<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:62971.wais]
SENIORS' ACCESS TO AFFORDABLE PRESCRIPTION DRUGS: MODELS FOR REFORM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
HEALTH AND ENVIRONMENT
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
FEBRUARY 16, 2000
__________
Serial No. 106-92
__________
Printed for the use of the Committee on Commerce
------------------------------
U.S. GOVERNMENT PRINTING OFFICE
62-971 CC WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health and Environment
MICHAEL BILIRAKIS, Florida, Chairman
FRED UPTON, Michigan SHERROD BROWN, Ohio
CLIFF STEARNS, Florida HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia PETER DEUTSCH, Florida
RICHARD BURR, North Carolina BART STUPAK, Michigan
BRIAN P. BILBRAY, California GENE GREEN, Texas
ED WHITFIELD, Kentucky TED STRICKLAND, Ohio
GREG GANSKE, Iowa DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma LOIS CAPPS, California
Vice Chairman RALPH M. HALL, Texas
RICK LAZIO, New York EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN B. SHADEGG, Arizona JOHN D. DINGELL, Michigan,
CHARLES W. ``CHIP'' PICKERING, (Ex Officio)
Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Alecxih, Lisa Marie B., Vice President, The Lewin Group...... 134
Braun, Beatrice, Member, Board of Directors, AARP............ 26
Lewis, Rita H., Director, Osteoporosis Support Group of San
Diego, California.......................................... 24
McCall, Carol J., Executive Vice President, Managed Care,
Allscripts................................................. 144
Moran, Donald W., President, The Moran Company............... 141
Scanlon, William J., Director, Health Financing and Public
Health Issues, General Accounting Office................... 100
Vladeck, Bruce C., Director, Institute for Medicare Practice,
Mount Sinai School of Medicine, and Senior Vice President
for Policy, Mount Sinai NYU Health......................... 127
Washington, Bonnie, Director, Office of Legislation, Health
Care Financing Administration, accompanied by Jack Hoadley,
Director, Division of Health Financing Policy.............. 94
Young, Donald, Chief Operating Officer and Medical Director,
Health Insurance Association of America.................... 148
(iii)
SENIORS' ACCESS TO AFFORDABLE PRESCRIPTION DRUGS: MODELS FOR REFORM
----------
WEDNESDAY, FEBRUARY 16, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Health and Environment,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:24 a.m., in
room 2322, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Upton,
Greenwood, Burr, Bilbray, Ganske, Norwood, Coburn, Lazio,
Cubin, Pickering, Bryant, Waxman, Pallone, Deutsch, Stupak,
Green, Strickland, DeGette, Barrett, Hall, Eshoo, and Dingell
(ex officio).
Staff present: Carrie Gavora, majority professional staff;
Tom Giles, majority counsel; John Manthei, majority counsel;
Kristi Gillis, legislative clerk; Bridgett Taylor, minority
professional staff; and Amy Droskoski, minority professional
staff.
Mr. Bilirakis. The hearing will come to order. The Chair
wishes to announce that, with the exception of the chairman's
and ranking member's opening statement, the others will be
limited to 3 minutes in the interest of time. We have a long
hearing scheduled.
I now call to order this hearing on Seniors' Access to
Affordable Prescription Drugs: Models for Reform. Today's
hearing will provide an opportunity to delve deeper into the
details of specific proposals to expand prescription drug
coverage for Medicare beneficiaries. I believe every hearing is
an opportunity for members to educate themselves, and the issue
of prescription drug coverage certainly merits our time and
attention.
However, I feel strongly that we must act soon to advance
legislation that can be enacted this year. As I have repeatedly
said, I believe no beneficiary should have to choose between
filling a prescription and buying groceries. At a minimum, we
must take action to help individuals in greatest need today.
As you know, I have introduced a bipartisan plan to improve
prescription drug coverage for the poorest and sickest Medicare
beneficiaries. The bill is not perfect, and I would not try to
force this approach on any other member. After reviewing all of
the proposals before us, however, I hope that we can reach a
consensus this year on some plan to improve prescription drug
coverage for Medicare beneficiaries particularly those in need.
I am proud of the subcommittee's record of success in
addressing difficult legislative issues on a bipartisan basis.
And, given the charged political climate and the complexity of
the prescription drug debate, the challenge before us is most
certainly daunting.
As we seek common ground, I noted with interest a provision
in the President's budget proposal to set aside $35 billion in
on-budget surplus money over 10 years for a policy that
provides protections against catastrophic drug costs. In a
similar vein, the bipartisan bill that I have introduced would
establish a stop-loss protection for beneficiaries who have
high annual drug costs. I hope this is an area where we can
find agreement, and I look forward to hearing more about the
administration's plans in this regard.
Our first panel of witnesses will describe the perspective
of senior citizens in this debate, and it includes a fellow
Floridian, Dr. Beatrice Braun. Our second panel includes
representatives from the Health Care Financing Administration
and the General Accounting office, and our final panel includes
several distinguished experts with a diverse range of
experience in addressing these issues. I want to welcome each
of our witnesses and thank them for taking the time to join us.
I look forward to today's hearing and the opportunity to work
together to advance legislation to help beneficiaries obtain
the medicines they need.
The Chair now recognizes Mr. Waxman.
Mr. Waxman. Thank you very much, Mr. Chairman.
This Congress needs to take action to provide prescription
drug benefits under Medicare. We need to act to eliminate price
discrimination for drugs for our seniors. These two simple
actions are long overdue, and I hope today's hearing marks the
first real step toward dealing with these needs.
Sherrod Brown, who has been committed to securing a
universal prescription drug benefit in Medicare, normally would
be here today in his position as ranking member on this
subcommittee, but he is in Ohio suffering from injuries from a
serious automobile accident. I know we all wish him a speedy
and full recovery, and I know he is anxious to be back and help
pass prescription drugs legislation out of this committee.
No one would design Medicare today without including a
prescription drug benefit. It is as critical to good medical
care today as hospital care or physician care was when Medicare
was first enacted. The simple fact is that if people can't get
the drugs they need, they don't have adequate health care
coverage.
We know that over one-third of Medicare beneficiaries have
no drug coverage, and nearly 30 percent more have unreliable or
very inadequate coverage. That is almost two-thirds that need
help. Retiree coverage is shrinking or being eliminated,
benefits are increasingly expensive and inadequate, and we know
that all the trends show that this situation is only going to
get worse.
Further, we know that seniors out there trying to purchase
their prescription drugs on their own face tremendous price
discrimination. They pay more for their drugs, frequently twice
as much or even more for their drugs than the government or
other favored customers of the drug companies. They are at the
stage of their lives when they have more health problems and
chronic illnesses. They need and use drugs more than any other
part of the population, and yet they have the hardest time
getting coverage, and when they purchase out of pocket, they
pay the highest prices.
Medigap coverage is no answer. Any policy with drug
coverage becomes an extremely expensive policy. Not only is the
drug coverage itself expensive, but the adverse selection that
occurs runs up the costs overall. So people pay very high
premiums that not uncommonly are barely equivalent to the
amount of drug coverage that the policy supposedly provides. In
some cases, seniors find they are paying more in increased
premiums than the drug coverage is worth.
