August 27, 2003

August 27, 2003 | News Releases on Health Care

Drug "Benefit" Could End up Costing Seniors Thousands, Analyst Says

WASHINGTON, AUG. 27, 2003-Millions of seniors could lose as much as $110,000 each in future prescription-drug benefits if Medicare legislation now in conference committee becomes law, according to new research from The Heritage Foundation.

Today, three-quarters of those eligible for Medicare have some prescription-drug coverage already, many through their former employers. Millions of seniors have foregone thousands of dollars in pay to ensure they have adequate benefits at retirement-including prescription-drug coverage.


But if Congress adopts the Senate version of the bill to create a universal Medicare prescription-drug entitlement, the Congressional Budget Office estimates that 37 percent of those with drug coverage would lose it. If the House bill goes forward, 32 percent would lose their coverage.


How much is that worth to the 3.8 million to 4.4 million seniors who could be dropped from their existing coverage?


Using retiree health benefit cost data from the Mercer Corp. and the CBO projection of the rate of growth in per capita prescription-drug spending by Medicare beneficiaries, Heritage former Visiting Fellow Lanhee Chen calculates that the average retiree-based on a life expectancy of 85 and projections that 40 percent to 60 percent of employer spending on retiree health benefits goes to prescription drugs-could lose drug benefits worth $73,599 to $110,398.


Those at-risk benefits were purchased, Chen notes, by foregone wages. He calculates that the typical worker retiring last year after a 30-year career had foregone approximately $6,473 to $9,710 in wages in return for retirement prescription coverage.

Most employers reserve the right to change plans as they see fit.


A government program that relieves them of an expensive benefit that does little to help the bottom line, such as prescription-drug coverage for retirees, would encourage many to "dump" those seniors into the new taxpayer-supported plan, Chen says.


The news is worse for future retirees, he adds. Increased use of pharmaceuticals in place of hospitalization and the greater availability of better-but-more-expensive drugs promise to raise the cost of drugs even more.


"Policy-makers should focus on providing drug coverage to the minority of Medicare beneficiaries who truly need it, rather than on creating perverse incentives for employers to drop the health benefits promised to current and future retirees," Chen says.


"Passing a Medicare prescription-drug entitlement would only hasten the decline of employer-sponsored retiree health benefits-quality benefits on which many retirees depend."

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