverage.¹ If one
assumes that there was a 13 percent annual increase in per capita
drug spending between 1995 and 1998, these estimates would corre-
spond to mean actual expenditures in 1998 for these two groups of
$866 and $1,056, respectively." Harvard Pilgrim Health Care, a
health plan in Massachusetts, is reported to have spent an average of
$1,153 (actual, not AWP) on prescription drugs per Medicare benefi-
ciary in 1998.¹³
Our analysis likely underestimates the average per capita drug
costs for a Medicare beneficiary, since our sample does not include
any disabled Medicare beneficiaries under age sixty-five and since
the persons in our sample, who have employer-sponsored drug cov-
erage, also are likely to be healthier than the Medicare population as
a whole.¹⁴ As a result, were those Medicare beneficiaries who lack
DATAWATCH
207
drug coverage to obtain it, they would likely spend more on pre-
scription drugs, on average, than did those in our sample.
Our analysis also highlights the fact that the distribution of drug
expenditures for our sample was highly skewed. For example, our
analysis suggests that for 5 percent of the beneficiaries in our sam-
ple, drug expenditures in 1998 (measured in terms of AWP) were at
least $4,000, and for 1 percent they were at least $6,500. The propor-
tion of persons in our sample who had common chronic diseases and
drug expenses above such levels was much higher. Particularly given
the high cost of many new medications, it is possible that the pro-
portion of persons who had drug expenses above such levels in 1999
was even higher. For example, a year's supply of Enbrel, a new drug
used to treat moderate-to-severe rheumatoid arthritis in patients
who have failed to improve after a trial of other so-called disease-
modifying agents, has an AWP of more than $14,000.
Our estimates of average out-of-pocket spending by elderly per-
sons with employer-sponsored drug coverage managed by a PBM,
based on an analysis of actual deductibles and copayments, are
much lower than estimates based on previous surveys. In 1995 the
average out-of-pocket drug expenditure by all Medicare beneficiar-
ies was estimated to be $303, while for those with employer-spon-
sored drug coverage it was estimated to be $224.16 Using these data,
experts have projected that out-of-pocket spending for these two
HEALTH AFFAIRS March/April 2000
DATAWATCH
"Many believe that out-of-pocket spending is likely to rise, even
among those with drug coverage."
groups in 1999 was $414 and $320, respectively." The average out-
of-pocket expenditures in 1998 observed in our sample, however, are
even lower than those estimated in 1995 based on the MCBS. 18 Since
our estimates of out-of-pocket spending by insured elderly persons
with common chronic diseases also are lower than expected based
on the 1995 MCBS, either the drug coverage provided to persons in
our sample was considerably better than that held by persons who
participated in the MCBS, or respondents in the MCBS overesti-
mated their out-of-pocket spending, or both. Even with relatively
generous drug coverage, however, more than 5 percent of Medicare
beneficiaries in our sample spent more than $500 out of pocket in
1998, and more than 1 percent spent more than $1,000. Many believe
that out-of-pocket spending is likely to rise, even among those with
drug coverage, because of the widespread introduction in 1999 of
"three-tier" copayment schemes and other cost-control strategies by
those that offer drug coverage.¹⁹
208
DRUG USE &
Implications for Medicare drug benefit. Our findings have
SPENDING
implications for the potential cost and design of a Medicare out-
patient prescription drug benefit. Patients' drug-purchasing behav-
ior is influenced by the out-of-pocket costs they will incur. Conse-
quently, many aspects of a pharmacy benefit design, including the
benefit premium, deductible, copayment, cap, and any ceiling on
out-of-pocket spending, affect a patient's use of outpatient drugs
and the cost of the benefit itself. PBMs employ several strategies, in
addition to these benefit design features, to control the cost of a
pharmacy benefit.
The spending estimates based on our analysis reflect the design of
the prescription drug benefits provided to persons in our sample, as
well as the various strategies employed by MMMC to control phar-
macy costs. If, for example, a Medicare drug benefit were provided
with a more loosely managed formulary (for example, less tendency
to use the least costly effective drug) than was the case for our
sample, Medicare drug spending would be higher than we observed.
In addition, the cost of a Medicare drug benefit will be influenced by
the size of the discounts Medicare obtains from retail pharmacies
and drug companies. For example, Medicare now pays 95 percent of
AWP for the few categories of drugs that it covers (such as chemo-
therapy). Were Medicare to pay 95 percent of AWP under a new
drug benefit, rather than obtaining discounts of 14-30 percent off of
HEALTH AFFAIRS Volume 19, Number 2
DRUG USE o SPENDING
AWP, as occurs in the private sector, total drug expenditures per
beneficiary would be considerably higher than our estimates.
Finally, our results provide insight into the potential impacts on
Medicare beneficiaries of the various benefit designs included in
several leading legislative proposals.²⁰ Under President Clinton's
plan, for example, Medicare would pay 50 percent of each benefici-
ary's first $2,000 in drug expenditures in 2002, but beneficiaries
would shoulder all of their drug costs that exceeded $2,000 in 2002.
The Breaux-Frist proposal would provide Medicare beneficiaries
with drug coverage that had an actuarial value of $800 in 2003 but
would leave the details of the benefit design to the discretion of
health plans. Our analysis suggests that under either of these ap-
proaches, many beneficiaries would continue to face high out-of-
/
pocket drug costs. The residual cost burden would be particularly
high for elderly persons with severe chronic diseases. Another pro-
posal (Bilirakis-Peterson), in contrast, would provide beneficiaries
with stop-loss protection against high annual out-of-pocket drug
spending.
LEARLY, THERE ARE NUMEROUS CHALLENGES associated
C
with design of a Medicare prescription drug benefit. Among
DATAWATCH
209
these is the fact that trade-offs among the costs, benefits, and
political implications of alternative program features will need to be
made. As policymakers and the public consider these trade-offs, it
will be important not to lose sight of the fact that a prescription
drug benefit that increases Medicare beneficiaries" access to effec-
tive medications will improve their health status and quality of life.
The keys to achieving this clinical benefit at a reasonable cost will be
to ensure that cost relief is provided to those who need it most and
to employ cost-saving strategies that have proved to be effective in
the private sector.
This study was supported by a contract to Covance Health Economics and Outcomes
Services Inc. from the Henry J. Kaiser Family Foundation, and a subcontract from
Covance to Merck-Medco Managed Care. The authors thank Rob Epstein for his
advice on design of the analysis and his comments on earlier drafts of this manuscript;
Kia Powell-Threets for her work on data-set creation, "data management, measure-
ment specification, and analytic support; and Sheng Lou and Zhongyun Zhao for
their analytic support. The views expressed in this paper are those of the authors and
do not necessarily reflect those of Covance, Merck-Medco Managed Care, or the
Henry J. Kaiser Family Foundation.
HEALTH AFFAIRS March/April 2000
DATAWATCH
NOTES
1. M. Davis et al., "Prescription Drug Coverage, Utilization, and Spending among
Medicare Beneficiaries," Health Affairs (Jan/Feb 1999): 231-243; J. Poisal et al.,
"Prescription Drug Coverage and Spending for Medicare Beneficiaries," Health
Care Financing Review (Spring 1999): 15-27; M. Gluck, A Medicare Prescription Drug
Benefit, Medicare Brief No. 1 (Washington: National Academy of Social Insur-
ance, April 1999); and M. Gibson et al., How Much Are Medicare Beneficiaries Paying
Out-of-Pocket for Prescription Drugs? (Washington: AARP Public Policy Institute,
September 1999).
2. Davis et al., "Prescription Drug Coverage"; Poisal et al., "Prescription Drug
Coverage and Spending"; and M.L. Berk, C.L. Schur, and P. Mohr, "Using
Survey Data to Estimate Prescription Drug Costs," Health Affairs (Fall 1990):
146-156.
3. We used Specific Therapeutic Class (STC) and Hierarchical Ingredient Code
List (HICL) codes to identify persons who had specific diseases. The STC is
used to classify drugs according to the most common intended use. The HICL
is used to identify a unique combination of ingredients, irrespective of manu-
facturer, package size, dosage form, drug strength, or route of administration.
A summary of the mapping algorithm we used can be obtained from the
authors by contacting Benjamin Gutierrez via e-mail, Benjamin_Gutierrez
@merck.com
4. We chose to report total drug spending in terms of AWP, rather than actual
transaction price, because we believe that it provides a more useful reference
point for readers than would actual transaction prices. The latter, of course,
would reflect the discounts obtained by MMMC from pharmaceutical manu-
210
DRUG USE &
facturers and retail pharmacies. Numerous factors influence those discounts,
SPENDING
including whether both brand-name and generic products are available and, if
so, which is being purchased; the number of drugs available (that is, the
amount of competition between drugs) in the relevant therapeutic class;
whether the drug is being obtained from a retail or mail-order pharmacy; and
the negotiating strength of the payer (buyer), which tends to be related to the
degree of formulary control. The discount rates obtained by MMMC thus are
not necessarily representative of those that others would obtain, and the
actual weighted average discount obtained by MMMC for a given population
will depend on purchasing behavior (generic-use rate and mail-order use). It
also will vary over time because of the introduction of new pharmaceutical
products.