And this isn't simply a problem for the low income. More
than half of current Medicare beneficiaries without drug
coverage have incomes above 150 percent of poverty. If you are
a widow living on Social Security, if you have several
different chronic conditions, if you need prescriptions
regularly, you can't afford your drugs. It is that simple.
All this clearly underlines the need for Medicare coverage
of prescription drugs for all of the program's beneficiaries.
We wouldn't pay for hospital care only for the poor. We
shouldn't think of limiting drug coverage in that way, either.
To me, the crisis that faces Medicare today is not its
solvency. We know that the Trust Fund is solvent for at least
15 more years. The crisis in Medicare is that it doesn't
provide coverage for prescription drugs when that coverage is
so obviously needed.
Do we need to work long term to adjust Medicare and its
financing so that we are ready to care for the baby boomers? Of
course we do. But this is a program that is too vital for too
many to take hasty or ill-considered actions that are neither
well understood or supported by the public. More fundamental
changes are a long term project.
But however we change the program in the future, we know
that it will have to provide prescription drugs if it is going
to meet the health care needs of our seniors and disabled
citizens. It will never be easier or cheaper to do than it is
now. Let's get on with providing coverage in the program and
ending price discrimination for seniors. I hope our witnesses
today will help us take the steps to achieve these goals this
year. This Congress could have no better legacy.
Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Greenwood?
Mr. Greenwood. Thank you, Mr. Chairman.
As Mr. Waxman has just said, we are in a crisis. We have
wasted a lot of time trying to resolve this crisis. There has
never been a prescription drug benefit for Medicare. We had an
opportunity about a year ago, when the bipartisan Breaux-Thomas
Commission made recommendations that would have enabled us to
structurally reform Medicare in a way that would have made it
quite convenient to add the prescription drug benefit, and
unfortunately it was the administration that decided to sink
that bipartisan agreement.
So here we are today in a position where, as we know and it
has been said, 35 percent at least of America's seniors do not
have access to prescription drug benefits at all. And in this
day and age, if you don't have access to the new marvels of the
pharmaceutical industry and the new marvels of the biological
industry, you don't have good health care.
As we look at this problem today, one of the things that we
should focus on is illustrated by the first chart, which has
just been covered up by the second chart. Now, the first chart
indicates that the place we need to focus our attention,
obviously, is on the lowest income, the 35 percent of seniors
without prescription drug coverage. If you look at the far
right, only 5 percent of the wealthiest American retirees, 5
percent of those over $50,000 per year of income are without
the benefit, and that escalates as you go, in inverse
proportion to income, as you go down to those below $10,000
where you have 37 percent of the seniors without the benefit.
This will get worse. Actually, that is--okay, that will do.
This problem is going to get worse for several reasons. No. 1,
as we all know, the percentage of those of us who will be above
the age of 65 by 2030 will go from 13 percent last year to 20
percent, and the reliance on medication, for a lot of very good
reasons and to the benefit of the retirees, will go from 33
percent of the population of retirees using medication of some
kind to 51 percent on a regular basis.
Another reason why this crisis will worsen if we don't
resolve it soon is because the costs of pharmaceuticals in
total are increasing rapidly in comparison to a generally
declining Consumer Price Index. If you look at 1993, the
average increase in pharmaceuticals was about 8.2 percent that
year against a 2 percent CPI. And while the CPI is still 2.7
percent in 1999, the increase, the 1-year increase in the cost
of pharmaceuticals total was 18.5 percent, double digits, and
that trend is probably going to continue in that direction.
Finally, what is important I think to look at is that
simple approaches, oversimplified approaches that would simply
try to freeze the prices of pharmaceuticals, won't do the job
because the annual increase in the prices of pharmaceutical
products on the market is not the culprit. If you look at that
chart, they increased 8.4 percent in 1990. In 1998 there was
only 3.2 percent. That is the purple portion of those bar
graphs on the bottom. So the annual increase in the price of
products on the market is relatively de minimis.
What is happening is that the utilization, the volume mix,
the likelihood that the retiree is on one or more medications,
is increasing, and the new products coming onto the market that
have cost a half a billion dollars----
Mr. Bilirakis. Would the gentleman finish up?
Mr. Greenwood. [continuing] is the major cause of the
price, the cost increase. So we should avoid simple approaches
to this problem, but we should get on with it, and this side of
the aisle is prepared to do that.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
The gentlelady from Colorado.
Ms. DeGette. Thank you, Mr. Chairman, and thank you for
holding this hearing on Medicare prescription drug coverage.
As we have heard already from my colleagues, our seniors
are in crisis over prescription drug issues. Almost two-thirds
of them have limited or no coverage whatsoever, and as we just
heard, the issue is not just one for coverage but also for
addressing rising costs. In fact, the average annual
prescription drug costs for seniors are estimated to increase
from $942 in 1999 to $2,353 in 2011. For seniors, who often
live on a fixed income, they are at considerable risk to such
extraordinary cost inflation, and they desperately need a
comprehensive Medicare prescription drug benefit.
Some people say we should just build on the current system.
However, access to prescription drugs cannot be just based on
factors as where you happen to retire, as is so often the case
today.
For example, just among the 14 to 15 percent of Medicare
beneficiaries that are enrolled in HMOs, some Medicare+Choice
HMOs offer comprehensive coverage; others have adopted limited
coverage with, as Bruce Vladeck points out, a bewildering
variety of formulary restrictions, benefit caps, and other
techniques to try to manage their pharmaceutical costs which
significantly complicate the process of choice for
beneficiaries, and an increasing number of plans are completely
dropping drug coverage.
The options for the other 85 percent of Medicare
beneficiaries are further complicated by the perverse
incentives of prescription drug coverage in inpatient settings
but lack of coverage in outpatient settings, interactions with
third party coverage and Medicaid.
All of this cries out for adoption of a standard Medicare
pharmaceutical benefit that would significantly simplify the
choice process. Moreover, with a standard prescription drug
benefit, as is the case among private employers, the Medicaid
program and the VA, Medicare could for the first time assist
seniors with the spiraling costs of prescription drugs by
bargaining for volume discounts on their behalf. Without it,
according to a study I did of prescription drug prices in my
district, seniors are going to pay, at least in the First
Congressional District of Colorado, on average 121 percent more
for prescription drugs than favored customers like large
insurers, HMOs and the VA.
Mr. Chairman, to address both the lack of prescription drug
coverage and rapidly rising costs, this Congress has the
responsibility to act this year, and I am glad that we all seem
to recognize the problem on a bipartisan basis. The devil is
always in the details, and I look forward, along with my
colleagues, to hearing the testimony that we will hear today.
Thank you, and I yield back.
Mr. Bilirakis. I thank the gentlelady.
Dr. Coburn?
Mr. Coburn. Thank you, Mr. Chairman, for holding this
hearing. I think there are a couple of things that we need to
talk about when it comes to Medicare prescription drugs, and I
do have the experience of having my seniors decide over a pill
versus a meal, and I also know that about one out of every
three prescriptions I write them, they don't fill because they
don't have the money to do it.
