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President Clinton Builds A Bridge To The Future For The Medicare Program Plan’s Funding, Prescription Drug Benefit Raise Questions

(RIVERWOODS, ILL. July 2, 1999) – President Clinton recently unveiled his plan to secure the financial health of the nation’s ailing Medicare program using 15 percent of the nearly $6 trillion federal budget surplus projected by the White House over the next fifteen years. The president’s plan would give the Medicare Trust Fund a 25-year lease on life, while creating significant program changes, including an unprecedented outpatient prescription drug benefit for Medicare’s 39 million seniors, according to CCH INCORPORATED, a leading provider of health care law information and publisher of the respected CCH Medicare and Medicaid Guide.

"As President Clinton looks to leave a Medicare reform legacy, his plan boldly attempts to build a bridge from 1965 to 2025 with a budget surplus projection spanning the next two decades," said Susan Hahn Reizner, JD, CCH health law analyst, attorney and editor of Monitor: The Newsletter of Managed Care.

There are questions already being raised, however, about the fiscal and political feasibility of the president’s plan, according to Hahn Reizner.

"One key question is if it’s fiscally practical to rely on a 15-year economic assumption not only to reinforce Medicare, but to catch up on 43 years of innovations in medical treatment," she noted. "Other big questions surround the prescription drug benefit – how it would be managed and what the affect of such a provision might be on the Medicare program and its beneficiaries."

As the debate begins on the president’s plan, CCH offers this summary analysis of the proposal and examines some of the issues that the Health Care Financing Administration (HCFA) and Congress will face as they consider bringing prescription drugs into the Medicare program.

Medicare Proposal Overview

Provisions for Seniors

• Get ready for Medicare "Part D." Under the plan, all Medicare seniors would be eligible for a new prescription drug benefit, estimated to cost $118 billion over 10 years starting in 2002. Clinton estimated that the additional monthly premium for the voluntary drug benefit would be half as much as the average premium for a Medigap supplemental policy, which provides insurance for gaps in Medicare coverage. Already, concerns have been raised about the new entitlement.

"A report released on the same day as the president’s Medicare plan underscores concerns about the potential costs of a new outpatient drug benefit," said Hahn Reizner. "The cost of prescription drug benefits in the private sector grew by a record-breaking 16.8 percent in 1998 – and this is just a sign of cost increases to come. Steady growth in drug benefit costs is projected to continue at the same pace for at least the next five years."

Beginning in 2002, Medicare would cover up to $1,000 of an annual maximum of $2,000 in drug costs, for a monthly premium of $24. By 2008, when the benefit is fully phased in, the monthly premium would increase to $44, with Medicare paying half of a maximum of $5,000 in annual drug costs, up to $2,500.

"Actuaries have expressed concern that a premium for the new prescription drug benefit would have to be at least as much as the current monthly Part B premium of $45.50 – considerably higher than the initial $24 premium proposed in Clinton’s plan – to keep pace with dramatically rising pharmaceutical costs," Hahn Reizner said.

The neediest Medicare seniors, those with incomes below 135 percent of the poverty level ($11,000 a year for a single senior, or $17,000 a year for a couple), would not pay premiums or share costs. Premium assistance also would be available for seniors with slightly higher incomes between 135 percent and 150 percent of the poverty level.

• The Competitive Defined Benefit. The Clinton plan would require Medicare managed care plans to offer the same core benefits, including new, subsidized prescription drug coverage, so Medicare seniors wouldn’t have to "compare apples and oranges," the president said. Under Clinton’s Competitive Defined Benefit (CDB), Medicare seniors who choose lower-cost Medicare managed care plans would get 75 cents of every dollar in savings resulting from careful plan shopping.

"There is a downside to the CDB, however," Hahn Reizner explained. "Seniors who choose a managed care plan that costs more than Medicare’s payment to that plan would have to pay the higher premium themselves."

• Modernizing the benefits. Clinton’s plan would eliminate Medicare deductibles for certain preventive care such as preventive screenings for cancer, diabetes and osteoporosis. To offset the costs of dropping these deductibles, Medicare beneficiaries would be asked to make a 20-percent copayment for other clinical laboratory services. The Part B deductible also would be indexed to inflation.

• The buy-in is back. The plan resurrects the president’s previous proposal to offer seniors between the ages of 62 and 65 the option of buying into Medicare for about $300 per month. These seniors would agree to make a risk-adjusted payment upon becoming eligible for traditional Medicare at age 65. Displaced workers between 55 and 62 years of age also would be allowed to buy into Medicare, but at a higher premium. Retirees whose former employers reneged on the promise of health benefits could access COBRA continuation coverage.

