Existing Medicare + Rx Drugs Through Medicare

Breaux-Frist I and II
Medicare Reform + Rx Drugs through Private Plans

• American public believes in Medicare. 49% of Americans believe that Medicare is doing a good job, according to a 1998 Kaiser Family Foundation survey.

• Medicare beneficiaries prefer traditional Medicare. What Medicare beneficiaries want is a guaranteed set of benefits and the ability to choose their own doctor. That is what traditional Medicare gives them, and they like it. In 2000, over 80% of Medicare beneficiaries were enrolled in traditional Medicare, which is a fee-for-service program. (HCFA, "Medicare 2000: 35 Years of Improving Americans Health and Security.")

• Americans have less faith in private insurance and HMOs than in Medicare. Only 36% of Americans believe that health insurance companies are doing a good job and only 30% believe that HMOs are doing a good job, according to a 1998 Kaiser Family Foundation survey.

• Medicare beneficiaries avoid HMOs. Only 16% of Medicare beneficiaries are enrolled in Medicare HMOs (Medicare+Choice). Most enroll because the plans offer extra benefits, such as prescription drug coverage, not because they prefer managed care. (HCFA, "Medicare 2000: 35 Years of Improving Americans Health and Security" and Marsha Gold, "Monitoring Medicare+Choice" Mathematica, September 2000.)

Traditional Medicare guarantees beneficiaries the right to choose their own doctor.

• Offers choice between plans, not choice of doctor. Breaux and Frist have promoted their proposal as offering beneficiaries more "choice." What their proposal offers is the opportunity for seniors and the disabled to "choose" between a confusing set of HMO plans, not the opportunity to choose the doctor who will treat them. Often when seniors join an HMO, they must give up a relationship they have had with a trusted doctor, because their doctor is not a member of the HMO. This is exactly the opposite of what seniors want stability, including a guaranteed set of benefits and the ability stay with a doctor they have known for many years.

• FEHBP not a model for Medicare reform. The Federal Employees Health Benefits Plan (FEHBP), often held up as a model for Medicare reform, illustrates the problem discussed above. FEHBP has experienced dramatically higher premiums charged by more generous plans because they attract sicker beneficiaries. (Mark Merlis, "Medicare Restructuring: The FEHBP Model," Prepared for Kaiser Family Foundation, 1999.)

• Breaux-Frist II: Medicare beneficiaries encouraged to join HMOs. Breaux-Frist II encourages Medicare beneficiaries to join HMOs by offering federally subsidized additional benefits, including coverage for prescription drugs through HMOs and private insurance and relaxing current regulations that HCFA imposes on plans. (This is the reason Breaux-Frist II sets up a board outside of HCFA to regulate the plans.)

The Medicare program has enjoyed wide popular support because it offers seniors a guaranteed set of hospital and physician benefits at a guaranteed price.

If prescription drug coverage were added to Medicare, it too would be guaranteed.

• Breaux-Frist I: Benefits not defined.  Since this proposal allows substantial variability in benefits among plans, beneficiaries will no longer be guaranteed access to a defined set of hospital and physician benefits at a set price. The benefits they receive will depend on what plan they are able to afford. A prescription drug benefit will be created but the generosity of that benefit will also be dependent on what plan they are able to afford.

• Breaux-Frist II: Drug benefit loosely defined.

  This proposal allows substantial variability among plans in the drug benefits they would offer. Therefore, the generosity of the drug benefit will depend on what plan beneficiaries are able to afford.

• Breaux-Frist I and II: Beneficiaries denied needed care. By encouraging beneficiaries to leave traditional Medicare, beneficiaries lose the ability to get the services they need because HMOs, even though they may "cover" certain benefits, routinely deny patients benefits in order to reduce their costs.

Medicare has guaranteed hospital and doctor benefits for over 30 years.

• HMOs withdrawing in record numbers from Medicare. Despite the fact that they are overpaid, according to the GAO, HMOs have been withdrawing from the Medicare program in record numbers. From 1999 to 2001, a total of 1.6 million seniors will have been forced to look for new providers after their HMO reduced or ceased to provide service under the Medicare+Choice program.

• Employers reducing retiree health benefits formally a reliable source of prescription drug coverage. According to a survey of large employers, in 1999, only 28% of large employers offered coverage for supplemental health care benefits to their Medicare eligible retirees, compared to 40% in 1993.

If Medicare were to offer a prescription drug benefit, then all seniors would have access to coverage for their drugs, regardless of their health status or place of residence.