As we look at this, you know, everybody says we are in
surplus, but it is important to keep in mind that the surplus
last year, the $1 billion true surplus, came out of the
Medicare Part A Trust Fund. The $23 billion that is projected
for surplus for this year is coming out of the Medicare Part A
Trust Fund. It is excess payments into Medicare. The $22
billion for the year 2001 is coming from the Medicare Part A
Trust Fund.
So, as we look at the integrity of the Medicare system, it
is important that we understand that the projections that Mr.
Waxman gave that it will be fine for 15 years, it is not going
to be fine for 15 years, because we are going to spend the
money, and the money is going to get spent on other things. So
the first thing we need to do, if we are going to establish a
drug program for Medicare, is to stop taking Medicare Part A
Trust Fund money.
The second thing that I think we need to do is to look at
what the real problems are in the drug industry. One of the
greatest mistakes this Congress did was give drug companies the
right to advertise on television. If you look at the 18.5
percent increase in the cost of drugs for 1999, ask how much
that would have been decreased if $5 billion hadn't been spent
on television advertising for drugs that are prescription
anyway. Last week an associate of mine saw a television ad for
an IV antibiotic, on television.
Now, who is paying the price for that? Who is paying for
that? Medicare seniors are paying the price because we have
decided to allow drug companies to advertise prescription drugs
on TV, of which half the doctors, when they get asked to do
that, immediately give something other than that because they
are so abhorrent that the TV should be telling a patient what
they need when they don't give full information on it.
The second thing that I think needs to be looked at is the
lack of competition in the drug industry. There is no
competition in the drug industry. We like to say there is, but
there is not.
No. 3 is the fact that the American consumer is subsidizing
drugs in Canada and Mexico, that if you look at the prices and
we ignore the NAFTA system for allowing drugs to move across
borders, in fact we are subsidizing drugs to a great extent
throughout the country.
The fourth thing that I think needs to be looked at is the
lack of utilization of appropriate generics, and the failure of
the FDA and the administration to approve an increasing number
of generic drugs, and the failure of the medical profession to
utilize generic drugs in their efforts to try to lower the
costs. Real care of patients is determined on whether or not
you identify what is wrong with them, give them something that
they are going to use, that will in fact impact. If you give
somebody a prescription that costs $100 and they can't fill it,
you haven't helped them at all.
Mr. Bilirakis. Please summarize.
Mr. Coburn. I will. So what should be the things that we
look at as we look for prescription drug relief? Prolong the
life of Medicare, that is the first thing we ought to do. The
second thing we ought to do is make sure whatever we do
increases competition. No. 3, the third thing is increase
access. And the fourth thing, what can we do to lower costs?
And I thank the chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Burr, to inquire? Do you have an opening statement?
Mr. Burr. Thank you, Mr. Chairman.
So many numbers, so many differences in the numbers. Here
is one number that I don't think anybody will dispute: $11,727
is the income of an individual at 150 percent of poverty in the
United States of America. The question you have to ask yourself
is, how long will we allow that individual to make a decision
as it relates to where that $11,000 is spent, and for us, the
safety net, not to provide the drug access and availability for
them.
I don't think that the argument in this committee will be
over whether there is a need for the Federal Government to be
involved. Until Mr. Dingell came in, I could safely say nobody
on the committee was here when we passed Medicare into law. But
clearly, had drug benefits been part of the standard policy at
that time, I think that prescription drugs would have been part
of Medicare and should be today.
The GAO will testify shortly that it should be done in
conjunction with comprehensive reform of Medicare. You have
already heard some members say we don't need to do that now.
One of the reasons that we are in this position is that we
haven't been bold enough to tackle tough things in the past as
it relates to health care, and especially as it relates to
seniors' health care.
I personally believe that it is time that they have the
best delivery system for health care, and that is not our
current Medicare system. But we can add the drug benefit in the
right way, a way that makes it comprehensive and universal so
that all seniors can have an option of buying in and some
seniors being supplied the subsidy, and it fits in the model of
where we go for Medicare in the future, then I am all for doing
it with this very important first step.
Mr. Chairman, I look forward to the witnesses. I thank them
for their testimony in advance. I look forward to this
committee producing a product that some in this town say we
can't do, and in fact this Congress passing it and this
President signing it into law.
I yield back.
Mr. Bilirakis. I thank the gentleman.
Mr. Dingell, to inquire?
Mr. Dingell. Mr. Chairman, thank you. First, I commend you
for the hearing today. Second of all, I observe this is a most
important subject and one on which we should provide
leadership, and again I commend you.
I ask unanimous consent that my full statement be inserted
into the record, and I be permitted to summarize.
Mr. Bilirakis. Without objection, the opening statement of
all members of the panel will be made a part of the record.
Mr. Dingell. Mr. Chairman, one of the great needs of
Medicare, which was originally introduced by my dad, and which
I sat in the chair when it was passed, is to see that we give
our senior citizens coverage for prescription drugs, because
many of them are compelled to go to a doctor, to receive the
friendly bedside manner, but not to receive the thing which is
absolutely essential to the success of the treatment, and that
is prescription pharmaceuticals to address the basic medical
need which they confront.
More and more costs are being asserted against them.
Medicare beneficiaries have only limited coverage for insurance
against the costs of prescription pharmaceuticals, and indeed
many of them are suffering significant difficulties, including
hard choices between prescription pharmaceuticals which they
need and, unfortunately, food, lodging and other things which
happen to be equally important to them.
The inclusion of prescription drugs in the Medicare program
does not have to wait for system-wide reform. It can be dealt
with through incremental change, and if you have observed the
difficulties that we always confront when you try to make a
massive, sweeping change, the end result is, nothing happens.
My suggestion is that we then get down to the business of
addressing this problem in a simple, easy change which we can
make which will achieve broad support, and which is really not
subject to any criticism.
There are two discharge petitions now pending, one on the
Allen bill, H.R. 664, and one on the Stark-Dingell bill, H.R.
1495. The Allen bill will provide access to prescription drugs
at discounted prices for seniors, making them more affordable.
I will note that not infrequently drugs of the same exact
chemical prescription or substance are made available to
animals at about half the cost to which they are made available
to senior citizens. Clearly there is some imbalance here that
needs to be addressed, and I would suggest that we can and
should do so at an early time. The Stark-Dingell bill would add
a universal affordable prescription drug benefit to the
Medicare program.
The petitions will seek to have an open rule so that we can
full and fair consideration of the bills on the House floor. I
prefer to follow, of course, the regular order, and it is for
that reason I am delighted, Mr. Chairman, that you are having
this hearing, because this enables us then to commence moving
forward on both of these pieces of legislation and not to
confront the kind of problem that the committee and the
Congress confronted when we had to move the Patients' Bill of
Rights, which was so ably sponsored by my dear friend, Mr.
Norwood, with my modest assistance.
Mr. Bilirakis. If you would summarize, please.
Mr. Dingell. Having made that observation, I look forward
to a successful consideration of this matter, a harmonious and
bipartisan working together to achieve a solution to a problem
which the senior citizens find most troublesome. And I would
note simply to the committee, the people want it, the country
needs it, it is good for us all to resolve this question, we
can do so easily, and I am delighted to see you embarked upon
the beginning of this undertaking. And I know that the
committee, under your leadership, will move forward, and I look
forward to being a modest participant.
