Medicare Drug Plan Awash In Confusion, Contention

The complexity of prescription drug benefits under House and Senate Medicare reform bills may be more than beneficiaries are bargaining for.

And that’s if the Congress even succeeds in passing a reform bill.

As the October 17 deadline passed for reaching a compromise between House and Senate Medicare reform bills, the complexity of both versions—and the intractable political issues still to be resolved by conferees—began to raise questions about whether a reform bill would even be forthcoming this year.

In an October 15 Webcast sponsored by the Kaiser Family Foundation, Medicare and health policy experts agreed that a glaring deficit in both the House and Senate reform bills is the lack of a mechanism for helping seniors and other beneficiaries understand and navigate the proposed new drug benefit.

“Not enough attention has been paid to information on how beneficiaries will wend their way through the new benefits,” said Joseph Antos, Ph.D. “The Centers for Medicare and Medicaid will do what it can, but not to build this into the law is a big, big mistake.”

He is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute in Washington, D.C.

Antos’s comments were echoed by Patricia Neuman, Sc.D., vice president and director of the Medicare Policy Project at the Kaiser Family Foundation, and Marilyn Moon, Ph.D., vice president and director of health at the American Institutes for Research.

Even the phase-in of the drug benefit, with the introduction of a “drug discount” card in 2004 prior to the initiation of the new benefit in 2006, is likely to mislead seniors and other beneficiaries. The discount card will provide some savings on pharmaceuticals, but will still leave beneficiaries paying much of the bill.

“I could see members of my own family [taking their discount card] to the pharmacy thinking they are going to get their prescriptions paid for and being surprised to find they are still paying as much as 90 percent of the bill,” said Neuman.

And that does not begin to approach the confusion that is likely to ensue with the introduction of the drug benefit itself. With private plans offering multiple options—with different copays and deductibles, different formularies, and varying prices for generic versus brand-name drugs—many beneficiaries are likely to be overwhelmed.

“Confusion will begin pretty quickly and will be enormous,” Neuman said. “What beneficiaries are going to do is size it all up when they go to the pharmacy. The question is whether there will be an independent place they can go for answers about how their benefits work.”

Beneficiaries may be surprised to learn that the benefit itself is not everything they may be expecting. Both House and Senate versions have what has come to be called the “hole in the donut”—a gap in benefits between exhaustion of the yearly limit and the beginning of catastrophic coverage for drugs for chronic conditions.

Under the Senate version, Medicare would pay one-half of drug costs up to $4,500, but would pay nothing for costs between $4,500 and $5,800—hence, the hole in the donut. When costs reach $5,800, the program would begin to cover 90 percent.

Under the House bill, Medicare would pay 80 percent of drug costs up to $2,000, with the hole in the donut between $2,000 and $4,900. After that, the program would cover 100 percent of costs.

Either way, senior and disabled beneficiaries with high costs that do not reach the catastrophic level are going to find that the benefit is nonexistent. “It’s not going to be a lot of what beneficiaries think they are going to get,” Moon said.

Several extremely contentious issues appear to have lawmakers stymied. One of these has to do with competition between private plans and the traditional Medicare fee-for-service plan and whether to introduce competitive market mechanisms into the traditional plan.

“The objective of introducing a competitive element into Medicare is the hope that market forces would cause the costs of the program to grow less quickly than they would otherwise and to give beneficiaries more of a choice,” said Antos.

Moon noted, however, that the Medicare fee-for-service program has actually outperformed the private market over the long haul at controlling costs. Meanwhile, competition with private plans—which would receive subsidies from the federal government to coax them into certain markets—could result in the latter skimming the healthiest patients and leaving the traditional program with the sickest and neediest.

Another sticky issue is the possibility that introduction of a drug benefit will cause employers to drop existing coverage of retiree drug benefits—generally regarded as one of the most reliable supplemental forms of health coverage for Medicare beneficiaries. Antos, for instance, noted that the Congressional Budget Office has predicted some 4 million retirees might be dropped from existing employer-sponsored drug coverage for retirees.

Neuman said congressional conferees are considering subsidies to employers, among other options, to prevent erosion of drug coverage.

“Retirees with an employee-sponsored drug benefit get some of the best drug coverage available,” she said. “Those who have it are genuinely concerned about losing it. Our own surveys show that employers are likely to terminate benefits in the future.”

“The desire on the Hill is to slow this trend by looking at options that would keep employers in the game,” she said.

The political difficulties surrounding the Medicare bills would appear to reflect the larger dilemma of American health care: How to feed political demand for access to the fruits of biomedical progress while maintaining affordability. Any number of mechanisms can be put in place to reign in costs, but new public revenues will invariably be necessary.

“As taxpayers we are going to have to put a crowbar in our wallets,” Moon said. “More revenues are going to have to be part of the answer. Medicare has never been well funded, and people have danced about this issue without ever being very honest about it. The issue is whether as a society we feel we have the resources to serve a population that has never been well served by the private market.”

The Kaiser Webcast is archived at www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=999. ▪