An Exit Strategy for the Medicare Conferees
The Medicare and prescription drug bills passed by the House and Senate are now being reconciled in a conference committee, in preparation for final votes.
However, the task is hopeless. Hopeless at least if the conferees stick with the type of drug benefit approved by both chambers: a convoluted, stand-alone drug benefit, with a premium of about $35 a month. As it stands, this drug benefit would be implemented in 2006.
Problem #1. Nobody particularly likes this 2006 drug benefit. The think tanks hate it, because they don't think it will work, and because it would create yet another separate compartment for Medicare benefits. (Health experts say benefits should be linked or "integrated" for better care, not further parceled out into uncoordinated silos.)
Seniors clearly aren't thrilled with the drug benefit either. It's a lot of money to pay for a meager, confusing benefit. Moreover, it could cause employers to drop the retiree coverage that some seniors have. Finally, the benefit contains a late-enrollment penalty -- buy now or lose your chance -- which seniors haven't discovered yet. But they will be angry when they do.
Problem #2. Nobody thinks the drug benefit will really cost $400 billion over ten years. Even if the conferees squeeze out a bill that hits the budget target, much more money will needed in subsequent years to make the benefit work properly.
Problem #3. To build support for the drug benefit, the House and Senate leaders have added billions of dollars to the fees Medicare pays to health plans, rural hospitals, and doctors. Some of those payments are needed. But others exist purely to acquire votes for an otherwise unlikable proposal. And regardless of their merits, they are largely peripheral to the debate, which was supposed to be about prescription drug benefits and Medicare reform.
Problem #4. To get House conservatives to swallow the drug benefit, the bill's drafters added a gradual move toward direct competition between private health plans and the traditional government-run program, starting in 2010.
However, Senate liberals have signaled they will not support a compromise that includes direct competition. It's difficult to see how a conference agreement can pass without support from both House conservatives and Senate liberals.
How do we get out of this mess?
First, direct competition will have to be dropped. The larger debate on long-term Medicare reforms will re-emerge in coming years, as the program's costs outstrip tax revenues and the baby boomers' retirement approaches. But right now, the political will does not exist for strong competitive reforms, and so the conferees should just put those ideas on hold.
Without direct competition, however, House conservatives will not approve a drug benefit anything like the benefit in either House or Senate bills. They will not support a large, potentially costly entitlement without reform as well.
Therefore, the drug benefit must be downsized. In a recent letter, House conservatives signaled that they could support a "scaled-down model" with benefit for seniors with low incomes and "catastrophic" coverage for seniors with very high drug expenses.
A scaled-down drug benefit should be modeled after the "interim" Medicare-endorsed discount card program scheduled to go into effect in mid-2004.
The discount cards would be available to all beneficiaries for at most a nominal fee. They would provide discounts of roughly 10-15 percent off the retail price of many drugs.
In addition, low-income seniors could apply for extra assistance through the cards. The cards would provide up to $600 in benefits to seniors with incomes below 135 percent of poverty. The benefits would have a 5 percent copayment requirement for seniors under 100 percent of poverty (10 percent for seniors between 100 and 135 percent of poverty).
Instead of switching from the discount cards to a complicated drug benefit in 2006, the cards' low-income assistance should simply be improved, and a catastrophic benefit should be added.
Three important points:
(1) the catastrophic coverage should allow seniors to purchase additional coverage, without forfeiting Medicare benefits.
(2) all sorts of health plans or organizations should be able to offer the discount cards: HMOs, insurance companies, pharmaceutical benefit managers, pharmacies, employers with retiree coverage, Medigap plans, state pharmaceutical assistance plans, and so on.
(3) the low-income benefits should not be restricted to seniors without coverage.
This last point is important. Medicare shouldn't target the new benefits so narrowly that it creates an incentive for seniors who already have drug coverage to drop that coverage in order to qualify. For example, some proposals being drafted in Congress would only give a new drug benefit to low-income seniors who don't have employer-based retiree coverage or Medigap coverage that includes drug benefit. That may seem fair, but it is not. Seniors who have already sacrificed to get some drug insurance -- either through past employers or by purchasing it on their own -- should not be left out.
One argument for this simplified exit strategy bears repeating: Medicare reformers shouldn't worry that dropping direct competition will thwart future efforts to move Medicare towards the Federal Employees Health Benefit (FEHB) model. That remains the best model for Medicare reform, but clearly the political will to try competition is not yet strong.
In a few years, when it becomes more obvious that the costs of the baby boomers' retirement would otherwise force stiff tax increases or draconian benefit or payment cuts in Medicare, legislators may turn back toward competitive approaches as a more palatable alternative.
Posted by Jeff Lemieux at September 11, 2003 12:09 PM