[The prepared statement of Hon. John D. Dingell follows:]
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Medicare is one of the most successful social programs of our time.
In 1965, when Medicare was created, about half of America's seniors did
not have health insurance. Almost 1 in 3 seniors lived in poverty, and
were forced to choose between food, rent, or needed care.
Today, as a result of Medicare, seniors can get affordable health
care. The poverty rate of the elderly has been cut in half. Americans
are living longer and more prosperous lives.
However, since the program's enactment, there have been many
advances in medicine. Most notably, prescription medications have been
a critically important form of treatment, helping to cure disease, to
prevent relapse of illness or injury, and to prevent the onset of
disease or disability.
But, most seniors find themselves paying more and more out of
pocket for the drugs they need to stay well. Some Medicare
beneficiaries have insurance coverage to help with these costs, but
this coverage is unstable and declining. Medicare beneficiaries today
face problems with drug coverage similar to the health insurance
coverage problems faced in 1965. Many are presented with a stark choice
between food, rent, or prescription drugs. And of those with coverage,
about half are without full-year coverage.
To fulfill the promises made to seniors in 1965, we need to
modernize the Medicare benefits package and make prescription drugs an
integral part of Medicare. What this means is that prescription drugs
should be available to all Medicare beneficiaries through the Medicare
program, whether in fee-for-service or managed care. The benefit should
be defined so that all Medicare beneficiaries are guaranteed dependable
coverage, no matter where they live or how they get their coverage.
Additionally, the benefit should be structured to encourage
participation, and it should have protections for the low-income
beneficiaries. Recognizing the important role that employers play in
providing retiree benefits, we should also encourage employers to
continue providing these benefits as well.
However, the inclusion of prescription drugs in the Medicare
program should not have to wait for system-wide reform. We do need to
explore ways that the Medicare program can be modernized and encouraged
to work more efficiently, but given the number of people affected by
system-wide reform, we should proceed with caution, and certainly
accept no proposal that would eliminate the universal guarantee and
social insurance nature of the Medicare program. We should be seeking
to fulfill the promises made to seniors in 1965, not break them.
We are eager to get down to the business of providing prescription
drug coverage in Medicare and making needed medicines more affordable
for seniors this year. Today, we Democrats introduced two discharge
petitions: one on the Allen Bill, H.R. 664, and one on the Stark-
Dingell bill, H.R. 1495. The Allen bill would provide access to
prescription drugs at discounted prices for seniors, making them more
affordable. The Stark-Dingell bill would add a universal, affordable
prescription drug benefit to the Medicare program. These petitions seek
to discharge an open rule, so that we can have full and fair
consideration of these bills on the House floor. While I prefer to
follow regular order, both of these bills were introduced almost a year
ago, but we have not seen any action to date. Seniors have already been
waiting too long for help.
I am pleased to see that this Committee is exploring the issues
surrounding providing prescription drug coverage in Medicare. I look
forward to hearing from today's witnesses, and I hope that we will
expeditiously proceed to markup on a proposal that would guarantee all
Medicare beneficiaries affordable, accessible, and comprehensive
coverage of prescription drugs. But if this Committee fails to act,
each Member can do his or her part by signing the discharge petitions
so that seniors are not kept waiting.
Mr. Bilirakis. And I thank the gentleman.
Mr. Bryant?
Mr. Bryant. Thank you, Mr. Chairman.
Access to prescription drugs for Medicare beneficiaries is
probably the most critical issue facing lawmakers this year.
The current Medicare benefit package does not cover most
prescription drugs, and I have heard from many seniors in my
district who struggle to afford their medicines every month.
Today none of us would devise a medical insurance program
for seniors that didn't include coverage for prescription
drugs, but the current Medicare program was created in 1965,
and back then drugs didn't play as vital a role in keeping
people healthy. A lot has changed in health care since then.
Conditions which used to require hospitalization can now be
treated with new medications. These modern medicines help keep
people out of the hospital, out of nursing homes, and help
people remain active, productive members of society.
Over the past 35 years medicine has changed, but Medicare
has not been able to keep up with those innovations because of
the way it is designed and its overwhelming complexity. The
program continues to be plagued by financial problems. Frankly,
we owe beneficiaries a better Medicare, one that can adapt and
adjust to changes in the health care system. We should not lose
sight of the long term goal as we work to provide new,
affordable options for prescription drug coverage for seniors.
I want all beneficiaries to have access to affordable
prescription drugs. I am interested to hear from our witnesses
today on how they think they can provide better access. I know
someone is here from HCFA to talk about the administration's
plan, and I am glad, because I have concerns about that
proposal. To be honest, after looking at the President's
numbers, I am not sure many seniors will get much of a benefit
from his plan.
For example, the average senior without any form of drug
coverage is paying approximately $468 in total drug costs
annually, according to the latest data from the Medicare
current beneficiaries survey from HCFA. Under the
administration's plan, a beneficiary would pay $302 a year in
premium expenses and half the cost of the prescriptions that
they purchase, so $302, plus half of the $465 on average is
$234, equals about $536 total that a person would pay under the
President's plan. This senior would be paying $68 more under
his plan.
I may be crazy here, but I think we can probably do better
than that. These are the facts and the figures that we have to
look at closely today, and I am confident that we can find a
better market-based solution that will help the seniors than
the President has suggested so far.
I want to thank the witnesses today in advance who have
taken their time to be here, and I look forward to your
testimony. Mr. Chairman, I yield back the balance of my time.
Mr. Bilirakis. And I thank the gentleman for that.
Mr. Pallone?
Mr. Pallone. Thank you, Mr. Chairman, and I want to thank
you for holding this hearing.
The lack of an affordable prescription drug benefit is,
without question, the biggest problem with the Medicare program
today. The problem can't be corrected piecemeal by simply
devising a plan to cover the poorest seniors. A comprehensive,
affordable drug benefit should be available to all seniors
regardless of income. Over 50 percent of Medicare beneficiaries
without drug coverage are actually middle class seniors.
It is not clear to me whether the Republican leadership is
prepared to move away from their previous plan to cover only
the one-third of Medicare beneficiaries who lack any
prescription drug coverage at all. The Speaker, I understand,
has appointed a partisan task force to study this issue, and I
hope this is not a mere diversionary tactic to stall any action
by this committee to move quickly on a comprehensive drug
benefit that includes putting an end to the price
discrimination seniors face when purchasing pharmaceuticals.
That price discrimination issue has been well documented by
Mr. Waxman and his Government Reform Committee and a number of
consumer groups. The Waxman committee report shows that seniors
pay almost twice as much for their prescription drugs than do
the pharmaceutical industry's most favored customers. Families,
U.S.A., to cite just one example from outside the government,
found that the prices of the 50 drugs used most frequently by
seniors have risen at approximately two times the rate of
inflation over the past 5 years, and four times the rate of
inflation over the last year.
When it comes to an examination of who has taken the lead
in trying to fix this problem, I think the record is clear.
