Issue Brief

August 2002

Prescription Drugs for Seniors   

What has Congress done? 

What has Congress not done?

"Both parties and both houses have covered their derrieres, even though nothing got done."  Larry Sabato, Director of the University of Virginia's Center for Politics. 

Introduction   

Congress started its August break this year with a continuing deadlock over a prescription drug benefit program in Medicare. Although the above quote may be cynical, there is more than a little truth in it.

Why is it so difficult to pass a prescription drug benefit for Medicare beneficiaries when so much of the country believes it needs to be done? What has been done so far, what is in process, and what is likely to happen before the end of this session? These are the questions that this issue brief will try to address.

Background  

Before going into the current state of deliberations on this matter, it would be useful to review some of the history of the Medicare program to see how we got where we are today.

When Medicare's legislation was originally passed in 1965, President Lyndon Johnson said, "No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime."

For the most part, this has been true. For more than 30 years, Medicare has provided affordable health insurance for the nation’s elderly. It has done so for almost all seniors without dividing the healthy from the sick and the poor from the better off.

When Medicare was initiated, prescription drugs accounted for a small portion of health care costs for the elderly. Overall in 1968 prescription drug expenses not covered by Medicare amounted to 2.4% of beneficiaries' income. By 1998, uncovered prescription drug costs had risen to 4.1% of beneficiaries' income. Since 35% of Medicare beneficiaries have no drug coverage of any kind, this has become an increasingly difficult problem. In 1965, however, most people's problem was the large cost of doctors' bills and hospitalization as that was the standard treatment for many of the illnesses of the elderly.

In 1969, a task force was created to study providing a drug benefit for beneficiaries in the new Medicare program. This task force believed Medicare should contain a drug benefit, but its views were not implemented because of concerns about cost, industry opposition, and congressional inaction. In 1972, the Social Security Act amendments again generated renewed interest in a drug benefit and again the idea didn't take hold.  Throughout the 1970s, 80s, and 90s there have been recurring pressures to add an outpatient prescription drug benefit to Medicare. In 1988 Congress went so far as to enact a prescription drug benefit in the Medicare Catastrophic Coverage Act but had to repeal it a year later in the face of angry opposition from seniors who objected to a tax contained within the package that financed its costs. And in 1994 the Clinton Administration proposed a Medicare prescription drug benefit within the Health Security Act, but that legislation was never passed. 

As the above overview shows, the idea of a drug benefit in Medicare is not new; encountering problems designing one that is politically acceptable enough to actually get implemented is also not new.

The Philosophical Divide

American political life has always been a balancing act between two competing strains of thought. On the one hand there is a strong view in this society that we should rely on private markets to solve most problems and the role of government should be very limited. On the other hand there is a strong sense of collective responsibility for people who are unable to care for themselves either because they are victims of a disaster, disabled, very young, or very old.  In these situations Americans believe the government has an important role to play, a classic example being the provision of government help during major storms or other disasters.

The tension between those who want to rely on the private sector and those who want a stronger government role is one of the reasons developing a Medicare drug benefit has been so difficult. 

When Medicare passed in 1965, the country was responding to alarming evidence that older Americans were not getting the health care they needed. At that time there was strong support for a government program to help ensure that all seniors could have good quality health care. Since that time, there has been a sharp increase in opposition to government programs. That reality is clearly evident in this year's struggles to deal with a Medicare prescription drug benefit.

Even though prescription drugs have become a critical part of modern health care and are increasingly used in place of surgery and hospitalization, there is a strong concern on the part of many about expanding Medicare because these costs are so unpredictable.  Because there is also widespread support in the electorate for helping vulnerable, needy seniors, those who oppose expanding Medicare want to provide a limited drug benefit through the private sector. The fundamental conflict in Congress has become a struggle between those who want to expand the traditional Medicare program to include an outpatient prescription drug benefit and those who want to run any new prescription drug benefit through the private sector.

The Proposals and Where They Stand

At present there is one bill that has passed in the House and three separate proposals that have all failed in the Senate. There was also a Democratic proposal in the House, but the Republican majority would not allow it to be voted on so it is not clear how much support it might have garnered.

Although the major stumbling block in passing this legislation relates to different philosophies, there are also serious problems with the cost of the proposals. The President provided $190 billion over the next ten years in his budget for this purpose. Experts agree this is not enough to do the job, and the House quickly raised that amount in its budget resolution to $350 billion. 

The Senate has not yet passed a budget resolution for fiscal year 2003. Rather, it is relying on a committee-passed budget resolution that contains $500 billion for Medicare prescription drugs. The resolution also notes that this number can go higher if the package contains additional resources to pay the excess cost.

Because the Senate has difficult rules for spending outside a budget package, all of its Medicare proposals require 60 votes to pass rather than a simple majority of 51 votes.  This is why some of the bills that were voted on in July received a majority of votes but did not pass. 

Although there are five full bills—Republican and Democratic packages in the House, Republican, Democratic and a Tripartisan package in the Senate—for practical purposes this brief will only compare three proposals:

• the House-passed Republican Plan (H.R. 4954)

• the Senate Democratic Plan (S. 2625)

• the Senate Tripartisan Plan (S. 2729)

The two bills we are not examining in this issue brief are:

• The House Democratic Plan (H.R. 5019), which was not allowed to receive a vote on the House floor. There was no cost estimate done on it, and it is not possible to gauge the level of support it had.

• The Senate Republican bill, the Hagel Plan (S. 2736), which is a different type of proposal. It is primarily catastrophic coverage with a drug discount card proposal attached. It is estimated to cost $150 billion over the next twelve years. The drug discount card proposal would help groups of seniors negotiate for lower prices from prescription drug makers in a similar manner to a plan President Bush proposed last year. The President's plan was blocked by the courts. 

Following is a brief overview of the similarities and differences among the House Republican Plan, the Senate Democratic Plan and the Tripartisan Plan.

Major Similarities

• All the plans are voluntary. No senior would have to sign up for a drug benefit if he or she didn't want it.

• All plans would be implemented by January 1, 2005

• All plans have a monthly premium although the amount varies from $24 to $33 among the plans.

• All plans have low-income subsidies. Although the income thresholds vary, all the plans contain full premium subsidies for very low-income people and sliding scale subsidies for low-income people as they move up the income scale.

• All plans have a catastrophic provision, but the out-of-pocket expenditures required to hit the "stop-loss" threshold vary from plan to plan.

Major Differences

• The bills differ significantly in cost with the Senate Democratic plan being the richest at $594 billion over the next ten years, the Senate Tripartisan plan more modest at $370 billion over the next ten years, and the House Plan the leanest at $309 billion over the next ten years.

• Deductibles vary from $250 in the Tripartisan and House plan to nothing in the Senate Democratic Plan.

• There is an asset test of $4000 for individuals and $6000 for couples in the Tripartisan and House plans but no asset test in the Senate Democratic plan.

• The bills differ significantly in structure. The Senate Democratic plan sets up a new benefit as an integral part of Medicare and administers it by CMS like the other parts of Medicare today. The House plan sets up a new benefit but has it delivered by competing insurers. Under this proposal, Medicare would pay subsidies to private insurance companies to offer prescription coverage and it would be administered by a new agency in the Department of Health and Human Services. The Senate Tripartisan Package is similar to the House plan in its structure.

For people who need more technical information there is a thorough, detailed comparison of these bills as well as the two bills not discussed here on the Kaiser Foundation web site at www.kkf.org.

For more background on the arguments made by industry and others see: "Prescription Drug Benefit for Seniors", NIHP Newsletter, September 2000, at www.nihp.org.

Conclusion

Analysts can argue and reasonable people can disagree on the appropriate level of spending and subsidies for this type of program, but it is the structural difference between the House Republican plan and the Senate Democratic plan that reflects profound philosophical disagreements. The cost to beneficiaries, the level of catastrophic protection, the types of drugs covered, and the levels of subsidies are all "mechanical" problems that can be worked out in a political process.

The basic question of whether the government should provide an entitlement directly to seniors in the same manner as other Medicare benefits, or whether it should subsidize insurance companies to offer new prescription drug packages to Medicare beneficiaries is more difficult. Those who want to add a drug benefit to the traditional Medicare program and treat it as a part of the total Medicare package see the government as the best provider of this service. These people argue that the government has done a good job of holding down costs while at the same time ensuring high quality health care for seniors.

Those who want to run a new prescription drug program through the private insurance industry believe the government is not the best provider of this service and want to insert private sector competition into the program. They believe this will reduce the long-term costs of the program and make seniors more careful in their use of costly prescription drugs. Their opponents believe this will leave vulnerable seniors exposed to too much risk and many of them argue that this is a ruse to dismantle the entire Medicare program.

These structural differences reflect a profound difference in view that does not easily lend itself to compromise.

The Senate leadership has said it plans on trying again to pass a prescription drug benefit bill before this session is over. But the profound difference of opinion about the fundamental nature of the program may prove intractable and may not be resolvable without a clear sense of direction from the American electorate.

Sources

Antos, Joseph R. 2002. Medicare Financing and Prescription Drugs, Testimony before Committee on the Budget, US House of Representatives, Washington, DC, May 8, 2002.