Managed care organizations are reported to have obtained a weighted
average discount of 14.3 percent off of AWP for drug purchases in 1998. See
"Drug Benefit Design," Novartis Pharmacy Report (Totowa, N.J.: Emron, 1999).
Others have estimated that the overall average discount off of manufacturer's
list price was 16 percent in 1992 and as high as 30 percent for mail-order
purchases. See J. Bobula, "A New Era in Pharmaceutical Pricing," Journal of
Research in Pharmaceutical Economics 7, no. 1/2 (1996): 89-99. PBMs obtain dis-
counts of 14-20 percent for brand-name drugs and 14-90 percent for generic
drugs: Based on the distribution of brand-name versus generic, and retail
versus mail-order, purchases by persons in our study, we estimate that the
weighted average discount for our sample was 14-30 percent. The MCBS
applied various pricing factors to AWP to estimate the actual prices paid by
respondents who purchased drugs but did not recall their price. The MCBS'
assumed that retail prices were as high as 272 percent of AWP and that
managed care organizations paid 86.1 percent of AWP, on average. See Health
Care Financing Administration, Office of Strategic Planning, Information and
Methods Group, "Medicare Current Beneficiary Survey CY 1996 Cost and Use,
HEALTH AFFAIRS Volume 19, Number 2
DRUG USE & SPENDING
Public Use File Documentation" (Baltimore: HCFA, 1999).
5. Poisal et al., "Prescription Drug Coverage and Spending."
6. The two clients that did not impose copayments in 1998 have instituted them
since then. Increased beneficiary cost sharing is an industrywide trend.
7. K. Levit, et al., "Health Spending in 1998: Signals of Change," Health Affairs
(Jan/Feb 2000): 124-132.
8. The source for the 18 percent estimate is Congressional Budget Office, The
Economic and Budget Outlook, 1999-2008 (Washington: U.S. Government Printing
Office, 1999). The source for the 15.4 percent estimate is Levit et al., "Health
Spending in 1998."
9. M. Lashchober and G. Olin, "Health and Health Care of the Medicare Popula-
tion: Data from the 1992 Medicare Beneficiary Survey" (Rockville, Md.: Wes-
tat, November 1996); and Poisal et al., "Prescription Drug Coverage and
Spending."
10. See Note 4.
11. Davis et al., "Prescription Drug Coverage"; Poisal et al., "Prescription Drug
Coverage and Spending"; and Berk et al., "Using Survey Data to Estimate
Prescription Drug Costs."
12. S. Soumerai and D. Ross-Degnan, "Inadequate Prescription-Drug Coverage for
Medicare Enrollees-A Call to Action," New England Journal of Medicine (4 March
1999): 722-727.
13. Ibid.
14. Poisal et al., "Prescription Drug Coverage and Spending."
15. Ibid.; and Davis et al., "Prescription Drug Coverage."
16. Ibid.
17. Gibson et al., How Much Are Medicare Beneficiaries Paying?
DATAWATCH
211
18. Davis et al., "Prescription Drug Coverage"; and Poisal et al., "Prescription Drug
Coverage and Spending."
19. R. Winslow; "Co-payments Rise for Prescriptions," Wall Street Journal, 12 Janu-
ary 1999, BL.
20. M. McClellan, I.D. Spatz, and S. Carney, "Designing a Medicare Prescription
Drug Benefit: Issues, Obstacles, and Opportunities," Health Affairs (Mar/Apr
2000): 26-41.
HEALTH AFFAIRS March/April 2000
KAISER
FAMILY
THE MEDICARE, PROGRAM
Medicare and Prescription Drugs
March 2000
Overview
Figure 2
Prescription drugs are an essential tool for treating and pre-
Prescription Drug Coverage of Medicare
venting many acute and chronic conditions, but Medicare does
Beneficiaries, 1996
not generally cover them on an outpatient basis. When
Medicare was first enacted in 1965, pharmaceutical therapies
were not as commonly available as they are now. Today, how-
No drug
31%
Employer-
ever, they are a primary form of medical care and often substi-
coverage
sponsored
31%
tute for more costly therapies like hospitalization and surgery.