Notwithstanding Chairman Bilirakis' bill, the Republicans have
done little on this issue. Democrats, on the other hand, have
been on the House floor day after day since the 106th Congress
began, pushing for consideration of legislative solutions such
as those that have been offered by Congressman Tom Allen and
Mr. Waxman and by Congressman Pete Stark and Mr. Dingell. All
day today, in fact, Democrats will be signing discharge
petitions on both of these bills in an effort to overcome the
GOP's opposition to moving this issue forward quickly.
Both the Stark and Allen plans would increase the
negotiating power of those seeking to provide a Medicare drug
benefit, allowing pharmaceuticals to be purchased at cheaper
prices and passing those savings on to all interested seniors.
The President's plan also proposes to establish a comprehensive
benefit and provide pharmaceuticals to seniors who need them at
discounted prices, and I strongly support his proposal. On the
other hand, I don't know of any Republican proposals or
expressions of support for confronting the issue of
pharmaceutical price discrimination.
Mr. Chairman, before closing, I did want to express my view
that I do think it is important to bring in the pharmaceutical
companies in our efforts to pass the Medicare prescription drug
benefit. The willingness of the drug companies to drop their
initial opposition to a benefit, and specifically to the
President's proposal, is refreshing. I was contacted by some of
New Jersey's pharmaceutical executives in particular last
month, who expressed their willingness to sit down and help
come up with a plan.
In an effort to show bipartisanship and support for a plan
that the industry did not oppose, I, along with my colleague
from New Jersey, Marge Roukema, sponsored the House version of
the SPICE Act last year, and I believe----
Mr. Bilirakis. Please summarize.
Mr. Pallone. [continuing] and I believe that that also can
move the prescription drug benefit debate forward.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Dr. Norwood?
Mr. Norwood. Thank you very much, Mr. Chairman.
This is of course a very important hearing, but just on a
little lighter note, I want to say to my dear friend John
Dingell, who can be described in many wonderful ways,
``modest'' is probably not one of the words that should be in
his vocabulary.
We need to begin this process of matching a real and
correct legislative solution to the rhetorical problem that
dominates the political arena, and we are not going to get
there, my friend Mr. Pallone, by making this a partisan issue,
and you know that. My observation is that if you want to be
real partisan, that is a certain way of how not to get the job
done.
The question is, how do we increase seniors' access to
affordable prescription drugs? I would like to begin by noting
a very simple truth, a fact: The long term health of the
Medicare program is far from settled. When we first took up
Medicare reform at least 5 years ago, bankruptcy was imminent,
in fact this year. In 1997 we made some very hard choices in
changing the way we reimburse providers, and it did extend the
solvency of Medicare 15 years.
In fact, we did go too far, which is why we had to pass a
bill making some technical refinements last year, and I am
proud we recognized we went too far and made the correction.
But we all know the problems in Medicare are far from being
solved. I am sure we have all been visited by our hospitals.
They are far from comfortable with their Medicare
reimbursement, for example.
Medicare needs a long term solution, and we should be
spending more talking about ways to make fundamental changes to
make Medicare solvent for our children and our grandchildren.
Yet, here we are talking about adding a massive, costly new
benefit to Medicare.
Now, I am not trying to argue that the cost of prescription
drugs for seniors is not a very, very real issue. It is a very
real issue for those seniors who have no drug coverage, I can
tell you that. The question for me is, should we be trying to
create a new drug benefit for all seniors, or should we be
trying to find a way to get help in purchasing prescription
drugs to those seniors who actually need the help? I like Mr.
Perot, but I am not interested in helping him with his drugs,
for example.
Mr. Chairman, the President's proposal is unacceptable to
me. It is like using a backhoe to weed your garden. When the
long term solvency of Medicare is in question, adding $168
billion in a government-run universal benefit just doesn't
quite make sense to me. It is like trying to solve the problem
of a company going bankrupt, and the solution, the CEO says, is
``Let's go see how much more money we can spend. Maybe that
will solve the problem.'' I believe that when we fully examine
the consequences of such a proposal, it could have on the
pharmaceutical market, for example, and we had better examine
that----
Mr. Bilirakis. Please summarize.
Mr. Norwood. [continuing] particularly in their research,
we will probably reject the President's proposal.
Mr. Chairman, I would like to add my remaining remarks to
the record, and simply say I would like to associate my final
comments with Dr. Coburn. I think he is exactly correct when we
talk about the use of generic drugs. That is an important part
of the solution. I think he is precisely correct when he said--
--
Mr. Bilirakis. The gentleman's time has expired.
Mr. Norwood. [continuing] we made a mistake allowing the
drug, the pharmaceutical companies, to advertise on TV, and I
hope we will deal with that. And that is all, Mr. Chairman.
[The prepared statement of Hon. Charlie Norwood follows:]
Prepared Statement of Hon. Charlie Norwood, a Representative in
Congress from the State of Georgia
Thank you, Mr. Chairman. This is a very important hearing today,
because we need to begin the process of matching a real legislative
solution to the rhetorical problem that dominates the political arena.
How do we increase seniors' access to affordable prescription drugs?
I would like to begin by noting a very simple fact--the long-term
health of the Medicare program is far from settled. When we first took
up Medicare reform five years ago, bankruptcy was imminent. In 1997, we
made some very hard choices in changing the way we reimburse providers
and extended the solvency of Medicare for 15 years. In fact, we
probably went too far in some areas--which is why we had to pass a bill
making some technical refinements last year.
But we all know the problems in Medicare are far from solved. I am
sure we have all been visited by our hospitals. They are far from
comfortable with their Medicare reimbursement. Medicare needs a long-
term solution, and we should be spending more time talking about ways
to make fundamental changes to make Medicare solvent for my children
and grandchildren.
Yet here we are talking about adding a massive, costly new benefit
to Medicare. I am not trying to argue that the cost of prescription
drugs for seniors is not a real issue. It is a very real issue for
those seniors who have no drug coverage whatsoever. The question for me
is . . . should we be trying to create a new drug benefit for all
seniors or should we be trying to find a way to get help in purchasing
prescription drugs to those seniors who need help?
Mr. Chairman, the President's proposal is unacceptable. It is like
using a backhoe to weed your garden. When the long-term solvency of
Medicare is in question, adding a 168 billion dollar, government-run,
universal benefit just doesn't make sense. I believe that when we fully
examine the consequences such a proposal would have on the
pharmaceutical market--particularly in the area of research--we will
reject the President's proposal.
Mr. Chairman, I believe we need to focus on the real problem
through a targeted approach. We need to be looking at solutions that
benefit those who have no drug benefit and need help to afford the cost
of prescription drugs. We need to be careful not to do anything that
might negatively affect pharmaceutical research. We need to be careful
not to do anything that might make the job of long-term Medicare reform
more difficult.
If we can find a common ground between us on what is necessary to
help seniors in need, we can pass useful legislation. If we are going
to turn this into a political football, then we are wasting our time
and not doing seniors any good. Mr. Chairman, I look forward to working
with you to make a difference for seniors in need.
Mr. Bilirakis. The gentleman from Michigan.
