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Critical Flaws in the House and Senate-Passed Medicare Rx Drug Legislation that Must Be Rejected in Conference
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- House legislation includes a risky experiment with the privatization of Medicare. The Medicare program has been a success, because it has provided guaranteed benefits to seniors and people with disabilities at a known price. The House-passed bill would change that. Beginning in 2010, instead of offering guaranteed benefits, the government would give people on Medicare a voucher to buy health insurance from private insurance companies and HMOs, with no assurance that the value of the voucher would keep pace with the cost of good coverage.
- Cost of good coverage, including coverage offered by traditional Medicare, would increase by as much as 25 percent, putting it out of reach for some beneficiaries. Under H.R. 1, private insurance plans will be able to come into an area and offer cut-rate premiums by preferentially enrolling the healthy, erecting barriers to enrollees getting care and limiting enrollees to a narrow network of doctors. This will cause the value of the voucher, which the bill ties to the average plan premium in an area, to fall, forcing beneficiaries wanting good coverage to make up the difference between the cost of a good plan and the voucher.
In particular, the cost of enrolling in traditional, government-run Medicare, which enrolls almost 9 out of 10 enrollees, will increase putting it out of reach for some. Beneficiaries see traditional Medicare as "good" coverage because it offers guaranteed benefits without the barriers to care frequently erected by managed care companies, allows beneficiaries to see virtually any doctor, and accepts the disabled and all seniors, whether sick or healthy.
One study found that in 1997, 13.8 percent of Medicare beneficiaries enrolled in traditional Medicare had both cognitive and physical difficulties; but only 6.6 percent of Medicare HMO enrollees reported such problems. The HHS Inspector General has found that managed care organizations’ avoidance of sick beneficiaries appears quite deliberate. The IG found that private plans have, in the past, avoided the expense of treating their sickest patients by having sicker beneficiaries disenroll, in order to have expensive hospital care delivered through the traditional Medicare program, and then reenroll beneficiaries when they are healthy again. From 1991 to 1996 the IG found that Medicare paid hospitals $224 million for inpatient services furnished to beneficiaries within 3 months of their disenrollment. Medicare would have paid the private plans just $20 million in capitation payments if the beneficiaries had remained in the private plans, a difference of $204 million, or more than 1,000 percent.
The combination of a sicker group of beneficiaries and more services being delivered per beneficiary will mean that the traditional Medicare program will have a higher premium than most private managed care plans. The Medicare actuary has determined that under the House bill if a significant number of people enroll in private plans, as the administration predicts, those who are unwilling to leave traditional Medicare can expect premium increases of 25 percent.
- House legislation will infect traditional Medicare with the instability of the private market where beneficiary premiums can vary dramatically from year to year and from one county to the next. Today private plans compete to offer health care coverage to Medicare beneficiaries at premiums that vary dramatically from year to year and county to county. From 1999 to 2003, in 14 states where a Medicare HMO offered drug coverage, the average additional beneficiary premium for the plans increased more than 100 percent. In four states it increased by over 400 percent. However, because premiums in traditional Medicare are set at 25 percent of the program’s national costs for doctor care, they increase at a reasonably steady pace and are uniform across the country. The House-passed bill would change this and allow premiums for traditional Medicare to vary from county to county from year to year.
This is how the legislation is likely to lead to wild fluctuations in the cost of enrolling in the traditional Medicare program:
Under the bill, everywhere private plans compete an average premium for all the plans will be determined. The average premium will be computed by looking at the premiums of private plans in the area and the costs incurred by the traditional Medicare program for enrollees in the area. This average premium will be the basis for determining the size of the voucher that Medicare will give beneficiaries to buy health insurance. If, in the first year, two HMOs open their doors in one area and successfully attract enrollees through cut-rate premiums, then the value of the vouchers would fall. Also, traditional Medicare’s premium would increase because the legislation pegs its premiums to the cost of treating the sick beneficiaries in traditional Medicare in a particular area, rather than the program’s national costs. The cost of enrolling in traditional Medicare would increase because beneficiaries will be forced to make up the difference between the smaller voucher and the higher premium charged by traditional Medicare.
If in a second neighboring county no plans show up, traditional Medicare’s premium will likely be lower than in the first county. If in the following year the situation reverses itself, premiums will drop in the first county and rise in the second. This volatility is a direct result of the proposal making premiums in the traditional program linked to local insurance market conditions.
