The prescription drug benefit for the elderly that Congress is rushing to pass might be seen as good political insurance by Democrats and Republicans, but for most of America’s seniors, the details of the plan show it is no great bargain.
Some analysts say many Medicare recipients may consider it too skimpy and decide not to enroll, holding politicians accountable for providing a meager benefit that will not take effect until 2006.
“I don’t think people are going to necessarily flock to this,” said John Rother, policy director at AARP, the 35 million-member organization representing Americans 50 and older.
“You could throw a party, and nobody would come.”
The numbers alone help explain a potential reluctance to take part. Senior citizens over the next 10 years are expected to pay $1.8 trillion overall for prescription drugs. Prescription drug legislation before Congress would pay for less than one-quarter of that, about $400billion.
The legislation has a long way to go, and it could change significantly before it lands on President Bush’s desk. But the version approved by the Senate Finance Committee last week, which is most likely to pass Congress, sets a hefty price just for enrolling in the drug plan, and signing up is voluntary.
Except for the low-income elderly, who would get substantial subsidies, seniors would pay an average of $35 a month in premiums and then would have to meet a $275 deductible before Medicare would put up a single penny toward the cost of a prescription drug.
That amounts to $695 a year.
“For a lot of seniors, that is going to be more money than they spend on prescription drugs right now,” said Karen Davis, president of the Commonwealth Fund, a New York-based health research organization.
About 35 percent of recipients would pay more for enrolling than they would receive in benefits, congressional budget officials estimate.
After seniors pay the first $275 out-of-pocket under the Senate plan, Medicare would pick up only half the cost of each prescription up to $4,500 a year. At that point, Medicare recipients would encounter what legislators call the “doughnut,” a major gap in coverage.
Under the plan, coverage would stop after an individual’s cost for medicines reaches $4,500 annually. Then, once the cost rises another $1,300 to a total of $5,800 annually, Medicare would take over again, covering 90 percent of the costs over that amount.
About 4.7 million of the 40 million Medicare recipients have annual prescription drug costs higher than $4,500 a year, budget analysts say. Of those, 2.9 million have costs higher than $5,800 a year and would be eligible for catastrophic prescription drug coverage.
“The benefit is rather skimpy and has a bizarre structure,” said Robert Reischauer, president of the Urban Institute. “It is an insurance structure that exists nowhere in the private sector or in nature. It is motivated by a desire to gain political support while saving money.”
Reischauer, a former head of the Congressional Budget Office, said he nonetheless believed most senior citizens would sign up.
While the new plan would on average cover about 25 percent of seniors’ costs, he said, “Twenty-five percent is better than nothing.”
Most elderly people would enroll in order to buy “peace of mind” in case of a catastrophic illness, Reischauer predicted.
Too complex, critic suggests
But Davis of the Commonwealth Fund said the legislation is unduly complicated and might give some seniors pause about enrolling.
When seniors now sign up for doctors’ coverage under Part B of Medicare, Davis noted, the premium is deducted from their Social Security checks. If they must take a few extra bureaucratic steps, she said, “They may not do it.”
Seniors under the Senate bill could sign up at any time for the benefit, but they would have to pay a penalty for delaying their enrollment, just as they do now under Part B.
A plan sponsored by the House Republican leadership is similar to the Senate proposal. It calls for an average $35 monthly premium, along with a $250 annual deductible. But unlike the Senate plan, the House version would cover 80 percent drug costs up to $2,000.
There also is a “doughnut” in the House bill.
After the first $2,000 in costs under the House bill, seniors would receive no prescription drug coverage until they spend $5,100 on medicine. Then, the House bill calls for paying 100 percent of drug costs.
Higher-income Americans–individuals who earn more than $60,000 and couples who bring in more than $120,000–would have to pay more out of pocket before receiving catastrophic coverage.
Under both versions, recipients would have the choice of getting medical coverage by staying in the government’s traditional Medicare program or enrolling in private health plans. In either case, they could sign up for the government-sponsored drug benefit.
Initially, Bush proposed to offer more generous prescription drug coverage for seniors who dropped out of the Medicare program in favor of private health-care plans. That proposal became so controversial that Bush abandoned it.
Supporters believe that injecting competition in the program will lower its costs. But some Republicans fear that the new government drug benefit will prompt private employers to drop their drug coverage, forcing the government to pick it up. And some Democrats worry that the partial privatization is the first step toward dismantling Medicare.
Beyond the prescription drug benefit, the Senate bill calls for other out-of-pocket costs for seniors in the traditional Medicare program. For example, the $100 Part B deductible that Medicare recipients must meet before receiving coverage for doctor bills would be increased to $125 in 2006, and then raised annually after that in line with inflation.
Bush has urged Congress to approve the prescription-drug benefit by July 4, a highly ambitious timetable. Both chambers are expected to take up their versions soon, requiring a joint House-Senate conference committee to reconcile differences.
But clearly there is a bandwagon in favor of the legislation. According to Reischauer, Bush and Republicans jumped aboard to avoid election-year Democratic criticism that the president’s “compassionate conservatism” agenda would ring hollow if they did not agree to the new benefit. He said Democrats supported the legislation to avoid being criticized as obstructionists.
Disappointment predicted
Davis said many seniors would be disappointed by the benefit.
“It is not going to solve their financial concerns,” she said. “A lot of them would still be paying out of pocket.”
And, she said, she is worried that private health plans would continually be joining and dropping out of the prescription-drug program, leaving seniors in the lurch, forcing seniors to go to another private health care plan or return to the traditional Medicare system for their coverage.
Rother said the AARP supports the legislation in Congress, chiefly because it is a good start toward providing a comprehensive prescription-drug benefit.
But the Concord Coalition, a watchdog organization concerned about the budget deficit, said the hospital trust fund under Medicare will begin to pay out more money than it takes in by 2013. Medicare is growing so fast that by 2035 it would double as a share of the economy, the coalition said.
Henry Aaron, a health policy expert at the Brookings Institution, said that by passing the drug benefit, Congress would be using up a potential sweetener for tougher reductions that will have to be made when Medicare is swamped by retirement of the Baby Boomers.
“We are eating dessert,” he said.
