Medicare Modernization and Prescription Drug Act of 2002

The bill ordered reported from this Committee solely by a vote of its Republican Members falls far short of what is needed to provide meaningful prescription drug coverage to the Nation’s 40 million senior citizens and individuals with disabilities who depend on Medicare. The Congressional Budget Office estimates that drug spending on behalf of beneficiaries will total $1.6 trillion during the time the Republican drug benefit is in effect. Yet the $310 billion Committee-passed bill covers only 19% of the anticipated spending during that time period. This means that most Medicare beneficiaries will continue to pay far more for prescription drugs than they can afford.

Republicans claimed in Committee that they could not afford to do more and criticized the Democratic substitute for its cost. A prescription drug benefit, however, that adequately meets beneficiaries’ needs is achievable; it is only a matter of priorities. Senior citizens were not a priority for Republicans last year; almost half of all elderly households received absolutely no benefit from the $1.7 trillion tax cut package. Now this year, they are unwilling to devote even half of what they spent on tax cuts to provide meaningful prescription drug coverage for seniors. In 2012 alone, the tax cut would cost $229 billion -- more than three times the amount that Republicans are willing to dedicate to prescription drugs in that year.

H.R. 4984 lays the groundwork for the Republicans’ ultimate goal to privatize Medicare. Beneficiaries will not have the option to receive drug coverage through the Medicare program, but instead will have to enroll in a private insurance plan. Private insurance plans will make decisions about beneficiary co-insurance, and premiums as well as which drugs are included in the plan formulary.

In short, the Republican majority has chosen to push for a complex plan that puts the interests of HMOs and the drug industry ahead of the interests of beneficiaries.

Its key flaws are:

1. INADEQUATE BENEFIT

• Pay more and get less. For most seniors in the Republican plan, the more you spend, the less coverage you get. The design of the Committee bill forces the elderly to pay a higher percentage of costs as their needs increase. Once the initial $250 deductible is met, beneficiaries have to pay 20% of the cost until there has been $1,000 in drug spending. Then the co-payment increases to 50% for spending between $1,000 and $2,000. And then the beneficiary has to pay 100% after $2,000 in drug spending. Beneficiaries are forced to pay all of their drug costs for spending between $2,000 and $4,800, while continuing to pay premiums. (NOTE: The Republican $3,700 out-of-pocket cap translates into $4,800 in total drug spending.)

• Coverage Stops Mid-Year. Nearly 50% of Medicare beneficiaries will get no drug coverage for part of the year under the Republican bill. An elderly woman who spends $400 per month on drugs would receive no coverage after May -- yet she would still have to pay premiums for a full year. A disabled man who spent $200 per month on drugs would not have coverage begin until February and would see his coverage end in October. This falls far short of what seniors get today in Medicare and short of what we get as Members of Congress under our health plan.

2. NO GUARANTEED DRUG BENEFIT -- NO PREDICTABLE COSTS

• No guaranteed premium. Insurers determine what premium beneficiaries will pay. While Republicans claim that the premium will be $35, which is 40% higher than the premium in the Democratic plan, there is nothing in the legislation to support that claim. In fact, there are no limits or guidelines regarding the setting of the premium. This is a dramatic change from Medicare today where Part B premiums are set in statute as a percentage of program costs. Under the Republican proposal, premiums will vary by plan and place.

• No standard benefit. The benefits outlined in the Republican bill are merely suggestions. Private plans can vary the deductible and co-insurance as well as the premium in both the "standard coverage" option and in the "alternative coverage" option. In fact, there is not even a requirement in the Republican legislation that any plan offer the "standard" benefit package. This is an invitation for plans to design benefits that "cherry pick" low-cost, healthy enrollees. It is also a recipe for beneficiary confusion. This model represents a retreat from the Medigap reforms of the early 1990s that standardized benefits, thus ensuring that plans compete on price and quality and not prey on consumer confusion. Finally, there is nothing in the bill that would ensure beneficiaries can depend on the plans remaining in their area or providing the same benefits from year-to-year. This invites the annual chaos that Congress has witnessed with the Medicare+Choice program in recent years.

• Not a real entitlement. The benefit outlined in the bill is not a true Medicare entitlement. Under Medicare today, beneficiaries are entitled to a set of benefits defined in law, regardless of where they live or what it costs to deliver the benefits. For example, beneficiaries in Milwaukee and Miami pay a $100 deductible for Part B and 20% co-insurance for Part B services. Beneficiaries in Bakersfield and Boston are guaranteed the same coverage for hospital care and home health services. Under the Republican plan, there is no such entitlement.

• Limits access to specific drugs and pharmacies. Under the bill, private plans can refuse to cover needed medications. The private plans decide what specific drugs are on their formulary and whether to provide any coverage for non-formulary drugs. Plans are not required to disclose the formulary to prospective enrollees, and plans are allowed to change the formulary during the year with "adequate" notice. Private plans also pick and choose which pharmacies are in their network; there is no requirement that all pharmacies that meet the standards be allowed to participate. This means that senior citizens could have to stop going to the pharmacy that has been serving their needs for decades unless they purchase a separate point-of-service insurance plan with higher premiums and cost-sharing. And, because the Republican plan uses the Medicare+Choice enrollment procedures, beneficiaries will be locked into the private plan for the entire year -- even if the plan drops a needed drug or local pharmacy.

