February 14, 2005

February 14, 2005 | Commentary on Health Care

A Better Solution for Medicare

Congress passes laws, but the rest of us pay for them.


Take the giant Medicare drug bill lawmakers adopted in 2003. Because of it, Medicare officials will impose a massive regulatory regime that, starting next January, will govern more than half of all the prescription drugs sold in the United States.


The White House made headlines recently when it estimated the new 10-year price tag will be $720 billion. That's far more than we can afford.


The new drug entitlement will deepen Medicare's long-term financial crisis, because it alone will add more than $8 trillion to Medicare's promised, but unfunded, benefits. If, on top of other Medicare obligations, the drug entitlement goes into effect next year, young workers and their families will be forced to cough up $28 trillion to cover Medicare's long-term liabilities. Within 20 years, Heritage Foundation analysts found, this would mean annual tax increases of at least $2,000 per household to cover the Medicare shortfall.


Starting in 2006, the Medicare drug entitlement will apply to everybody aged 65 and older, regardless of income. But three out of four seniors already have drug coverage. They are obviously not the problem. The problem is the minority of seniors who are poor and lack coverage.


Instead of saddling unwary American taxpayers with trillions of additional debt, Congress should target the poor seniors without drug coverage with generous and continuous assistance. 


To facilitate access to drugs for seniors without coverage, Congress could use the existing Medicare drug-discount card. Already, nearly 6 million have registered, and they are saving between 10 percent and 90 percent on their drug costs. These seniors are getting generous help and lower prices on drugs. For poor seniors, the federal government contributes $600 annually to help pay the costs of drug coverage. The whole program will cost taxpayers only about $5 billion for 18-months worth of coverage, a tiny fraction of the projected cost of the 2006 drug entitlement.


To make the drug card work better, Congress could require catastrophic coverage to protect seniors from high drug costs associated with serious illnesses. 


Compare that simplicity with just some of the complexities of Congress's latest experiment in central planning: Under the Medicare drug law, after a beneficiary's initial payment of a monthly premium and a $250 deductible (both scheduled to go up with rising drug costs), Medicare provides a government contribution of 75 percent of all drug costs up to $2,250. Above that amount, the Medicare beneficiary pays 100 percent out of pocket for all drug costs -- the infamous "doughnut hole" -- up to the $3,600 mark. Medicare then pays 95 percent of all catastrophic costs above that amount.


Got all that?


In order to enforce the new law, in 2006 Medicare officials must keep track of premium payments, subsidies for low-income persons, the deductibles and each senior's "legitimate" out-of-pocket spending. Under the law, not all out-of-pocket spending will qualify toward the statutory catastrophic limits.


Meanwhile, the Medicare law also would apply to roughly 6.4 million seniors ("dual eligibles") who today get their drug coverage under state-run Medicaid programs. For these persons, starting next January, Medicaid drug funding ends. So, to enroll them states must identify them, confirm their eligibility for the new Medicare program, and exchange accurate data and correct information with the Social Security Administration (SSA). 


In addition, state officials must learn the provisions of the new law, and transition this elderly Medicaid population into the Medicare's drug program. They also need to start "educating" these seniors on the new Medicare drug benefits, even though many of them are mentally and physically disabled and in nursing homes.


Time is short. On Jan. 1, 2006, the Medicare drug program must be up and running; on Nov. 15, 2005, the initial enrollment of Medicare beneficiaries must begin; on Oct. 15, 2005, Medicare officials have to start "educating" all 41 million Medicare beneficiaries on their new drug benefits.


But none of this is necessary.


As noted, most seniors already have drug coverage. Congress could control costs while still targeting generous federal help to the minority of seniors without drug coverage. Congress can repeal, or at least delay, the Medicare drug entitlement before it hits seniors and taxpayers alike.


It's not too late for common sense and fiscal responsibility to win out -- and provide a better solution for everyone.

Robert Moffit is director of the director of the Center for Health Policy Studies at the Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies