Altering The Great Society Prescription Drug Benefit Highlights Far-reaching Medicare Legislation

The landmark Medicare legislation passed by the U.S. Congress in November and signed into law by President Bush offers the nation’s 40 million Medicare recipients a prescription drug benefit while increasing payments to hospitals and doctors and opening the program to direct competition with HMOs.
But amid the celebration of the bill’s passage — a bipartisan effort that required significant votes from both sides of the political spectrum — questions remain about the effectiveness of the legislation and how much impact it will have on seniors who increasingly struggle with medical bills and health providers who struggle to stay in the black. In the end, 11 Democrats joined 42 Republicans and one independent in passing the law, 54 to 44.
This month, The Healthcare News takes a look at the many provisions of a law that promises to have far-reaching effects on the four-decade-old Medicare program. The debate on whether those effects will be positive or negative is likely to rage for some time, however.

Prescription for Change

The Medicare law, expected to cost $400 billion over its first decade and more than $1 trillion in the next, is highlighted by a sweeping drug benefit for the program’s 40 million beneficiaries — but one that has come under criticism for the way its coverage is implemented.

For starters, the actual benefit doesn’t kick in until 2006, although seniors may buy a prescription drug discount card in 2004 and 2005 that will provide savings of some 10{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 25{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, according to the U.S. Department of Health and Human Services (HHS). Beneficiaries with incomes below $12,123 ($16,362 for couples) will also receive an additional $600 per year for drug purchases.

Beginning in 2006, Medicare will pay for 75{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of annual prescription costs, up to $2,250. However, there is a coverage gap between $2,250 and $3,600. After spending reaches $3,600 out of pocket, the government then picks up 95{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of all drug costs.

Medicare will also provide additional assistance to low-income beneficiaries, who will not be charged the premiums or deductible, but would pay a $3 co-payment per brand-name prescription and $1 per generic drug. In addition, these individuals would not face any coverage gap after reaching the $2,250 spending threshold.
Private insurers will administer the benefit on a regional basis, while the government guarantees drug coverage in any region that lacks at least one standalone drug plan and one private health plan. Employees that offer equivalent drug coverage for retirees will receive tax-free subsidies.

However, the new law goes far beyond prescription drugs. Among some of the other changes to Medicare:

• Beginning in 2005, newly enrolled beneficiaries will be covered for an initial examination, and all beneficiaries will be covered for heart disease and diabetes screenings.
• The amount beneficiaries pay for outpatient care and doctor’s visits — now 25{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} — will increase on a sliding scale for people with incomes greater than $80,000, topping out at 80{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} for people with incomes greater than $200,000. Meanwhile, the annual deductible for outpatient care, currently fixed at $100, will rise to $110 in 2005 and increase annually thereafter.
• Beginning in 2010, Medicare will face direct price competition for patients from private plans in some metropolitan areas in which at least two private plans enroll at least 25{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of Medicare beneficiaries. The competition will last for six years.
• Beneficiaries who choose a private plan will have no lifetime limit for inpatient hospital care and will be protected against catastrophic hospital bills. The plans will also provide full coverage of preventive services.
• Hospitals will be able to avoid future cuts in payments by submitting quality data to the federal agency overseeing the Medicare program. Meanwhile, Medicaid payments will be increased to hospitals that serve a large number of disadvantaged patients.
The bill also established several provisions not specifically related to Medicare. Among them:
• People with high-deductible health insurance policies (at least $1,000 annually for single people and $2,000 for families) could shelter the income from taxes. Funds that are withdrawn from the accounts and not used for medical expenses would be assessed an additional 10{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} penalty.
• Prescription drugs may legally be imported from Canada, but only if the HHS certifies their safety and cost savings. Meanwhile, the ban on other drug imports will remain in effect.
• Generic drugs will have an easier time getting to market through a provision limiting the ability of pharmaceutical companies to block cheaper equivalents.

Continuing Debate

For Bush, passage of the law was a clear political victory, even while the effects of the legislation are not yet widely felt. “The Medicare system will be modern,” he said before signing the bill into law in November. “It will be strong.”

Others are not so sure, even though all agree that some overhaul in Medicare was necessary to keep the program from running out of money in the coming decades as the Baby Boomer generation enters retirement and Americans continue to live longer.

For instance, while the medical community cheers the elimination of two years of Medicare cuts to doctors, many worry that the extra spending over those two years will have to be recouped in 2006 and beyond — and unless the pay formula is revised, physicians can expect a sharp reduction in payments at that time.

“We need to come up with a formula that is fair to physicians and takes into consideration actual practice costs and fair reimbursement,” said Dr. Donald J. Palmisano, American Medical Association president.

House Minority Leader Tom Daschle, D-S.D., a harsh opponent of the new Medicare law, vowed to craft new legislation to repeal certain portions of it. “This isn’t the end of the debate,” he said after the law’s passage.

It certainly is not — especially when many aspects of the law don’t take effect for another two years. In that regard, a key issue for millions of older Americans and their families will remain a prominent concern for some time.