A Prescription for Killing Medicare

About the only thing in Washington in worse shape than Medicare is the National Bipartisan Commission on the Future of Medicare.

Commission Co-chair Sen. John Breaux (D-LA) fought valiantly to gain the support he needed to send a recommendation to the White House on how to reform the financially collapsing Medicare program. But because of President Clinton's partisan dumping of his own commission's work, he fell one vote short.

There were a number of new and controversial proposals being considered to gain a consensus. One of those controversial reforms would have required Medicare for the first time to cover outpatient prescription drugs.

When Medicare was created in 1965, members of Congress discussed including an outpatient prescription drug benefit. However, the idea was rejected because proponents wanted to keep the cost of the program low to increase its chances of passing, and there weren't that many expensive drugs anyway at that time.

Many people see the lack of drug coverage as a huge gap in seniors' health care coverage. They point to anecdotal but politically appealing stories of old people who have been financially devastated by the cost of outpatient prescription drugs. To redress this perceived problem, Sen. Olympia Snowe (R-Maine) has introduced legislation that would give Medicare a prescription drug benefit and pay for it by imposing a tax of 70 cents per pack on cigarettes.

I use the term "perceived" problem advisedly because seniors who don't have drug coverage have, in most cases, chosen not to have it.

Everyone who turns 65, and therefore becomes eligible for Medicare, can buy a supplemental policy that covers prescription drugs. In many cases, seniors don't have to buy a supplemental policy themselves because they get one from their employer when they retire. Many of those too poor to purchase a supplemental policy can get drug coverage through Medicaid, the federal-state health insurance program for low-income people.

In addition, most seniors have the option of enrolling in a Medicare HMO. Taken together, these options have led to the majority of seniors getting drug coverage. According to a recent study in the health policy journal Health Affairs, 65 percent of seniors had prescription drug coverage to help them with the costs in 1995.

95 percent of Medicare HMOs provided their enrollees with a prescription drug benefit.

84 percent of seniors with employer-sponsored supplemental insurance had drug coverage.

And 88 percent of low-income seniors who received Medicaid coverage in addition to Medicare (i.e., dual eligibles) had prescription drug coverage.

Average annual drug expenditures for all seniors was only $600 in 1995 – or about $50 a month.
But now it is said we require a new federal entitlement estimated to cost between $20 billion and $40 billion a year to bring coverage to the elderly who don't have prescription drug coverage? This is another attempt by Washington solve a problem that it is largely responsible for.

When Congress passed Medicare + Choice in 1997, it wanted to give seniors several new health care options. Medicare enrollees could stay in traditional Medicare, but they could also join an HMO, a PPO, get a traditional fee-for-service policy or sign up for a Medicare Medical Savings Account. The idea was to let private-sector health insurers compete for seniors' Medicare dollars by offering them more comprehensive health care packages, including prescription drugs. It worked, which is why 95 percent of HMOs provided some prescription drug coverage when they began competing for Medicare business.

But then the federal government reversed field. The bureaucrats cut the reimbursement rate so much for some HMOs that many of them have decided to cut benefits or drop out of the program.

This arbitrary cutting is not the way the federal government handles health care for its own employees and their families. They have a negotiating process to determine how much health insurers and health plans should be reimbursed for that health care.

There's no reason not to use the same approach in dealing with Medicare insurance and drug coverage. But because the government doesn't use that approach for the elderly, HMOs are getting out of Medicare in many instances, causing old people to lose their insurance and drug coverage.

Prescription drug coverage under Medicare may be good politics, but good policy requires more. It's unfortunate that the Medicare commission couldn't get the one vote it needed from the President's appointees to endorse a reform proposal. The president hasn't offer a plan of his own, but the White House promises that he will have one in a month or so. We can hope that it involves real reform rather than setting up an issue for the 2000 election campaign, but it probably would not be prudent to bet on that happening.

The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues.