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Builds A Bridge To The Future For The Medicare Program Plans Funding, Prescription
Drug Benefit Raise Questions
(RIVERWOODS, ILL. July 2, 1999) President
Clinton recently unveiled his plan to secure the
financial health of the nations 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 presidents 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
Medicares 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
presidents plan, according to Hahn Reizner.
"One key question is if its 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 presidents 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
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
presidents 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
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
Clintons plan to keep pace with
dramatically rising pharmaceutical costs," Hahn
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 wouldnt have to
"compare apples and oranges," the
president said. Under Clintons 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 Medicares payment to that plan would have
to pay the higher premium themselves."
- Modernizing the benefits. Clintons
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 presidents 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
Provisions for Providers
- Deep discounts. Clintons 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 Acts
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
Clintons 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
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
"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 HCFAs 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.
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.
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
"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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