Mr. Stupak. Thank you, Mr. Chairman. I apologize for being
a little bit late because I was down in line signing the
discharge petitions. I think they are critically important. I
think we have to do them. Since 1998 I have been on the Stark-
Waxman bill--excuse me, Stark-Dingell bill and the Allen-Waxman
bill. And, you know, the discharge petitions just say let's
have a full, honest, open debate on this issue. But I am
pleased that at least the debate can start here, Mr. Chairman,
and I thank you for holding a hearing.
You know, like I said, it has been 2 years, 1998, since we
brought forth those bills. In those 2 years, what I have found
is, seniors across my district, like the 88-year-old widow up
in Sheboygan, Michigan, whose only income is $814 from Social
Security. Her monthly prescription drugs are $446. Fifty-four
percent of her income goes just to try to pay for her
prescription drug coverage. And no matter where I go in my
district, from Lawrence to Traverse City to Ironwood, seniors
are spending anywhere from 25 percent to 50 percent of their
income just for their prescription drugs, and we have examples
of letters that go on and on. And then you see reports where,
if you are a veterinarian, you get the same medicine for your
animal for half the costs that seniors are paying. There is
something wrong with it.
So, while we are not trying to politicize the issue, we are
certainly going to get the political pressure up here to get
this issue before us. A drug benefit is very, very necessary.
I noticed over the break that the drug companies were
running these ads about accessibility to drugs. It is not
accessibility. It is called affordability. How can you have
seniors who have prescription drug coverage pay 50 percent less
than a senior who is standing in line at the pharmaceutical
companies, I mean at the drug store, paying half of what they
have to pay just because they don't have any kind of drug
benefit coverage?
So I think we should move these bills, being the Allen bill
and the Stark bill, and I hope we would do it quickly. There is
no excuse for it. I think what we should strive for in these
hearings is, how can we provide universal prescription drug
coverage for everybody, under Medicare or any other kind of
program you want to advise, and also to end the drug price
discrimination by the pharmaceutical industry, not only amongst
our seniors, but when you are dealing with animals and seniors.
And I live on the Canadian border. We can go across to
Canada, the same drug, the same everything, half to 60 percent
less of what you would pay in the United States, and they are
all manufactured here in the United States. No reason for it,
Mr. Chairman.
So I look forward to this hearing. Thank you for having it.
I yield back the balance of my time.
Mr. Bilirakis. I thank the gentleman.
Dr. Ganske?
Mr. Ganske. Thank you, Mr. Chairman.
I think it is true that there are some Medicare
beneficiaries, for instance widows who exist solely on their
Social Security, and out of that Social Security is taken
Medicare premiums, and they are faced with the situation where
on some months they have to decide between different types of
medications that they can have refilled, or even between
medications and other essentials of life such as heating and
food. So I think there is no question that we should do
something, especially to target the neediest of Medicare
beneficiaries, in regards to the high cost of prescription
drugs.
You know, Mr. Chairman, Congress has dealt with this issue
before, and I think it would behoove every Member of Congress,
not just this committee, to go back over what Congress did in
1988 and look at this issue. Now, I know there are some members
on the panel here who were here at that time, but CRS has a
report for Congress on the Medicare Catastrophic Coverage Act
of 1988. And I want to just review a little bit of what went
on, and so I am going to quote rather liberally from an
editorial that was written by Dan Rostenkowski for the January
17 Wall Street Journal, and it goes something like this:
``Given Ronald Reagan's conservative reputation, many
people are surprised to hear that he enthusiastically signed
the largest Medicare expansion in history. That 1988
legislation limited the costs of hospitalization and partially
paid for prescription drugs. The plan was wildly popular and it
passed with overwhelming bipartisan support, 328 to 72 in the
House.''
``Today it is equally surprising to hear that the following
year George Bush signed legislation repealing that expansion.
The reversal was by far the largest cut in Medicare benefits in
history, but the repeal legislation passed the House by a 360
to 66 vote, the most sudden and drastic reversal in my 36 years
in Congress,'' said Mr. Rostenkowski.
He goes on. He says, ``The problem was, and still is, a
lack of money, the result of senior citizens' reticence to pay
more. Debating the wisdom of the Reagan era expansion plan,
Senator Alan Simpson said at the time, `It is a social
experiment. It's called pay for what you get.' ''
Rostenkowski said, ``The plan was financed by a premium
increase for all Medicare beneficiaries, supplemented by extra
payments from more affluent recipients.'' Rostenkowski says,
``In hindsight, we made several mistakes. The first was to
break precedent and ask that the group receiving the benefits
actually pay for them. The second involved timing. We adopted a
principle universally accepted in the private insurance
industry: People pay premiums today for benefits they receive
tomorrow. Apparently, the voters didn't agree with these market
principles.''
``Television critics' archives preserve the image of
unhappy Chicago senior citizens surrounding my car''--this is
Rostenkowski----
Mr. Bilirakis. Please sum up, doctor.
Mr. Ganske. [continuing] ``when I visited a decade ago to
explain why I thought Medicare expansion was a good deal.''
Then if you look at what went on, you will see that the
initial projections--and this is from the Washington Post,
August 1989, so it is before the provision went into effect--
the initial cost estimates for the prescription benefit at that
time for this program was $37 billion, but within a few months
they had raised it to $42 billion and then $45 billion.
And my point is this, Mr. Chairman. When we look at this
problem, we have no idea what a prescription drug benefit is
going to cost because we have an explosion of technology going
on. We will see genetic----
Mr. Bilirakis. I'm sorry to interrupt, but your time has
long expired.
Mr. Ganske. [continuing] drugs that are going to be very
expensive. So I think we need to make a decision. If we are
going to provide some Federal funds to help those neediest, how
do we do that without an open-ended commitment that could bust
the bank and bring us back a year from now, a la 1988?
Mr. Bilirakis. The gentleman from Florida, Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Chairman. You know what? I have
a prepared statement which I would like to submit to the
record, but I think it appropriate to respond to what my
colleague just mentioned. I think the year which is more
appropriate to reflect upon is 1965, and that is when Medicare
was created. I think that is a much more appropriate analogy to
where we are today.
Thirty-four years ago, health care in American was
fundamentally different than it is today. There have been these
fundamental changes, and a variety of statistics that we can
talk about. The average cost that a senior, the percentage of
their income paid out of pocket is actually more today, even
with Medicare, which talks about the costs that are outside of
Medicare, including the most significant one, which is
prescription drug coverage.
You know, I think some of the numbers, and numbers
sometimes really do say things that are significant, there are
more than 2 million seniors in America that spend over $1,000 a
year on medication out of pocket, without reimbursement. Since
Medicare, you know, average spending has risen from 11 percent
in 1965 to over 18 percent now. It was 11 percent in 1965; it
is over 18 percent of their income today.
The reality is, and it is not just the poor, it is at many
income levels, that people are making choices. I know many of
my colleagues have had hearings in their district and talked to
real people. I mean, I would encourage all of my colleagues to
talk to their constituents. I mean, all of us sort of claim to,
but sometimes I wonder how many of us actually do, actually do
and talk to seniors and talk to real people, and what they are
faced with on a day-to-day basis in terms of their lives.