Budget of the United States Government for Fiscal Year 2003, US Government Printing Office, Washington, DC, 20002.

Brummett, John. 2002. “Waiting For Boomers To Get Old And Sick,” Las Vegas Review - Journal, Las Vegas, NV, August 4, 2002.

Chapman, Steve. 2002. “Gridlock Is Good On Drug Benefit,” The Sun, Baltimore, MD, August 6, 2002.

Dewar, Helen and Goldstein, Amy. 2002. “Senate Divided Over Rival Plans For Prescription Drug Coverage,” The Washington Post, Washington, DC, July 17, 2002.

Dewar, Helen. 2002. “Democrats Defeat Second GOP Drug Plan,” The Washington Post, Washington, DC, July 25, 2002.

Dewar, Helen and Goldstein, Amy. 2002. “Drug Plan for Seniors Defeated,” The Washington Post, Washington, DC, August 1, 2002.

Feder, Judith and Lambrew, Jeanne M. 2002. Affordability of Medicare and a Prescription Drug Benefit, Testimony before Committee on the Budget, US House of Representatives, Washington, DC, May 8, 2002.

Fuller, Craig. 2002. Testimony on behalf of the National Association of Chain Drug Stores before the Health Subcommittee of the Committee on Energy and Commerce, US House of Representatives, Washington, DC, April, 17, 2002.

Hillerby, Michael. 2002. Testimony before the Health Subcommittee of the Committee on Energy and Commerce, US House of Representatives, Washington, DC, April 17, 2002.

Kinsley, Michael. 2002. “Any Future Drug Bill Should Keep It Simple,” Newsday, Long Island, NY, August 6, 2002.

Kratz, Vikki. 2002.  “Lobbies Force A Bitter Pill/ The drug industry has a lock on Congress, and most of us don't realize how bad Medicare is,” Newsday, Long Island, NY, August 4, 2002.

Lambrew. Jeanne. 2002. Testimony before the Health Subcommittee of the Committee on Energy and Commerce, US House of Representatives, Washington, DC, April 17, 2002.

Lueck, Sarah. 2002. “Senior Drug Plan Hits the Campaign Trail,” The Wall Street Journal, New York, NY, August 12, 2002.

McCellan, Mark. 2002. Testimony on behalf of the President's Council of Economic Advisors, before the Health Subcommittee of the Committee on Energy and Commerce, US House of Representatives, Washington, DC, April 17, 2002.

Miller, Tom. 2002. The Medicare Drug Benefit War, Cato Institute, Washington, DC, July 22, 2002.

Moon, Marilyn.2002.  “Finding a formula for Medicare Drug Benefits,”   New York Times, New York, NY, July 29, 2002.

Pear, Robert. 2002.  “Senate Begins Debate on Rival Medicare Prescription Plans,” The New York Times, New York, NY, July 16, 2002.

Pear, Robert. 2002. “Two Parties Plans on Prescriptions Falter in Senate,” The New  York Times, New York, NY, July 24, 2002.

Pear, Robert. 2002. “Big Senate Vote on Medicare Drug Benefits Is Set for Today,” The New York Times, New, NY, July 31, 2002.

Pharmacy Benefits:  New Concepts in Plan Design, National Health Policy Forum Issue Brief Number 772, George Washington University, Washington, DC, March 8,2002.

Pharmacy Benefit Managers:  A Model for Medicare?  National Health Policy Forum Issue Brief, George Washington University, Washington, DC, July 9, 2001.

Prescription Drug Coverage for Medicare Beneficiaries:  A Side-by-Side Comparison of Selected Proposal, Prepared by Health Policy Alternatives, Inc. for the Henry J. Kaiser Family Foundation, July 2002.

Seniors and Prescription Drugs, Findings from a 2001 Survey of Seniors in Eight States, The Henry J. Kaiser Family Foundation, The Commonwealth Fund, and Tufts New England Medical Center, July 2002.

State Based Pharmaceutical Assistance Programs:  Temporary Fix or Lessons for Medicare?  National Health Policy Forum Issue Brief, George Washington University, Washington, DC, April 25, 2001.

Strongin, Robin J. 1999. Providing Outpatient Prescription Drugs through Medicare:  Can We Afford To? Can We Afford Not To?  National Health Policy Forum, George Washington University, Washington DC, March, 1999. 

Zimmerman, Ann. 2002. “Drugstores to Boost Seniors Plan After Senate Rejects Legislation,” The Wall Street Journal, New York, NY, August 2, 2002.

NOTE: This Issue Brief was written by Eileen Baumgartner, NIHP Senior Researcher and former Democratic Staff Director of the House Budget Committee. 

The NIHP publishes the Issue Brief monthly.