July 26, 2002

July 26, 2002 | WebMemo on Health Care

Back to the Future: Will the Senate's Madcap Drug Derby End in ACatastrophic Medicare Crash?

In the immediate aftermath of three Senate Medicare prescription drug proposals collapsing one after another for want of consensus in the Senate, the Senate leadership is scrambling to cobble together some sort of compromise package, trying desperately to combine disparate elements into a coherent legislative proposal that will attract broad political support.

In undertaking this effort, Senate Majority Leader Thomas Daschle (D-SD) reminded his Senate colleagues that they should remember the 1988 Medicare Catastrophic Coverage Act. In that year, with the support of the Reagan Administration, Congress enacted a Medicare prescription drug benefit, garnered massive congressional support, but the bill was repealed one year later. The provisions of the 1988 law, instead of winning favor among senior citizens, engendered a huge backlash among the beneficiaries themselves, largely because of the design and financing of the program, including the Medicare prescription drug benefit.

Rostenkowski Remembers. Writing in the July 24, 2002 edition of The Washington Post, former Congressman Dan Rostenkowski, the once powerful Chairman of the House Ways and Means Committee, who served from 1959 to 1995, recalled that experience and concluded that Congress is now engaged in an unreal debate. He writes, "My fear is that we're witnessing an unrealistic debate that will, at best, yield nothing more than a crop of partisan and empty talking points."1

"A Bit More Liberal." Rostenkowski, a once prominent leader of liberal House Democrats, reminds us that the 1988 Medicare prescription drug benefit was based on the simple principle that the Medicare beneficiaries who got the benefit should pay for the benefit. But that in "today's free spending atmosphere", he notes, the current Medicare drug proposals are "a bit more liberal".

As Rostenkowski relates, under the 1988 Medicare bill, beneficiaries would secure Medicare payment for 80 percent of their drug costs, after paying a $710 annual deductible, and an income-based premium payment starting at $4 per month and capped at $800 per year for the wealthiest retiree.2 The former House Ways and Means Chairman estimates that in today's dollars, the financing requirements of the Medicare bill that liberal Democrats supported in 1988 would raise the basic monthly premium from $4 to $8, the deductible would rise to roughly $1,100 per year, and the maximum premium would double to around $1,600 per year. 3

In 2002, the House Republican Medicare plan (H.R 4924) would require an average premium of $408 per year, with a $250 deductible, and a sliding scale Medicare payment of prescription drug costs up to $3,700, at which point catastrophic coverage would take over. The leading Senate Democratic plan would require a $300 annual premium, no deductible at all, no cap on benefits, and a $4,000 limit before catastrophic coverage would take over. As Rostenkowski observes, the range of costs of "the dueling plans" runs from $350 billion to $800 billion over ten years. "That's not chump change, especially considering that the Medicare program is already unstable and expected to run out of money fairly early in this century unless some big changes are made," he writes.4

Mistakes Were Made. Rostenkowski says that the Medicare Catastrophic Coverage Act of 1988 failed because of serious political mis-steps and mistakes in its implementation. But the 1988 bill was in fact, the product of extensive internal deliberations at HHS, preliminary public hearings around the country, and months of careful consideration in the House Ways and Means Committee, the House Energy and Commerce Committee, and the Senate Finance Committee and Senate Labor Committee.

In other words, Congressional consideration of the 1988 Medicare drug program was a model of decorum compared to the current Senate roller coaster process. But there were many reasons why the Medicare catastrophic bill, including the drug benefit, failed.

For Members of Congress and congressional staff, wrestling with the same issues 14 years later, the lessons are worth remembering. In the attached Backgrounder from 1996, The Last Time Congress Reformed Health Care: A Lawmaker's Guide to the Medicare Catastrophic Debacle, Director of Domestic Policy Robert Moffit, a former Deputy Assistant Secretary at HHS who was present at the creation of the legislation, recounts the story of the rise and fall of the biggest Medicare expansion in the program's history.

Robert E. Moffit is Director of Domestic Policy at The Heritage Foundation

Endnotes

1 Dan Rostenkowski, " We Filled The Prescription," The Washington Post, July 24, 2002, p. A-19.
2 Ibid.
3 Ibid.
4 Ibid.

About the Author

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