The choices that people were making 30 years ago, whether
health care or food or to visit their grandchildren one time in
6 months or one time in a year, I mean, those are similar
choices people are now making about prescription drugs. Not
everyone, obviously, but a significant number of Americans and
our constituents.
You know, I think this is clearly an issue whose time has
come. Medicare wasn't passed in 1 hour, in 1 day, in one
congressional session. It was fought tooth and nail,
unfortunately, I think it goes without saying, by--and I don't
like to be partisan so I won't be partisan--but by certain
Members of Congress for many years. It was successfully fought,
by certain interest groups, was successfully fought for years.
But I think at a certain point what happens in the
legislative process is it is overdetermined, and I think we are
looking at something that in fact is overdetermined. The
American people want this. It is appropriate, it is
commonsense, it makes sense, it should happen, and you know
what, it will happen.
And I hope that there is a bridge that lasts between us,
because it is the right thing. I applaud my chairman, my
colleague from Florida, for having this hearing and being
incredibly concerned and sensitive to this issue. And I urge
all of my colleagues on both sides of the aisle to take this
opportunity which we as Democrats offer you today, to sign a
discharge petition, to sort of put your money where your mouth
is and actually get this legislation passed for the American
people.
Mr. Bilirakis. A vote has been called on the floor. I would
love to be able to get the opening statements out of the way
before we run over.
Mr. Bilbray, for an opening statement. Hopefully you can
cut it down.
Mr. Bilbray. Thank you, Mr. Chairman.
Mr. Chairman, I know many members of this committee and the
full committee get kind of tired of those of us in California
saying we do it this way or that way, and I understand that. I
have been educated in the ABC's of Washington: Anybody but
California. But I think that one of the frustrations we have
had out West is that we are so far from Washington, DC, it is
hard for our voices to be heard sometimes, even though with 32
million people, the small intimate group.
Today I want to really thank a lady for coming, Mrs. Lewis,
who actually works with the osteoporosis group, she is a
director in San Diego, and took the time and the effort to fly
all the way across this continent to bring a message here. And
I don't think she has the only message that we should be
listening to, but I think it is one of the opportunities that
we have as we address this challenge. And I want to thank Mrs.
Lewis for coming out here and making this effort, because I
think she has a message of some of the unique situations and
some of the ideas that we have developed in San Diego, in
California.
That aside, I think that as we address this issue, it is
not as simple as we would like it to appear at first blush. We
can talk about why don't we spend more government funds on
this, but then do we allow the pharmaceuticals to take
advantage of an inflated price because of the huge influx of
government money going into this field?
Do we then all at once try to place price controls on and
limit profits, which then may affect the commitment, the
involvement in the development of new breakthrough drugs, and
all at once not only reduce the accessibility to seniors but
also the general population? Do we at the same time, when we
talk about this issue, do we talk about R&D credits, about
encouraging pharmaceuticals to do more research, to create new
products that will compete with the ones on the field and break
up some of these monopolies we have seen before?
My colleague from Oklahoma points out the issue of
advertisement, which is something that we legitimately should
talk about.
I think that the biggest thing that I would ask us to
consider here is what we do with this issue does just not
affect seniors. It affects the entire country, because access
to pharmaceutical drugs and the breakthroughs and the miracles
that we are seeing coming out of this industry comes at a
price.
But it also requires us to take a responsible approach to
this, that the abuses of the pharmaceutical industry in this
field is the enemy, but the pharmaceutical industry is not the
enemy. It is obviously the guiding light of the future. And, as
my colleague from Pennsylvania pointed out, there would not be
a threat of major increased costs if there wasn't the fact that
we are having these breakthrough drugs showing up every day,
new breakthroughs.
And so I think that we need to be responsible, and I
strongly urge my colleagues to remember that this is not a
Democrat or Republican issue, this is not a California or an
East Coast issue. This is an American issue that is really
leading the rest of the world, and hopefully we can get the
facts, find reasons to find answers rather than finding excuses
to be against each other, and keep an open mind.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Bilbray. Thank you, Mr. Chairman. I yield back.
Mr. Bilirakis. Mr. Green, a brief opening statement,
please.
Mr. Green. Thank you, Mr. Chairman. I will submit my whole
opening statement.
Mr. Bilirakis. Without objection.
Mr. Green. Following my colleague from California, I
thought I was the only one that said how we do it in Texas is
the way we should do it in the country. My concern is, we don't
do it in Texas, and that is why we need to do it here as well
as we should.
And I know signing a discharge petition is one way to move
the issue forward. I thank you, Mr. Chairman, for this second
hearing. And I would hope that whether it is the discharge
petitions, the two bills, or some other bill that maybe our
subcommittee can put together, we need to address this issue
this Congress. And because of the number of seniors that not
only contact me, but from all over the country that talk to
their Members, and like my own district does with the people
who say they have to forego their prescriptions because they
can't afford them. They are using most of their Social Security
check to pay for their prescription medications.
And, Mr. Chairman, it is an important issue, because when I
can go into my district and show that seniors are paying almost
twice as much for prescriptions than other groups that have
negotiating power can receive, when they pay over twice as much
and my constituents in Houston can drive to Mexico and receive
those--it is a 6-hour drive from Houston--and buy the same
pharmaceuticals, or that they could go down to their vet and
buy those same pharmaceuticals for their animal, it is much
cheaper than for humans. So that is why it is important this
Congress to address it, and I yield back my time.
[The prepared statement of Hon. Gene Green follows:]
Prepared Statement of Hon. Gene Green, a Representative in Congress
from the State of Texas
Mr. Chairman: Thank you for convening this important discussion. I
am pleased to have this opportunity to learn more about models for a
prescription drug program.
Most of us agree that the lack of prescription drug coverage for
our seniors is a real and growing problem.
And it is not just a problem for the poor--it is a problem for
middle-income seniors who worked hard their entire lives, paid taxes,
contributed to building our great country and are now forced to choose
between buying medicine and buying groceries.
I urge those here today--with their charts, numbers and figures, to
remember that these percentages are people . . . and these people are
in desperate need of prescription drugs.
There are many ideas and options out there for how to put together
a drug program. Some support the state-run method . . . others support
vouchers . . . others support tax credits.
All these approaches have their pros and cons, and I have no doubt
that all are proposed in good faith.
But as we continue this debate, we need to judge each of these
proposals by a few important criteria.
Number one: Does the proposal continue Medicare's traditional
program structure by covering ALL seniors?
Number two: Does the proposal provide free or reduced-price
coverage to low income seniors?
Number Three: Does the proposal ensure that seniors get the same
benefits--and access to the same or similar drugs--in all regions and
regardless of whether they are in fee-for-service or managed care
plans?
Number Four: Does the proposal ensure that the Medicare program
continues its legitimate role in ensuring that the prescription drug
program is fair and cost-effective?
Number Five: Does the proposal ensure that seniors will have
consumer protections and that they will continue to get benefits, even
if an insurance company goes out of business?
As we continue the debate on how to model a prescription drug
program, I urge my colleagues to consider these five points and to
measure all proposals against them. A drug benefit program that only
covers a few, or only provides a limited benefit, will be of little or
no use to America's seniors.
Only by crafting a full and fair benefit can we meet the needs of
our seniors. Anything less is unacceptable.
