Consumers Union: Drug benefit price is too high

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Consumers Union
November 17, 2003

Medicare Prescription Drugs:
Conference Committee Agreement Asks Beneficiaries to Pay Too High a Price
For Modest Benefit
By Gail Shearer

Best features of the agreement:

• Provides meaningful prescription drug coverage for very low-income individuals with incomes below 150 percent of the federal poverty level, provided they can pass the bureaucratic hurdles and have very low assets.

• Provides prescription drug coverage through Medicare for those “dual eligibles” who are eligible for both Medicare and Medicaid (though many may face higher co-payments than they do now).

• Provides modest relief for the small percent of beneficiaries who have the highest (catastrophic) prescription drug needs (though they continue to face
  high out-of-pocket costs).

• Provides some relief for beneficiaries who now have no prescription drug coverage, or have high-priced medigap drug coverage, but relief will be modest and many will still face very high out-of-pocket costs.

Worst features of the agreement:

• Uses a model (and even explicit language) that precludes deep discounts
  for beneficiaries and assures that prescription drug expenditures will continue to spiral.

• The inadequate funding, failure to contain costs, and benefit design combine to mean that the benefit will be modest for most and skimpy for many; the benefit will not meet the public’s expectations for comprehensive coverage that is similar to what Members of Congress enjoy. Millions will face large out-of-pocket costs because of the large gap in coverage (the doughnut).

• Subjects about one quarter of Medicare beneficiaries in 2010 (possibly earlier) to pressure to leave traditional fee-for-service Medicare, where they have freedom to choose their own doctor, by forcing traditional Medicare to compete with private health plans that limit choice of doctor and can offer lower premiums because they cherry-pick the healthy.

(Private health plans’ reimbursement levels do not adequately reflect the better-than-average health status of their enrollees, boosting HMO profits.)

• Will create a crisis atmosphere in about 2010 when projections show that funding from general revenues will exceed (at a future date) 45 percent of
  Medicare spending: likely to lead to cutbacks in Medicare benefits, increased cost-sharing, and increased reliance on relatively regressive financing sources.

• Creates a new tax shelter that will benefit the wealthy, to create health
  savings accounts; unprecedented tax policy that will undermine the provision
  of comprehensive policies by employers, drive up premiums for those who want
  comprehensive coverage, and shift costs to people under 65 who have existing
  health conditions.

• The model is premised on reliance on private insurance plans and private health plans to provide coverage, continuing the practice of over-paying private companies (by failing to take into account the lower costs of their enrollees), guaranteeing that special interests will come to Congress to lobby for more money (and threatening to cut back coverage otherwise).

• State governments will not be able to attain the prescription drug discounts achieved under Medicaid, since dual eligibles will be in Medicare.

• Millions of dual eligibles (including nursing home residents) will face higher copayments than they pay today, and these co-payments will increase over time.

• Variation of actual “benefits” because of secret and private formularies used by the pharmaceutical benefit managers (PBM’s). Lists of covered drugs will vary from plan to plan and from region to region. Selection of drugs for the formularies need not be based on scientific evidence, but can be based on secret deals that are hidden from the public and regulators. PBM’s will have no accountability to the public or government and their business dealings will lack transparency. Conflicts-of-interests will cost taxpayers billions of dollars.

• Weak “federal fallback” provision means that beneficiaries in an area that
  lacks true private competition of drug-only plans (i.e., with just one drug-only plan and one “integrated plan”) will not be eligible for Medicare fallback coverage. No assurance that the premium for the drug-only plan will be anywhere near the $35/month estimate. In other words, if a region has one drug-only plan, charging $70 a month, and one preferred provider plan (PPO) that severely restricts one’s choice of doctor, there would be no federal fallback plan.

• The cutoff in eligibility for low-income subsidies is very low: an individual with income above $13,000 and a couple with income above $16,300 will be ineligible for the low-income subsidy (2002 federal poverty levels).

• Millions of people with comprehensive retiree drug coverage will lose this
  coverage, and will end up with a Medicare policy that is much less comprehensive. (Retiree coverage is typically comprehensive, without a “doughnut” in coverage; the proposed benefit structure, which does not count
  retiree plan payments toward the catastrophic level, is likely to lead many employers to drop their retiree coverage. The conference agreement’s additional subsidies for employers is unlikely to eliminate this problem.)

• May weaken the existing quality reporting standards for private health plans, hindering consumers’ ability to make informed decisions about private health plans and undermining the premise that choice of health plan is good for consumers.

• Results in continued profitability for the pharmaceutical industry (guaranteeing larger markets without governmental pressure to restrain prices) while asking nothing for the public good in return.

It is troubling indeed that the elements on the “best list” come with caveats that mean that the good things are not as good as they should be. It is nothing short of tragic that legislation that was meant to offer relief to Medicare beneficiaries comes laden down with so many provisions that will harm Medicare beneficiaries and even threaten Medicare’s long-term aviability.

Conclusion:

Medicare beneficiaries have waited for a long-time for relief from the financial burden of high prescription drug costs, and are desperate for some relief. When Congress set aside $400 billion (over ten years) to address the problem, we understood that whatever proposal emerged would be able to address only a fraction of the problem. Because the Conferees failed to adopt a plan that curbs prescription drug expenditures, and instead developed a model that relies on an insurance industry eager to see Medicare privatized while collecting more government subsidies, Consumers Union reluctantly concludes that, on balance, Medicare beneficiaries will be severely harmed by this proposal. We urge consumers to request their Representatives and Senators go back to the drawing board to enact legislation that meets the needs of seniors and the disabled, not legislation that is shaped by special interests.

For the full report:
http://www.consumersunion.org/1117%20medicare%20report%20final.pdf

Comment: Some politicians are concerned that a “filibuster against prescription drugs for seniors” is too great of a political price to pay for defeating this highly destructive legislation. Our task will be to make certain that the political price is paid by the true villains: those who refused to allow consideration of a bona fide prescription benefit and forced the necessity of resorting to a filibuster to protect what we already do have.