Pharmaceuticals are the fastest-growing component of
11%
national health expenditures. In 2000, national drug spending
Medicaid
9%
8%
10%
increased by an estimated 11% compared with 7% for physi-
clan services and 6% for hospital care. Since 1990, national
Other
Medigap
spending for prescription drugs has tripled. By 2008, that figure
Medicare
HMO
is expected to more than double from an estimated $112 billion
Total = 37 million Medicare beneficiaries
today to $243 billion by 2008 (Figure 1).
Source: Poisal, J.A. and Chulis, G.S., Health Affairs, March/April 2000.
Note: Data are based on the noninstitutionalized population.
*Includes people who changed coverage during the year and those with Medicare and "other" coverage.
Figure 1
National spending for prescription drugs
Employer-sponsored health plans are the leading source of
drug coverage, assisting nearly one in three Medicare benefi-
ciaries, generally those with higher incomes. Drug benefits
offered by employers, particularly large employers, tend to be
$300 In billions
$243
relatively generous. Among large employers offering retiree
drug benefits, drugs currently account for about half of all
health care spending for retirees 65 and older, according to
Hewitt Associates, With the rapid increase in retiree health
$150
$112
costs generally, and prescription drug costs specifically, there
has been a steady and continuing erosion of retiree health ben-
$38
efits. Employers are expected to take more stringent steps to
$3
$6
$12
control rising drug costs in the future.
$0
1960
1970
1980
1990
2000
2008
.
Medigap is a source of drug benefits for approximately 10%
of all beneficiaries. There are 10 standard Medigap policies
Source: Health Care Financing Administration, Office of the Actuary.
(plans A J), three of which include prescription drugs. Policies
*Projected
with prescription drug benefits have a $250 deductible and
cover 50% of drug costs up to $2,500 (plans H, I) or 50% up to
The growing importance and increased use of prescription
$6,000 (plan J). Premiums for policies that cover prescription
drugs have had a disproportionate effect on the elderly, who
drugs have increased rapidly in recent years and tend to be
account for 13% of the population but over a third of the
substantially higher than policies that lack drug benefits.
nation's total drug expenditures. Lack of drug coverage for
Medicaid plays an important role in providing access to
some, and limited and diminishing drug coverage for many oth-
affordable drugs for the poorest segment of the Medicare pop-
ers, can expose beneficiaries to high out-of-pocket spending
ulation, helping more than one in nine pay for their medica-
that, in turn, may result in under-utilization of prescribed med-
tions. Medicare beneficiaries generally qualify for Medicaid
ications and adverse health outcomes.
assistance with drug costs if they receive cash assistance
under the Supplemental Security Income (SSI) program.
Sources of Prescription Drug Coverage
However, less than half of all Medicare beneficiaries with
incomes below the federal poverty level are covered by
Nearly 70% of all Medicare beneficiaries (26 million) had
Medicaid, and many near poor Medicare beneficiaries are not
some form of drug coverage through employer-sponsored
eligible for Medicaid.
health plans, Medicaid, Medicare HMOs, and Medigap in 1996,
Medicare HMOs assisted 8% of all beneficiaries with their
the most recent year for which national data are available
(Figure 2). Among those with drug coverage, one in four were
drug costs in 1996. Because Medicare requires plans with
covered for only part of the year (Stuart et al., 2000). Drug COV-
costs below the Medicare payment level to return savings to
erage available to beneficiaries varies widely across plans, is
beneficiaries, many HMOs have been able to offer supple-
often limited, and is expected to decline in the future.
mental benefits, like drug coverage, to enrollees. About eight in
10 Medicare HMO enrollees are in plans that offer prescription
Washington Office: 1450 G Street, N.W., Suite 250, Washington, DC 20005 (202) 347-5270 Fax (202) 347-5274
Foundation Headquarters: 2400 Sand-Hill Road, Menlo Park, California 94025 (650) 854-9400 Fax (650)-854-4800
Website: www.kff.org Publications Request Line: (800) 656-4533
drugs. Medicare HMOs generally impose copayments for
drugs and a growing number of plans have limits on drug ben-
Figure 4
efits. In 2000, three of four plans cap drug benefit payments at
Average Number of Prescriptions Filled by Medicare
or below $1,000, while nearly one in three limits drug benefits
Beneficiaries, With and Without Drug Coverage, by
to $500 or less (HCFA, 2000).
