Add Immediate "Catastrophic" Drug Coverage to Medicare

The Grassley-Baucus compromise Medicare proposal passed on a 16-5 vote in the Senate Finance Committee yesterday. Now it heads to the Senate floor for final passage. The House is highly likely to pass a similar bill. Both House and Senate plans will share two features: (1) a prescription drug discount card program that would be implemented in 2004, which seniors could access for a nominal fee, and (2) a complicated, premium-based drug benefit that would begin in 2006.

The premium-based drug benefit in 2006 has several potential workability problems: disincentives for employment-based retiree coverage, gaps in benefits, a potential lack of private plan participation, and, most importantly, adverse selection and possible large premium hikes.

We reckon there's about a 50 percent chance Congress would have to pour more money into the 2006 program (reducing premiums and adding benefits) to solve workability and popularity problems. Alternatively, there's a one-in-four chance Congress will end up just repealing the program, as cost overruns mount and the federal deficit balloons. (To be fair, there's probably a 25 percent chance the proposal would work as designed, without major problems or cost increases.)

By contrast, the 2004 discount card program would be relatively straightforward to implement and administer. It might also be surprisingly popular.

Both the Senate and House should consider building on the 2004 discount card program by adding an "extreme catastrophic" drug benefit for annual drug expenses over $10,000. A $10,000 catastrophic benefit is the core element of the proposal made by a "rump group" of House Commerce Committee members, led by Rep. Richard Burr (R-NC) and others.

By adding catastrophic coverage, seniors would at least get both discounts and "peace of mind" protection right away, long before the 2006 premium-based drug benefit was up and running.

Adding a $10,000 catastrophic benefit to the discount card would add about $12-13 billion to the cost of the Medicare bill over 10 years. That could be paid for by raising the coinsurance on the catastrophic part of the larger 2006 drug benefit from 10% to 15%.

Political compromises are rare in health care, and should be supported. Adding a catastrophic benefit would get a solid program up and running soon, and would give Medicare administrators time to solve the potential problems inherent in the larger drug benefit.

Posted by Jeff Lemieux at June 13, 2003 11:13 AM