To listen to some politicians speak, one might get the impression that the only way seniors can get prescription drug coverage is for Washington to add a large new benefit to Medicare. This is simply not so.
America's seniors could have access to full prescription drug coverage without the government spending an additional dime on a costly new benefit. How? The government should get out of the way, and allow the elderly to combine Medicare funds with the money they currently spend on private insurance and pay premiums into a comprehensive private plan instead. One of the main reasons so many seniors lack prescription drug coverage is that the design of Medicare violates almost all the principles of sound insurance.
The program pays too many small bills the elderly could easily afford on their own, while leaving them exposed to thousands of dollars of potential out-of-pocket expenses.
For example, about 360,000 Medicare beneficiaries spend more than $5,000 out of pocket every year on Medicare-covered services. No private insurer would be allowed to sell a plan with these gaping holes. About three-fourths of Medicare beneficiaries have sought to fill some of the gaps left by Medicare by coverage through a former employer or by acquiring supplemental Medigap insurance.
Some Medigap policies cover prescription medication, but most do not. Yet the combination of Medigap insurance and Medicare is very wasteful. Health economists estimate that seniors with both types of coverage spend about 30 percent more on health care than those with Medicare alone. And those who are without drug coverage after purchasing a Medigap plan often turn to more expensive hospital and doctor therapies instead of drug therapies.
The good news is there is a better way. Instead of asking taxpayers to support a new expensive entitlement program, the private market should be freed to meet the needs of the elderly with money already existing in the system.
According to a study prepared by a leading health care actuarial firm, Milliman & Robertson Inc., Medicare will spend about $5,800 on each beneficiary this year. Add to that about $1,611 – the amount seniors are already paying for the most popular Medigap policy -and the combined sum should pay for any of a range of health insurance options.
With this amount, and approximately another $150 out of pocket, seniors could pay premiums for an HMO with comprehensive health coverage, including prescription drugs. The tradeoff is that seniors will have to make small co-payments, say $10 for a doctor visit, for example, to discourage abuse, and a $50 co-pay for emergency room care, and typical limits on mental health benefits. In exchange, seniors will have traded away their unlimited exposure to potential out-of-pocket drug costs. This option is already happening to a limited extent. Some 16 percent of seniors have shifted out of traditional Medicare and into an HMO, of which 95 percent provide a prescription drug benefit.
However, a Medicare bureaucracy hostile to any challenge to its power has taken steps to halt and even reverse this trend. After the administration cut reimbursement rates to Medicare HMOs last year, many dropped the program, leaving 450,000 seniors, many of whom had drug coverage, scrambling to find another HMO or return to Medicare. Another 99 HMOs intend to leave this year, affecting 325,000 more seniors.
For those who don't like HMO-type restrictions on choice, there is another option. Seniors should be able to use their Medicare and Medigap dollars to enroll in a fee-for-service plan with a high deductible and a Medical Savings Account – in many cases for a premium that is considerably less than what they currently pay for their Medigap policy.
The out-of-pocket cost under these plans could average about $1,200 a year, depending on the degree of managed care – far less than the unlimited financial exposure most seniors now face.
In many cases, moving to a private plan would not only provide coverage for prescription drugs, but would also generate considerable financial savings; for example, the average senior who currently has Medigap insurance would save more than $1,000 a year in lower premiums and out-of-pocket costs. These changes would solve the problem without imposing any new burden on taxpayers. We have all the money we need for prescription drug coverage; we just need to spend it more wisely.