• Price breaks and better benefits for the healthy. Breaux-Frist I and II offer additional benefits, including some coverage for prescription drugs, through HMOs and private insurance. This sort of privatized benefit will suffer from the problems of adverse selection. HMOs will market their products to healthy enrollees. These healthy enrollees will enjoy better benefits than those left behind in traditional Medicare, because the HMOs will have funds left over for extra benefits that traditional Medicare, with its sicker enrollees will not have.

• Makes the sick pay more and/or denies them better benefits. A privatized benefit will lead many sicker seniors to have to choose between higher cost plans that are much less affordable and lower cost plans that do not offer the benefits they need.

• Problem of unequal treatment demonstrated by the Medicare+Choice HMO program. In the existing Medicare+Choice program, private plans contract to offer Medicare benefits to seniors. Relatively healthy beneficiaries are enjoying richer benefit packages under these HMOs, including coverage for prescription drugs, than the sicker beneficiaries in the traditional Medicare program. There a number of reasons that HMOs have attracted relatively more healthy enrollees: 1)HMOs intentionally target healthier seniors for enrollment, 2) sicker beneficiaries may be more concerned than healthier enrollees about giving up the ability to see their usual health care providers, and 3) beneficiaries who are enrolled in an HMO often transfer back into traditional Medicare once they become seriously ill.

• Discriminates against rural Medicare beneficiaries. Only 27% of the 9.2 million rural Medicare beneficiaries have access to an HMO. Any Medicare reform proposal that relies on HMOs will not serve rural areas well. (Families USA, "Rural Neglect," 1999)

Medicare's administrative costs are less than 2%. (Hospital Insurance and Supplemental Medical Insurance Trust Fund Reports, 2000.)

Medicare HMOs' administrative costs averaged 15% from 1996 to 1999. The Inspector General found that if administrative costs were limited to 15%, an additional $500 million would have been available for additional benefits in 2000. (HHS-OIG, "Adequacy of Medicare's Managed Care Payments After the Balanced Budget Act of 1997," September, 2000.)

The GAO reported in August 2000 that the Medicare+ Choice program is actually costing Medicare more than if Medicare were to insure the same seniors through its traditional program. Despite this fact, HMOs demanded and received even higher reimbursements from the federal government in the 2001 budget. (GAO, Medicare+Choice: Payments Exceed Cost of Fee-for-Service Benefits, Adding Billions to Spending," August, 2000.)

The Medicare program has done a better job at controlling overall costs than the private sector since 1970. In both 1998 and 1999 Medicare's cost increases were below the rate of growth in the private sector. In 1999 Medicare reduced its spending in comparison with the previous year. (Marilyn Moon, "An Analysis of Medicare and Private Expenditures," Kaiser Family Foundation, September 1999.)

• No magic efficiencies from "competition." The only way relying on "competition" between private plans, as the Breaux-Frist proposals do, will save Medicare money is if the private plans deliver less care, pay providers less, or demand more cost sharing by beneficiaries. There simply is no free lunch, no magic efficiencies gained from private plans. Health care is not like making a car where it is possible to increase efficiency and deliver the same product at a cheaper cost. In health care the only way to significantly reduce costs is to deliver fewer services or pay providers less to deliver them.

• HMOs control costs through denial of care. A 1996 survey of Medicare beneficiaries conducted by the Physician Payment Review Commission found that Medicare beneficiaries enrolled in HMOs were three times more likely than those in traditional Medicare to report problems getting medical care.

• Breaux admits plan will not reduce Medicare expenditures. Senator Breaux has publicly disagreed with claims by the Bush administration that the Breaux-Frist proposal will lead to significant cost savings for Medicare. (Congress Daily 3/8/01)

If Medicare were to use its market power, it could substantially lower the cost of prescription drugs for seniors and the disabled by negotiating deep discounts from drug makers just like other large purchasers do, such as the Veterans Administration.

By providing a drug benefit through private insurance and HMOs, the Medicare population will be fragmented into many different groups. Therefore, a private sector approach will not be able to harness Medicare's buying power to negotiate the best possible prices.

• 56% of Americans polled support expanding Medicare to cover prescription drugs, according to a Kaiser Family Foundation survey.

• Only 32% support helping seniors buy private health insurance to cover the cost of their prescription drugs.

• The drug industry opposes providing drug coverage through Medicare, as it could limit their ability to price gouge seniors.