June 16, 1999 | Executive Summary on Health Care
Congress is under considerable pressure to address the absence of outpatient prescription drug coverage in Medicare, the huge and financially troubled program that covers almost 40 million elderly and disabled Americans. Several bills before Congress would attempt to do this. For example, S. 841, sponsored by Senator Edward Kennedy (D-MA), and its companion bill, H.R. 1495, sponsored by Representative Pete Stark (D-CA), would require the Secretary of the U.S. Department of Health and Human Services (HHS) to contract with benefit managers, retail pharmacies, insurers, and others to provide a prescription drug benefit to Medicare's beneficiaries.
The real task before Congress, however, is not so much whether to provide prescription drug coverage to Medicare beneficiaries, but rather how to assist those seniors who really need help in obtaining prescription drugs, and how to finance it--considering the enormous potential cost of such coverage and the poor track record of previous attempts to add it. There is concern that congressional "remedies" could lead to a disruption of the prescription drug market and undermine the quality and availability of the very benefit lawmakers hope to provide. Members of Congress should recognize that:
Before providing a prescription drug benefit to Medicare beneficiaries, Congress should determine how many senior citizens are experiencing difficulty in obtaining prescription drugs. Although nearly 9 out of 10 Medicare beneficiaries use prescription drugs, according to Bureau of Labor Statistics data for 1997, the average senior spent $637 annually on both prescription and non-prescription drugs--less than what the poorest seniors report spending in restaurants. A study for the National Academy of Social Insurance reports that only 10 percent of seniors have annual out-of-pocket expenditures for prescription drugs of $1,000 to $2,000, and only 4 percent report spending more than $2,000. The problem of affordability for a relatively small number of seniors is not a systemic crisis that necessitates a complete overhaul of the system.
Congress has considered adding a prescription drug benefit in the past. In 1988, with overwhelming support from the public and various interest groups, Congress enthusiastically passed the Medicare Catastrophic Coverage Act, adding a range of generous new benefits to the Medicare program that included coverage for outpatient prescription drugs. Within weeks, Congress was inundated with letters and calls from outraged seniors as they became aware of the ways in which this new law would impact their pocketbooks. Within one year, the Congressional Budget Office's estimates for the cost of the prescription drug benefit skyrocketed from $5.7 billion to $11.8 billion. By late 1989, under a powerful backlash from seniors, Congress was forced to repeal major elements of the law.
One of the proposals before Congress, S. 841 (H.R. 1495) requires the Department of HHS to contract with benefit managers, retail pharmacies, and insurers to provide a managed prescription drug benefit to Medicare beneficiaries. This approach, however, would jeopardize the supplemental drug coverage currently enjoyed by two-thirds of America's seniors, diminish the incentives seniors have to purchase Medigap or Medicare health maintenance organization policies, and make employers less likely to offer private health plans to their elderly employees. Not only is such a proposal bad policy, but its price tag of $20 billion, as estimated by Senator Kennedy when he introduced his bill, is likely to be a gross underestimate of the actual costs.
The majority of seniors does not experience problems in obtaining medication. Targeting those that do would cost taxpayers far less than providing 40 million Medicare beneficiaries with coverage that may duplicate their existing coverage. Members of Congress should allow senior citizens the same choices they themselves enjoy under the FEHBP and avoid mistakes Congress made in the past. In short, Members of Congress should not promise low-cost prescription drugs that they cannot deliver.
James Frogue is a former Health Care Policy Analyst at The Heritage Foundation.