• Encourages Erosion of Employer-Sponsored Coverage. The bill strictly limits the dollars that count toward the out-of-pocket cap by specifying that only costs which are paid by the individual and are "not reimbursed (through insurance or otherwise) by another person" count toward the out-of-pocket limit. In other words, if a beneficiary receives any assistance -- other than low-income assistance -- with his or her drug costs, those costs do not count toward the $3,700 limit. The bill was amended to clarify that beneficiaries would not be penalized if they received assistance from family members with the cost of their drugs; however, the definition of "true" out-of-pocket costs puts employers, unions, and others who provide retiree coverage in a bind. Employers would be forced to drop or cap coverage for retirees to wrap-around the Medicare drug benefit, because each dollar spent would not be counted toward catastrophic coverage. Retirees would lose a valuable benefit that many employers provide today.

3. INADEQUATE INVESTMENT FOR PRESCRIPTION DRUGS

• H.R. 4984 covers less than 20% of seniors’ drug costs over the next ten years. This is the exact opposite of the coverage seniors receive in Medicare Part B today where Medicare covers 80% of the cost of services. Congress needs to act to make senior citizens a priority on the agenda. If seniors are truly a priority, there is no excuse not to provide a comprehensive prescription drug benefit that meets seniors’ needs.

4. Privatizes Medicare

• No alternative but private insurance plans. The Republican plan forces Medicare into private insurance plans in order to get prescription drugs. There is no option under the Republican bill for a senior to have Medicare provide coverage for their drugs like it provides coverage for doctor visits, hospital care, or other health services today. The bill vests private insurance companies with the power to determine what benefits get offered and for how much. This is dramatically different from Medicare today, where senior citizens and individuals with disabilities are guaranteed affordable health care.

• Flawed private-market model. The Republican plan relies on a model that is largely untested. The State of Nevada experimented with private drug-only insurance plans for low-income elderly and found that even with state subsidies, the $85 premium was beyond the reach of seniors. Drugs commonly used by seniors were excluded from plan formularies. Multiple benefit offerings were confusing to beneficiaries. Relying on a private insurance system will increase the costs to the beneficiary and the government due to the additional expenses related to product development, marketing, administration, and profit. Developing a new private insurance product market would be difficult in sparsely populated rural areas, where the need is greatest, risk pools are smaller and costs often higher. Rather than use Medicare beneficiaries as guinea pigs, we should build on the Medicare model that we know works.

By rejecting the Democratic substitute, the Committee missed its opportunity to provide an affordable, comprehensive prescription drug benefit under Medicare. We urge the House to take a different position and pass the Democratic alternative.

Our plan is an entitlement that would guarantee all beneficiaries the option to purchase affordable, dependable, comprehensive prescription drug coverage at a uniform price. The program would be administered and managed through pharmacy contractors, much like carriers and fiscal intermediaries do for the rest of Medicare today. Starting in 2005, under our plan, beneficiaries would pay a $25 monthly premium, $100 annual deductible and not more than 20% co-insurance until they spend $2,000. After $2,000, the government would pay 100% of the drug costs.

Low-income beneficiaries receive additional assistance under our proposal. Those with incomes up to 150% of poverty ($13,290 for one person) will pay nothing. Those with incomes between 150-175% of poverty ($13,290 - $15,505 for a single person) will not pay any cost-sharing but will pay premiums on a sliding scale.

The Democratic substitute also substantially reduces the soaring costs that seniors currently pay for prescription drugs. Under our plan, the Secretary would leverage the collective bargaining power of 40 million beneficiaries to negotiate with manufacturers for lower drug prices. Secretary Thompson recently demonstrated the effectiveness of similar bargaining power when he negotiated an 80% discount off the list price of the antibiotic Cipro during the anthrax scare last year. Pharmacy contractors would also negotiate additional savings. The savings from these negotiations would be required to be directly passed on to beneficiaries through lower prices. Pharmacy contractors would be held accountable for achieving promised discounts for beneficiaries.

The Democratic substitute guarantees senior citizens and those with disabilities the choices that matter -- choice of drugs and choice of pharmacy. Under our plan, Medicare would pay toward the cost of every prescription drug. The Democratic substitute also assures access to pharmacies by prohibiting pharmacy contractors from refusing to contract with a pharmacy that agreed to meet its standards. These are the choices people want and need.

Most importantly, unlike the Republican plan, our plan will never force seniors into an HMO or similar private plan in order to get a prescription drug benefit.

John D. Dingell
Sherrod Brown
Henry A. Waxman
Rick Boucher
Edolphus Towns
Gene Green
Frank Pallone, Jr.
Mike Doyle
Karen McCarthy
Tom Barrett
Chris John
Bobby L. Rush
Ted Strickland
Anna G. Eshoo
Lois Capps
Peter Deutsch
Eliot L. Engel
Bart Stupak
Tom Sawyer
Diana DeGette
Bart Gordon