From members of Congress to candidates for president to activist groups buying advertising time on television, everyone is telling us that seniors need insurance coverage for prescription drugs.
It's hard to argue with that sentiment. Not only are drugs increasingly important to health care, they are about the best buy to be found in the medical marketplace. New drugs are the main reason medical science has made amazing progress in recent years against cancer and heart disease. They have converted AIDS from a death sentence into a chronic illness. A 1996 study by the National Bureau of Economic Research shows that every dollar spent on prescription drugs is associated with a decrease of four dollars in hospital expenses.
Question: So why don't seniors already have insurance for drugs? Answer: Medicare, the federal government's health insurance program for the elderly, fails to cover them.
Despite its political popularity, Medicare is actually a lousy health insurance plan. In fact, it's so bad that it would probably be illegal for private insurers to sell a similar plan in most states. Medicare violates almost all the principles of sound insurance. It 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, including the cost of their drugs. For example, each year about 360,000 Medicare beneficiaries spend more than $5,000 out-of-pocket each year on services that are theoretically covered by Medicare.
To prevent financial devastation, about two-thirds of Medicare beneficiaries have plugged some of the gaps left by Medicare with private insurance, either by purchasing their own supplemental insurance (36 percent), or obtaining it from a former employer (33 percent). Although some of these "Medigap" policies cover prescription medication, most do not. Among those that do, coverage is often incomplete. Ironically, the poorest seniors often have the best drug coverage because they qualify for Medicaid, the federal-state health program for the poor.
The combination of Medigap insurance and Medicare is very wasteful. Health economists estimate that seniors with both types of coverage spend about 30% more on health care than those with Medicare alone. Incomplete drug coverage also causes another kind of waste: It encourages doctors and their patients to turn to more expensive hospital and doctor therapies, instead of cheaper drug therapies. Instead of treating hearth disease with drugs, for example, the incentive is to opt for surgery, just because insurance will pay the bill.
Fortunately, there is a better way. We should allow the elderly to combine their Medicare funds with the money they currently spend on private insurance and pay one premium into a comprehensive private plan instead. For example, the amount seniors are already paying for the most popular Medigap policy is about $1,600. According to a study prepared for the National Center for Policy Analysis by the nation's leading actuarial firm on health benefits, Milliman & Robertson, Inc., this sum plus the average amount Medicare currently spends should be enough to buy the same kinds of health insurance coverage the non-elderly have, including federal employees.
Take HMOs for example. In addition to their Medicare-plus-Medigap funds, if seniors chipped in another $150 a year, they could enroll in an HMO with comprehensive health coverage, including prescription drugs. In these plans, they would have to make small copayments to discourage abuse, say $10 for a doctor visit or a drug purchase, similar to the charges faced by non-elderly members of HMOs. In exchange, they will have traded away an unlimited exposure to potential out-of-pocket drug costs.
For those who don't like HMO type restrictions on choice, there could be other options. For example, 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 (MSA. The out-of-pocket cost under these plans should average about $1,200 a year, far less than the unlimited financial exposure most seniors now face.
Allowing seniors to take their Medicare money and join private health plans isn't really a new idea. Indeed, this is precisely what Congress thought it was doing when it passed Medicare reform legislation in 1997. The program, called Medicare+Choice was supposed to give the elderly the full range of health insurance options currently available to non-seniors: HMOs, MSAs, fee-for-service plans, doctor-run plans, etc.
Unfortunately the federal bureaucracy that administers Medicare, the Health Care Finance Administration (HCFA), is hostile to private insurance, hostile to competition, and hostile to choice. As a result, the entire program has been saddled with so many rules, regulations and constraints that seniors have very few of the options originally promised.
For example, seniors currently have no access to private fee-for-service plans, MSAs plans, or doctor run plans. And the one option that has survived, Medicare HMOs, has been undermined by HCFA. Although 16% of seniors shifted out of traditional Medicare and into HMOs, HCFA cut their reimbursement rates last year, forcing many to drop from the program. This left almost half a million seniors, many of whom had drug coverage, scrambling to find another HMO or return to Medicare where they don't have drug coverage. Another 99 HMOs intend to leave the Medicare program this year.
In part to deal with such problems, President Clinton and the congressional leadership founded the National Bipartisan Commission on the Future of Medicare. Led by Senator John Breaux (D-La.) and Rep. Bill Thomas (R-Bakersfield), the commission produced a proposal to make it easier for seniors to enter a wide variety of private sector plans. Under the plan, the government would subsidize the premium of low-income seniors more generously than for high-income seniors.
Another attempt at bipartisan reform was put forth recently by Senators John Breaux and Bill Frist (R-Tenn.). Like the commission's proposal, the bill calls for Medicare to be restructured using the federal employees health plan as a model. Under the proposal, beneficiaries would be subsidized by the federal government (as they are today) and would be allowed to join one of a number of competing private plans. Depending on the plan chosen, seniors could pay as little as nothing or an amount up to $45.50 a month extra for more comprehensive coverage. This plan also has subsidies for the neediest enrollees.
Strangely enough, the biggest obstacle so far has been the Clinton administration. On prescription drugs, the administration talks the talk; but it doesn't walk the walk. For example, the recommendation of the Medicare reform commission went nowhere when the president refused to endorse it and members of his administration actively tried to sabotage it. And the president has given no encouragement to the bipartisan Senate bill sponsored by Breaux, Frist and many others. Instead, Clinton proposed a modest drug benefit under Medicare last year – one that would have done little to help those with really high prescription costs. In the latest budget, the president added money for catastrophic drug costs – some say to help Al Gore fend off attacks from his rival, Bill Bradley.
These proposals are patchwork and inadequate, however. They do nothing to fundamentally solve the problems of Medicare and give the elderly the security they need.
There are a lot of ways to reform Medicare that will benefit seniors and taxpayers. Unfortunately, too many in Washington want to keep seniors entrapped in a health plan managed and controlled by the government. The only thing standing between the elderly and coverage for prescription drugs are politicians who are hostile to competition, choice and private health insurance.