March 13, 2000

The need for an affordable, accessible prescription drug benefit for all Medicare beneficiaries is underscored by a General Accounting Office (GAO) analysis I am releasing today. The GAO found that premiums for private Medigap insurance with drug coverage are extremely expensive, especially for the oldest seniors. These findings will be highlighted by the President and Congressman Gephardt today in Cleveland.

Some Congressional Republicans have proposed solving the prescription drug problem by expanding private Medigap insurance and through tax breaks -- rather than creating a voluntary Medicare prescription drug benefit. But such policies would disproportionately benefit high-income seniors and would still leave millions of middle-income seniors without a dependable, affordable option. And because they do not promote group purchasing, these approaches cannot leverage price reductions for seniors.

The GAO information shows that it costs an average of $164 per month for a 65-year old to buy a Medigap plan that pays for prescription drugs and lower cost sharing (seniors cannot buy insurance for prescription drugs alone). Premiums range from $107 to $249.

• In most states, Medigap for an 80-year old costs 33 percent more than the same coverage for a 65-year old. In all but 12 states, Medigap insurers can charge premiums based on age. As a result of "age-attained rating," younger seniors, who are healthier and wealthier, sign up for coverage but get priced out of Medigap as they age – and just as they need coverage most. The average premium for Medigap with prescription drug coverage is $217 per month for an 80-year old – 33 percent more than the same coverage for a 65-year old.
  
• The extra amount for a plan with prescription drugs is high. A 65-year old beneficiary pays nearly $60 more a month for a Medigap plan with prescription drugs than for one without drugs. In some states, the extra cost for the plan with drugs is higher than the value of the coverage itself ($1,250 per year).

These high premiums help explain why only about 10 percent of beneficiaries get prescription drugs through Medigap – and why almost half of these all Medigap enrollees do not keep it for the entire year.

Moreover, it reinforces concerns about proposals to use Medigap to cover seniors without drug coverage. The health insurance industry itself, at a Commerce Committee hearing, testified that the likelihood of attracting sicker beneficiaries in this type of option would force them to charge excessively high premiums or not participate at all.