After four years of debate, Medicare legislation is finally on the fast track. A bipartisan group of Senators led by Sens. Charles Grassley (R-IA), Max Baucus (D-MT), John Breaux (D-LA), Jim Jeffords (I-VT), Bill Frist (R-TN), and Ted Kennedy (D-MA) apparently has broken the political gridlock over prescription drugs.
It's heartening that Congress at last seems determined to end the partisan posturing over prescription drugs and get something done. But the plans taking shape in both the Senate and the House have several grave defects which, if not corrected, could make the plans unworkable and add to the mounting fiscal crisis.
Badly targeted benefits. America's fiscal condition is deteriorating rapidly. Deficits of 3 percent to 4 percent of GDP (or more) could persist throughout the decade. Congress must not compound this problem by passing a prescription drug benefit that promises too much to too many. Rather than give a new benefit to affluent seniors, many of whom already have some drug coverage, the Progressive Policy Institute (PPI) believes that the priorities for a Medicare drug benefit should be low-income beneficiaries and those seniors who have the highest drug spending. Reps. Cal Dooley (D-CA), Ellen Tauscher (D-CA), Jim Davis (D-FL), and Ron Kind (D-WI) and 40 co-sponsors in the House recently introduced a bill (H.R. 1568) based on this targeted, fiscally responsible approach.
Exploding costs. Congress has set aside $400 billion over 10 years to pay for the new prescription drug benefit. But because Congress has chosen not to prioritize, seniors are expecting a comprehensive benefit package, and are likely to be disappointed. The "standard" benefit in both the House and Senate plans begins with an up-front deductible. After the deductible is reached, seniors' drug expenses would be covered (80 percent coverage in the House bill, 50 percent in the Senate bill). However, after seniors' drug spending reached a certain amount, the benefit would end -- this is the so-called "doughnut hole" where there would be no coverage. Then, both bills have "catastrophic" coverage (generally after seniors have paid $3,500 to $3,700 on drug purchases out of their own pockets). Although drug benefit plans would be allowed to vary their coverage somewhat, many seniors are likely to view their benefits as quite meager, especially after they tote up the premiums required. They will certainly put pressure on future Congresses to close the coverage gap and make the benefits more generous.
A badly designed drug benefit. Because it would be voluntary, the new drug benefit could suffer from "adverse selection;" that is, healthier people might choose not to pay the $35 monthly premium figuring they are unlikely to need the benefit. If only sicker seniors signed up for the program, the monthly premium would likely rise higher and higher, threatening the whole system.
The House and Senate bills also explicitly prohibit drug benefits paid by employer-based retiree plans from "counting" toward the catastrophic benefit promised to seniors. That will anger some seniors, who would therefore have little to gain from the new benefit. And it would induce some employers to just drop their coverage.
Obstacles to expanding choice. Six years ago, in the Balanced Budget Act of 1997, Congress attempted to induce millions more Medicare beneficiaries into HMOs and other private health plans. However, the opposite effect occurred. HMO enrollment, which had been skyrocketing, stopped growing and then began to shrink. The broad menu of optional private plans envisioned by the 1997 law never materialized. The problem was over-regulation and an inflexible reimbursement system.
This year's bills are likely to succeed in stabilizing Medicare's current HMO program. Both proposals would address the reimbursement and regulatory problems that have caused many HMOs to drop out of the program or scale back their benefits. The bills take needed steps toward putting private plans on the same financial
footing as Medicare's public fee-for-service health insurance plan.
However, the bills' reimbursement systems for new private plans -- including PPOs (Preferred Provider Organizations), such as many Blue Cross and Blue Shield plans -- may be too bureaucratic and rigid to attract significant new participation.
Weak focus on chronic illnesses. The House and Senate packages also fall short on the challenge to re-orient Medicare toward better care for seniors with chronic illnesses. A drug benefit is important for patients with chronic illnesses, but it is not enough. The proposed drug benefit is a stand-alone or isolated insurance product, with little potential for sparking coordinated care across all of the types of health services needed by patients with chronic illness: drugs, home-based monitoring and testing systems, family-oriented physician and nurses' care and other case management services, specialized hospital services, and so on. A new drug benefit must be part of a larger effort to focus Medicare on the central challenge of healthy aging -- preventing and treating chronic diseases.
PPI recommends the following changes:
1. Target new drug benefits to low-income beneficiaries and the sick who have high drug spending. This change would send a clear signal about the need to set priorities.
2. Reduce the premium for drug coverage. This will boost participation among healthy beneficiaries, which would make the system more stable.
3. Allow employer-based retiree coverage to "count" toward the bills' catastrophic drug coverage. This would kill the perverse incentive for employers to drop their retiree coverage.
4. Add an "extreme" catastrophic benefit for annual drug spending above $10,000 to the proposal's discount card program, which would be implemented prior to the main drug benefit, in 2004. (Several Republican members of the House Commerce Committee originally suggested the extreme catastrophic idea.) Even though few seniors would have drug spending high enough to be covered under an extreme catastrophic benefit, all seniors would get additional protections against adverse drug interactions that comes from tracking drug use, and Medicare would get the data it needs to target disease and case management programs for seniors with chronic illnesses. Seniors could still choose the regular drug benefit when it was ready to be implemented in 2006 or thereafter.
This provision would ensure that seniors immediately get the four things they need most out of a drug benefit: discounted prices, "peace of mind" catastrophic coverage, additional protections against harmful drug interactions, and extra assistance for those with low-incomes. Additionally, if the main benefit cannot be implemented on schedule in 2006 for fiscal, practical, or political reasons, seniors would at least have something.
5. Ensure that the important new PPO program would actually work. PPOs would offer seniors lower cost-sharing for health services provided by "in network" doctors and hospitals and allow them to go "out of network" to obtain services, provided they paid a higher level of coinsurance or met higher deductibles. However, the Senate bill's limit of three PPOs in a given region is arbitrary and could be counterproductive. Congress should allow PPOs just like other private plans to enter a region and create innovative delivery systems.
6. Make Medicare more accountable. The House bill takes a step in the right direction by creating regions throughout the country in which Medicare's administrators (CMS) would let disease management firms and other providers enroll patients in programs that offer new services such as care coordination and home monitoring devices designed for people with chronic illnesses. These sorts of programs can increase Medicare spending in the short-run, but they will save money over the years if they are well managed. The providers offering these new services would be held accountable through reports on their performance.
Congress should go one step further and hold CMS accountable, too, by requiring reports on its performance in each region. CMS should have additional flexibility to make budget neutral changes in payments to providers who care for patients with chronic illnesses. That way patients could receive better care from their own doctor without having to enroll in a special program. In addition, the budget neutrality rule should extend to Medicaid as the Senate bill permits under a chronic care demonstration program proposed by Sen. Blanche Lincoln (D-AR). For example, some nursing home costs paid under Medicaid could be eliminated if patients' health problems were better managed under Medicare.
Blueprint Keywords: Extra Chronic Care
