Amazingly, even though enough money is being spent right now on health care for elderly Americans to provide prescription drug coverage for all of them, many of them aren't covered. The reason is the way Medicare is structured. And the answer is not a separate prescription drug entitlement, as proposed by some. Rather, the answer is reforming Medicare.
It probably states the obvious to say that prescription drugs are an important part of health care, particularly for the elderly. Drugs have been responsible for many huge advances in medical science and have done much to improve the quality of life. Drugs also help reduce other medical costs. For example, the National Bureau of Economic Research reported in 1996 that every dollar spent on prescription drugs is associated with a four-dollar reduction in hospital costs.
Despite these findings, most Medicare beneficiaries are in a fee-for-service plan, which doesn't pay all their hospital and doctor costs and doesn't pay for any prescription drugs. A small number of beneficiaries are enrolled in HMOs that do pay for prescription drugs up to certain limits.
Besides not paying for prescription drugs, the fee-for-service plan leaves seniors exposed to the possibility of huge out-of-pocket costs for other health care. The National Center for Policy Analysis has calculated that about 360,000 Medicare beneficiaries faced doctor and hospital costs of more than $5,000 above what Medicare paid last year.
To protect themselves, a majority of Medicare beneficiaries supplement their Medicare coverage with private insurance. Thirty-three percent get the additional coverage through a former employer and 36 percent buy "Medigap" policies. But many of the employer plans don't include complete drug coverage and most of the Medigap policies don't cover drugs at all.
Now here is the amazing part: if you add together the money that Medicare now spends and the money that beneficiaries now spend on supplemental coverage, you have enough to provide Medicare beneficiaries with full coverage of all medical care including comprehensive coverage for prescription drugs!
We know this because of a new study that Milliman & Robertson, the nation's leading actuarial consulting firm on health benefits, prepared for the NCPA.
In other words, what is needed is not more money, but efficient use of the money that's being spent now.
President Clinton has proposed a separate prescription drug benefit that he originally said would cost $118 billion over 10 years. Within a few days, however, he upped the projected cost to $160 billion. Now Sens. Olympia Snowe (R-Maine) and Ron Wyden (R-Ore.) are proposing yet another stand-alone approach. But these approaches are just tying a new albatross around taxpayers' necks in the form of additional government spending, while failing to rescue seniors from what is a terrible health insurance plan.
Instead, why not reform Medicare? Let seniors use what the government is already spending, plus the senior's own premiums for physician coverage (Medicare's Part B) and Medigap insurance, to get complete, comprehensive private coverage.
Milliman & Robertson calculated, for example, that a Medicare beneficiary could use the Medicare and Medigap money to enroll in a fee-for-service plan that included prescription drugs, with a high deductible and a Medical Savings Account, and face out-of-pocket costs averaging about $1,200 a year instead of the current unlimited financial exposure.
Or, using the Medicare and Medigap money and another $150 or so per year, a Medicare beneficiary could enroll in an HMO with comprehensive coverage that included prescription drugs. The only other costs would be small copayments to discourage abuse. This approach would also eliminate the unlimited financial exposure.
Sens. John Breaux (D-La.) and Bill Frist (R-Tenn.) have introduced a Medicare reform bill along these lines. It uses as a model the Federal Employees Health Benefits Plan (FEHB), which now covers about nine million federal government employees, including members of Congress.
The fact that this approach makes sense is no assurance that it will be received with open arms by Washington's policy makers. For one thing, it would challenge the bureaucratic reign of the Health Care Financing Administration, which runs Medicare and which has enveloped it in a straitjacket of rules, regulations and constraints. For another, this is an election year and President Clinton is expecting prescription drug coverage for seniors to be a potent campaign issue. For a third, there are those who are instinctively hostile to private health insurance and who will oppose it on those grounds.
Seniors are indeed a potent voting group. Perhaps once they understand that they could have comprehensive health care coverage that includes prescription drug coverage, that does away with the exposure to unlimited out-of-pocket costs, and that costs little or nothing additional, they will mobilize to demand reform.
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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. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.