Medicare Reform and Prescription Drugs

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Medicare Reform and Prescription Drugs

Statement for the Record
By TREA Senior Citizens League
To the Subcommittee on Health
of the Committee on Ways and Means
Wednesday, February 28, 2001

Chairman Johnson and members of the Subcommittee, we thank you for holding this series of hearings to discuss Medicare reform and a prescription drug benefit. TREA Senior Citizens League (TSCL) is a national group of over 1.3 million politically active seniors concerned about the protection of their earned Social Security, Medicare, military, and other retirement benefits. Our supporters are among the poorest of the poor and the oldest of the old. Every day we receive letters and mail urging us to help these folks get by. A huge part of the problem they face is in covering prescription drug costs.

Poverty in our country is defined as individuals having incomes below $8,350 and couples with incomes of $11,250 or below. Many of our members, who have no other financial resources except Social Security and Medicare, already live below, or are at risk of falling below, the poverty line.

Think for a minute about how you would live on $8,350 a year.

Why We Need Medicare Reform Now

The Medicare program has been responsible for a major reduction in poverty in our country and improvement in the health of American seniors, but the safety net is unraveling. The program needs modernization to cover prescription drug and catastrophic costs. In addition changing demographics pose tremendous future financial challenges.

Forty million Americans receive Medicare benefits. Currently Medicare recipients are often forced to piece together a patchwork of stop-gap measures in order to afford health care. Currently, only one in four employers provides health care benefits for retirees, down from 40% in 1994. Since 1998, more than 1.6 million Medicare recipients have been forced to find other health care plans when their private managed care plan raised premiums, cut benefits or withdrew from Medicare altogether.

According to our studies of the insurance industry, Medigap health care premiums are expected to rise this year by an average 18%, following increases in 2000 of 10%-30%. Spending on prescription drug costs is expected to rise by about 21% in 2001 after an increase of about 18.4% in 2000. The average senior spends $3,142 a year in out-of-pocket health care costs. Those in poor health and with no supplemental insurance must spend even more-$4,478.

Nationally, about one third of all Medicare recipients have some prescription drug coverage, but approximately 44% of TSCL members report that they have no prescription drug coverage.

How We Should Proceed

Currently, the debate over reforming Medicare and adding prescription drug coverage has centered on the following three approaches:

Adding a universal prescription drug benefit to traditional fee-for-service Medicare and Medicare+Choice plans now, and reform the program later.
Providing temporary block grants to the states for prescription drug assistance for low-income Medicare recipients until the program can be reformed.
Offering a universal prescription drug benefit within the context of a overall Medicare reform. This would include a Federal Employee Health Benefit Plan `premium-support` model in which a fee-for-service Medicare program would compete for business, along with private plans.

TSCL favors adding a voluntary universal prescription benefit now, with some modernization. More extensive reform could be implemented slowly and incrementally. TSCL feels temporary block- grants to the states are only a stop-gap measure that would take too much time to implement to be effective. To-date, only 22 out of 50 states already have prescription drug plans. States without the programs would have to go through the legislative process of setting one up and by that time the four-year funding would be over. Statistics show that a large majority of seniors who are eligible for such programs do not receive the help to which they are entitled, some, because they don`t know it exists-others because they don`t want to feel they must accept welfare.

On the other hand, Medicare reforms should not be rushed. In 1997 Congress and President Clinton passed the most sweeping reforms since the Medicare program was enacted. Those reforms led to the unintended consequences of widespread nursing home bankruptcies, severe cut-backs in home health services, and more than 1,634,000 Medicare managed care patients being forced out of their Health Maintenance Organizations (HMOs)-all of which translated to higher out-of-pocket costs for beneficiaries.

Regardless of what features a reformed Medicare takes, however, prescription drugs will be part of it. Therefore, adding the benefit now would be the critical first step. TSCL feels that the following criteria are essential to designing a prescription drug benefit. A prescription drug benefit should be:

Universal- Medicare serves 40 million Americans. The benefit package is universal, and therefore any new benefits must also be universal, not just offered to one group, or in one region of the country.
Voluntary-Medicare recipients who are happy with their current prescription drug coverage should not be forced to give up. In like manner, the government should not create perverse incentives for employers to REDUCE retiree health care and prescription drug benefits, but should give incentives for retention of benefit plans.
Provides choice-Although much attention is given to reforming Medicare along the lines of private managed care and the Federal Employee Health Benefit Plan, it has not been proven that either model saves the government money. The majority of Medicare recipients continue to receive their care through traditional fee-for-service Medicare. Medicare recipients should have the freedom to remain in the type of health care plan of their choice.
Affordable-Driven by rising prescription drug costs, many health plans are reducing prescription drug benefits. Prescription drug coverage is increasingly an option available only to higher income retirees or those on Medicaid. TSCL favors prescription drug plans that provide full support to seniors below 135 percent of the poverty line. In addition, TSCL supports plans priced so that middle income seniors, (individuals with incomes of $15,000 to $20,000) can afford to purchase coverage. A plan that is so expensive that no senior will purchase it is no protection at all.
Guarantees a standard basic drug benefit-Seniors need a reliable basic benefit. Such coverage should include an affordable deductible, fair and reasonable cost-sharing arrangements, and catastrophic coverage for those with large drug costs. Medicare recipients should not be forced to comb through the fine print of marketing materials to ensure their plan actually covers their needs.
Provides greater cost efficiencies-Modern drug coverage plans use private pharmacy benefit mangers (PBMs) to negotiate lower prices and administer drug plans. In like manner, such PBMs can help Medicare contain costs either under a traditional or modernized program. TSCL also believes that greater use of generics, alternative treatments, and improved the management of prescription drug therapies to reduce over-medication and dangerous drug interactions would lead to better health care out-comes at lower cost.

How Will We Pay For A Prescription Drug Benefit?

TSCL thanks President Bush and the members of Congress from both parties who have promised to provide prescription drug benefits and protect Medicare. While our nation still has the finances to do so, we urge Congress not only to set aside the $400 billion of surplus in the Medicare lock box, we also urge Congress to set aside an additional amount to finance a new prescription drug benefit.

This is important because Medicare is financed to two parts. Hospital costs (Part A) are financed out of Medicare payroll taxes. This is the lock box surplus. Part B Medicare, however, is financed 75 % from the general revenues (the non-trust fund surplus) and 25% from premiums paid by Medicare recipients. Part B currently represents about 40% of total Medicare expenditures and is growing faster than Part expenditures. A new prescription drug benefit will add new costs. TSCL therefore urges Congress to set aside a reasonable portion of the budget surplus from the general revenues PRIOR to enacting a tax cut in order to shore up Medicare Part B and to pay for a prescription drug benefit.

TSCL further believes that Congress should consider that U.S. taxpayers, through taxpayer-subsidized research, are `co-investors` with the pharmaceutical companies that have profited financially from drug patents. We therefore feel it appropriate to consider measures that would more equitably `share the profits` of tax-payer-subsidized research with Americans most in need of the product-Medicare recipients.

We are honored for this opportunity and thank you again for your leadership.

TSCL appreciates all efforts of the Bush Administration and Congress. We look forward to working together to find solutions that would best benefit all older Americans.

TSCL is registered as a 501(c)(4) citizens action organization. Open to anyone concerned about protecting earned benefits, TSCL is registered to conduct grass roots lobbying, public education, and fundraising activities in nearly every state. No government moneys are accepted or utilized by TSCL.