Provisions for Providers

• Deep discounts. Clinton’s plan calls for original, fee-for-service Medicare to begin using "best practice" purchasing and quality improvement tools that have been sharpened in private-sector managed care. Medicare spending would be kept in line and quality of care improved by coaxing seniors in original Medicare to seek medical care from providers who specialize in the treatment of certain complex medical conditions. These providers would offer Medicare substantial discounts based on doing a high volume of those kinds of procedures.

• Smoothing over budget cuts. Action would be taken to keep Medicare costs in check after 2003, when cost containment measures introduced in the Balanced Budget Act of 1997 expire. This action would take the form of "out-year" policies that would reduce average annual Medicare spending growth from 4.9 percent to 4.3 percent for each Medicare senior between 2002 and 2009. Acknowledging current debate about the potential of some the Act’s spending cuts to adversely affect health care providers’ ability to deliver quality care, Clinton proposed that a quality assurance fund be established, just in case. The Administration estimates that this set-aside would cost $7.5 billion over 10 years.

Provisions for Insurers

• Medigap reform. Looking to the National Association of Insurance Commissioners for guidance, President Clinton proposed adding a new, lower-cost Medigap supplemental policy. The Department of Health and Human Services would look into the feasibility of offering a "Medigap-like" plan within Medicare, and take steps to make it easier for Medicare seniors to compare Medigap policy options available to them. The initial six-month open enrollment period for Medigap would be expanded to include disabled individuals and those with end-stage renal disease. And, access to Medigap coverage would be made easier for Medicare seniors whose HMOs withdraw from Medicare.

Provisions for Employers

Clinton’s plan would offer employers a subsidy as an incentive to keep their retiree health benefits, as long as they provide prescription drug coverage at least as generous as the proposed Medicare outpatient drug benefit.

Drug Benefit Raises Questions; Do Health Plans/Employers Hold the Answers?

Employers and commercial health plans have learned from their experience that prescription drug benefits are expensive and challenging to manage. If prescription drug coverage is added to Medicare, it remains to be seen whether HCFA, which administers Medicare, will take to heart hard-learned lessons from employer-based health plans.

"Many commercial HMOs and employers ask their plan participants to pay the difference in cost when they choose more expensive, brand-name drugs over lower-cost generics. Ninety percent of the time, cost-conscious plan members will choose the lower-cost generic over a copayment," Hahn Reizner said. "But shifting costs to enrollees in commercial health plans still has been no match for escalating drug benefit costs."

Health plans and their sponsors have learned that good communication with plan participants about drug formularies, better understanding of coverage decisions and enrollee "buy-in" are crucial elements in managing expensive drug benefits.

"Studies have consistently shown, however, that despite HCFA’s best education efforts, there are serious shortcomings in Medicare beneficiaries’ understanding of their coverage options. Whether HCFA can successfully mount the kind of education initiative for Medicare beneficiaries that has been recognized as crucial in containing drug benefit costs in the private sector is questionable," said Hahn Reizner.

Chilling Effect?

A number of studies have shown that when employer-sponsored health plan members’ share of prescription benefit costs are too high, they stop taking the medicine they need.

"This lesson learned in the private sector, along with issues raised by actuaries, federal health officials and members of Congress about the premium proposed for the Medicare prescription drug benefit, raises concerns that even a ‘modest’ additional premium will have the same chilling effect on Medicare seniors," Hahn Reizner stated.

Regional Variations

Experts who track geographic patterns in prescription drug utilization have documented substantial regional variations across the country. Regional variations in physician practice styles and patient preferences show that where you live plays a major role in the drugs you are prescribed. Because of these variations, pharmacy benefit experts cite the need for regionally based strategies to effectively manage expensive prescription benefits.

"This need for regional oversight begs yet another question about the proposed Medicare prescription drug benefit," Hahn Reizner concludes. "At a time when rapidly escalating pharmaceutical costs demand prudent management, can already overburdened HCFA intermediaries and carriers effectively manage the drug benefit at the local level?"

About CCH INCORPORATED

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. For more than 50 years, the company has regularly tracked, reported, explained and analyzed health and entitlement law for health care providers, insurers, attorneys and consumers. CCH INCORPORATED is a wholly owned subsidiary of Wolters Kluwer U.S. The CCH website can be accessed at www.cch.com.

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