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July 21, 2003

A Drug Benefit…Without the Benefit

By

"A sense of threat and gloom now hangs over prospects for a Medicare prescription drug benefit," Morton Kondracke writes in Roll Call newspaper. Small wonder: Seniors are beginning to sense that the legislation Congress recently passed won't help them much.

 

They're right. In fact, for many, things would get worse.

               

About three out of every four seniors eligible for Medicare have some form of drug coverage, many through their former employers. They get their drugs for a small co-pay, usually $10 or less per prescription or a minimal annual fee. According to the Congressional Budget Office, more than one third of the retirees who have employer-based plans will lose them under the Senate's version of the legislation.

 

Those seniors could see price hikes as high as 60 percent, according to a new analysis by The Heritage Foundation of data collected by the Center for Medicare and Medicaid Services and the Senate Budget Committee.

 

In 2006, when the legislation takes effect, the average senior will consume $3,080 in prescriptions. Those with drug coverage -- assuming they wouldn't be dropped from their plans like a 100-pound sack of flour in a warehouse -- would pay, on average, $1,057 out-of-pocket. Those who are dropped and thus forced into the program outlined in the Senate legislation would pay $1,678, according to the analysis, a hike of nearly 60 percent.

 

Many struggling mightily to make ends meet would see their costs soar. A Medicare beneficiary in 2006 who makes between $14,506 and $16,923, for instance, would see out-of-pocket drug expenses climb, on average, from $1,223 under a private plan to $1,652 under the Senate plan, a 35 percent increase. Those making slightly more -- between $19,341 and $24,175 -- can expect increases of more than 50 percent in out-of-pocket expenses.

 

Why? Because the Senate legislation has more holes than an Oklahoma oil field. First, in the name of political expediency, it doesn't even take the reasonable step of helping those who need it most -- low-income seniors. One day, janitors will be forking over hard-earned tax dollars to subsidize Bill Gates' drug costs.

 

Second, the $400 billion cost estimate is almost universally recognized as a joke. The Senate is creating an entitlement here. That means it costs whatever it takes to fulfill every claim, regardless of budget constraints. If expenses grow too much, expect a future Congress to treat the program as present Congresses treat Medicare -- by cutting benefits, reducing payments to medical providers, hiking deductibles and employing other devices that push costs on to patients and their doctors.

 

Finally, consider the formula the Senate proposes. Medicare patients would pay about $35 per month for drug coverage with a $275 deductible. From $276 to $4,500, the government would pay half the costs. Patients would pay all drug costs beyond that until they had spent $3,700 out of pocket for the year, at which point government would pick up 90 percent of the remaining costs.

 

So, seniors with $2,000 per year in prescription drug costs would have about half that paid for by their government-provided insurance, but seniors who spent $6,000 per year would have to come up with nearly two-thirds. Only Congress, trying to make its math work regardless of the consequences, could design insurance like this.

 

Research by my Heritage Foundation colleague Edmund Haislmaier, shows that if the legislation becomes law, most employers will do one of three things: Drop their coverage outright, scale back their plans' benefits to conform to the new "standard plan" for Medicare, or replace their plans with "wrap-around" coverage that pays the initial deductible and cost-sharing for their retirees. In short, they would shift much of the risk and the expense of prescription drugs onto the taxpayer. A great deal for them -- but a terrible one for seniors.

 

No wonder lawmakers voted recently to exempt themselves from this legislation. They don't want to lose the superior coverage they get through the Federal Employees Health Benefit Program, which offers them a choice of competing private plans. Apparently, though, it's too good for the rest of us.

 

Most Americans agree we don't want poor seniors eating Purina Cat Chow so they can afford their prescriptions. But most also want a plan with predictable and reasonable costs that serves those who need it most and doesn't interfere with the large number of seniors who can get their drugs through private insurance.

 

In other words, something that won't make the problem worse.

 

Lanhee Chen is the Winnie Neubauer visiting fellow in health policy studies at The Heritage Foundation.

Distributed nationally on the Scripps-Howard wire

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