Selected Characteristics, 1996
Average number of prescriptions filled per year
With Drug
Characteristics of Beneficiaries Lacking
21
Coverage
Total
Drug Coverage
16
Without Drug
Coverage
While two-thirds of beneficiaries have some form of drug
38
Poor Health
27
coverage, nearly a third (12 million) lack coverage and must
pay for their medications out-of-pocket. Some without drug
35
3+ ADL
coverage may have some assistance through state pharmacy
22
programs (in 16 states).
<100% of
25
In many respects, beneficiaries without drug coverage look
poverty
14
similar to the overall Medicare population. Over half of all ben-
0
25
50
eficiaries without drug coverage have incomes above 150% of
Note: ADL = Activity of Daily Living
poverty and more than one in four are in fair or poor health.
Source: Poisal, J.A. and Chulls, G.S., Health Affairs, March/April 2000.
Still, lack of drug coverage disproportionately affects the near-
poor, the oldest-old, and those living in rural areas (Poisal and
Chulis, 2000). For example, 39% of beneficiaries with incomes
Total and Out-of-Pocket Spending
between 100% and 150% of poverty lack drug coverage, com-
Total annual per capita drug spending in 1996 averaged
pared with 24% of those with incomes above 300% of poverty
$673 but was lower for Medicare beneficiaries without drug
(Figure 3). Beneficiaries 85 and older are more likely to lack
coverage ($463) than for those with drug coverage ($769)
drug coverage than their younger counterparts 65 to 74 (38%
(Poisal and Chulis, 2000). Average spending on drugs rose as
vs. 29%). Likewise, beneficiaries in rural areas are far more
health status declined, for those with and without drug cover-
likely than those in non-rural areas to be without drug coverage
age. Still, beneficiaries in poor health who lacked coverage had
(43% VS. 27%).
substantially lower costs than those with coverage ($749 vs.
$1,340).
Figure 3
Medicare Beneficiaries Without Prescription
Out-of-pocket spending for pharmaceuticals is related to a
Drug Coverage, by Poverty Level, 1996
variety of factors, including beneficiaries' health needs, their
access to drug coverage and the generosity of that coverage,
Percent without drug coverage
40%
39%
and price. Average out-of-pocket spending for drugs in 1996
35%
31%
32%
was $318 (Poisal and Chulis, 2000). As might be expected,
30%
those with drug coverage in 1996 spent, on average, less for
24%
their medicines than those without it ($253 VS. $463).
20%
Disparities in out-of-pocket spending between those with and
without coverage were even wider among those in poor health
($423 vs. $749).
Out-of-pocket spending for pharmaceuticals is projected to
0%
rise in the future, with the continued introduction of new, high-
Total
<100%
of
100-150%
151-200%
201-300%
>300%
of
priced breakthrough drugs, increases in direct-to-consumer
poverty of poverty of poverty of poverty poverty
advertising, and plans imposing higher cost-sharing require-
37.2 million 8.1 million 6.3 million 5.4 million 7.4 million 10.0 million
ments and caps on drug benefits.
Note: 1996 federal poverty level was $7,740 for individuals; $10,360 for couples.
Source: Poisal, J.A. and Chulis, G.S., Health Affairs, March/April 2000,
Outlook for the Future
Why Does Drug Coverage Matter?
The lack of drug coverage for nearly one in three Medicare
Eight out of 10 Medicare beneficiaries report using pharma-
beneficiaries, the erosion of drug coverage for many others,
ceuticals on a regular basis, filling 19.5 prescriptions, on aver-
and the dramatic increase in drug use and expenditures have
age, in 1996. Having drug coverage significantly influences
focused national attention on proposals to help people on
whether Medicare beneficiaries fill their prescriptions. Bene-
Medicare with medication costs. While the need to assist the
ficiaries without drug coverage average five fewer prescriptions
elderly and disabled is widely recognized, complex and con-
per year than those who have coverage (Figure 4). The dis-
troversial issues are likely to be debated. For example, should
parities are even wider among those in poor health: those who
assistance with drug costs be targeted to specific populations
lack coverage average 11 fewer medications than their insured
or universally available? What strategies should be used to
counterparts. Consistently lower utilization levels among those
control drug costs? How should new benefits be financed? The
without drug coverage may indicate under-use of prescribed
outcome of this debate will have significant implications for the
medications, which could have a negative effect on health.
nation's aging population.
The Henry J. Kaiser Family Foundation, based in Menlo Park, California, is a non-profit, independent health care
philanthropy and is not associated with Kaiser Permanente or Kaiser Industries