Instability has been a hallmark of the private plans in the existing Medicare program. There have been 2.4 million occasions when beneficiaries have been dropped when their HMO withdrew from the Medicare program or reduced the area in which they offered coverage. Some enrollees have been dropped multiple times by different HMOs reducing or ending their participation in the Medicare program. Throughout the chaos created by the unstable private plans, the traditional Medicare program has been a safe haven for beneficiaries. When private plans dropped them they could always return to the traditional program where they have always found reliable benefits at a known price. If the House bill, which ties traditional Medicare’s premium to the premiums of private plans, were to become law traditional Medicare would no longer be a safe haven for beneficiaries.
- House legislation fails to guarantee that drug coverage will ever be offered. The House-passed legislation does not require Medicare to offer a drug benefit directly to those enrolled in the traditional Medicare program if private insurance plans fail to offer coverage. In contrast to the House bill, the Senate bill allows traditional Medicare to step in if private plans decide not to offer coverage in an area. This is essential if the legislation is to make coverage for prescription drugs available to all beneficiaries. No private plans have come forward and publicly said they will offer stand-alone prescription drug coverage. At least one private plan, AETNA, has said it does not believe it would be feasible to offer the coverage. The concern that private plans will not come forward to offer coverage is not just voiced by Democratic critics of the legislation. Bush’s administrator of Medicare, Tom Scully, has said that private stand-alone drug plans "don’t exist in nature and won’t work in practice."
- House legislation would means-test Medicare. In a precedent setting move, the House bill ties the level of drug benefits people would get under the bill to their income. Today the Medicare program is based on the principle of social insurance. Everyone pays into the program throughout their working lives and everyone is eligible once they turn 65 or become disabled. Under the House bill, those with incomes below $60,000 a year would be covered for their catastrophic drug costs once they had total drug costs of $4,900. The generosity of that coverage would be reduced for those with higher incomes, so that those with incomes of $200,000 or more would receive catastrophic coverage once they had just over $13,000 in drug costs. While means-testing Medicare may sound reasonable, it would:
- Lead to reduced support for the Medicare program. Those who support means testing Medicare argue that we must target the scarce government funds we have to those who are most in need. This argument is attractive in these times of limited financial resources, but in the long term, means-testing Medicare threatens to fundamentally undermine the program. Medicare has broad support because it equally serves all seniors and people with permanent disabilities, rich and poor, rural and urban, black and white who participate in the program. The danger of means-testing Medicare so that those who are more wealthy get less generous benefits is that it puts the program on a slippery slope that could lead to Medicare becoming a welfare program, like the Medicaid program. Once any part of Medicare is means-tested there is a danger that future Congresses trying to save scarce federal resources will over time reduce benefits to the non-poor. If Medicare were to become a program geared more to assist the poor, it would become less popular making it more difficult to sustain adequate funding levels. In the most recent debate over reforming Medicare a prominent Republican, Rep. Tauzin (R-La.) signaled his opposition to the Bush administration’s proposal to push seniors out of traditional Medicare into private plans by saying, "You couldn't move my own mother out of Medicare with a bulldozer". . ."She trusts it and believes in it." If the Medicare program becomes more of a welfare program, there is less chance that members of Congress and other leaders will have a personal connection to people who are enrolled in it and therefore be concerned about protecting the program.
- Require an invasion of seniors’ privacy that is breathtaking in its scope. In order to administer the drug benefit passed by the House, the IRS would be required to turn over to private insurance companies information on the income level of all seniors wanting to take advantage of the program’s full drug coverage. Companies would need this information in order to determine what level of benefits each enrollee is entitled to receive.
- Senate legislation would deny the poor access to the new Medicare drug benefit. In a precedent setting move of its own, the Senate legislation, like the House bill, would not make new drug coverage available equally to all Medicare beneficiaries. Under the Senate bill, the poorest seniors, those who qualify for Medicaid generally because they have incomes below 73 percent of poverty (often referred to as the dual eligible), would not be eligible for the new benefit under Medicare. Never before has any group of seniors been excluded from a Medicare benefit.
While Medicaid programs in all states cover prescription drugs for the poor, they are not required to do so, and coverage can be reduced or eliminated at any time. Given the dire fiscal condition of many states, it is reasonable to expect that they will cut back on the generosity of the benefits they offer under Medicaid –one of their biggest expenses. Today some states already severely limit the number of prescriptions beneficiaries can fill to as few as three at any given time. This can leave seniors who are dependent on multiple prescription medications without adequate coverage. Since all seniors have paid into the Medicare program throughout their working lives, it is unfair to leave one segment of them, the poor, who are most in need of good coverage, at the mercy of the states for coverage. They deserve to have the assurance of being part of the Medicare drug benefit, with states wrapping around the new benefit to improve its generosity.
July 17, 2003
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