Mr. Bilirakis. I thank the gentleman.
Mr. Lazio.
Mr. Lazio. Thank you very much, Mr. Chairman. I want to
thank you as well for holding the hearing, and it has been a
pleasure working with you on this issue, and I want to thank
the staff as well.
I guess my quick question is, how much good are we going to
do for seniors if our only concern is cost, which is what I
think I hear from some members on this panel, and the issue of
quality is effectively dismissed?
This past Sunday night ESPN hosted their Espy awards.
Usually the show highlights world records, Super Bowls and
record-high salaries, but this year they also awarded a 1999
comeback athlete of the year award to Lance Armstrong. He made
world headlines last summer with the most stunning comeback
ever in the history of sports, his 1999 victory at the Tour de
France.
As most of us know, his stunning comeback has less to do
with his athletic achievement, since he was the No. 1 ranked
cyclist in the world in 1996, but more to do with his amazing
victory from cancer. In the fall of 1996 Armstrong was
diagnosed with testicular cancer. The cancer spread to his
lungs, and he was given about a 20 percent chance of survival.
He was 25 years old.
For the next 2 years he aggressively attacked his illness
like he did racing bicycles. However, he couldn't do it alone.
In his acceptance speech he spoke about how his competitive
nature and will to live was not enough. He needed the best
therapies and medicines available to him to win this battle
with cancer. Without research, he said, he would not have been
there to accept the award.
That is true with cancer and diabetes and a whole rift of
different diseases that plague both seniors and the rest of the
population. Access is the key, and price controls in my opinion
are not. Price controls do not allow new breakthrough medicines
and lifesaving therapies to reach my constituents.
I just want to take one example, two examples, and briefly,
Mr. Chairman. The story of a Long Island senior who wrote me in
disgust about the President's plan. She had approximately $500
in drug costs last year. Under the Clinton plan she would have
to pay $552.40 for her prescriptions. Well, that doesn't make
sense. She is paying $52.40 extra each year to belong to
Clinton's plan, and we are supposed to call this a benefit.
I have also received a large amount of constituent mail
regarding a new, wonderful, but extremely expensive drug for
rheumatoid arthritis. Many people are aware of it. For this
$14,000-per-year drug, a senior participating under the Clinton
plan would still be paying $12,697 per year, and we are
supposed to call this a benefit. I think we can do better.
We know there are market-oriented solutions, at least to
alleviate part of the pressure, through PBMs and other
mechanisms that will help drive the price down. We know if we
get more seniors or all seniors into plans like that, they will
be able to take advantage of the same discounted prices and
price rebates that seniors participating in Medigap and other
insurance that covers prescriptions get. And we also know that
if we have a federally mandated price control system in place,
that we will not have the kind of breakthrough drugs that
people like Lance Armstrong were able to use to triumph over
his illness.
Mr. Bilirakis. Let's make the vote. The gentleman's time
has expired.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Fred Upton, a Representative in Congress
from the State of Michigan
Mr. Chairman, thank you for holding today's hearing to examine ways
in which we might craft a prescription drug benefit for Medicare
beneficiaries. I am deeply concerned about the burden borne by many
individuals who do not have insurance coverage for prescriptions. No
senior citizen should be forced to forego needed medication, take less
than the prescribed dose, or go without other necessities in order to
afford life-saving medications.
I read and sign all of my mail, and I have seen a dramatic increase
over the past several years in the number of Medicare beneficiaries
writing to me about the struggle they are having with rising
prescription drug costs. These are not form letters I am referring to.
They are hand written letters--often with their bills enclosed. We are
fortunate in Michigan to have a state prescription drug program, but
this covers only low-income individuals with high monthly drug costs.
Further, we have no Medicare managed care plans in our district because
Medicare's payment rates are too low to attract plans. Thus, my
constituents are denied access to coverage through this route. Yet they
have paid the same Medicare payroll taxes into the system over the
years and pay the same monthly premiums as beneficiaries who do have
this choice. This is a matter of fairness, as well, for my
constituents.
Because of my keen interest in addressing this issue, I am very
glad to be serving with you the House Leadership's prescription drug
task force led by our Chairman. Our nation leads the world in the
development of new drugs and medical devices that enable us to
effectively treat diseases and conditions. But if people cannot afford
to buy these drugs, their benefits are lost to many in our population.
I share the task force's goal of and commitment to ensuring that
every Medicare beneficiary has access to affordable coverage and has
protection from unusually high out-of-pocket costs. I am committed to
crafting a plan that is senior friendly--one which avoids the often
complex, complicated bureaucracy of the current Medicare program.
Our goal in crafting this plan must also be one of ensuring that
our nation continues to lead the world in the development of life-
saving new drugs. Over the past decade, we have seen so many
breakthroughs in drug therapy, from a new, much more highly effective
treatment and perhaps preventive for breast cancer, to anti-virals for
AIDS and other diseases, to treatments for cystic fibrosis. As we
continue to map the gene and understand more fully the link between
genes and disease, think of the possibilities. We are perhaps within
reach of preventing or curing diabetes, Parkinson's, Alzheimer's, and
other debilitating and terrible afflictions. As our population ages, we
need to encourage further breakthroughs in the prevention, treatment,
and management of chronic, debilitating conditions such as arthritis
and osteoporosis, for that is the only real hope of controlling health
care costs. Crippling the incentives and resources needed for new drug
discovery and development would dash these hopes, leave these promises
unfulfilled, and condemn many to suffering and premature death.
The task before us is daunting. It will take all of us, Republicans
and Democrats, Ways and Means and Commerce, House and Senate and
Administration, working together to pull this off and plug a huge hole
in the Medicare program with a common-sense, workable, comprehensive
drug benefit. We need to put aside partisanship and short-term
political considerations and do what is right for our constituents and
for the future of health care in America.
______
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress
from the State of Florida
Thank you, Chairman Bilirakis, for holding this important hearing.
Today's hearing will focus on various proposals for providing
prescription drug coverage to seniors who do not have access to
affordable coverage.
I believe that we need to figure out how to expand insurance
coverage for drugs, not attempt to give the government the ability to
fix prices. Price controls never work. All they do is reduce supply or
eliminate discounts that are available to some. As a matter of fact,
the Omnibus Budget Reconciliation Act of 1990 (OBRA) required drug
manufacturers to provide rebates to State Medicaid programs based on
the lowest prices they charged to the purchasers in an effort to lower
Medicaid drugs prices.
As Chairman of the VA Subcommittee on Health, this is an issue that
I'm very familiar with. In fact, in July 1997 we received testimony
from Ms. Bernice Steindardt, of the GAO's Health, Education and Human
Services Division, about this mandate. She told the subcommittee that
the end result of the 1990 OBRA drug rebate was that many manufacturers
raised drug prices (because of the size of the Medicaid market) to
minimize the impact of the rebates. That is why we must be cautious in
moving in the same direction as a way to provide our seniors with
prescription drug coverage.
One of the proposals we will hear about today is legislation to
provide lower wholesale prices of drugs for Medicare-affiliated
pharmacies. This has the potential of repeating the disastrous effects
that were created by OBRA 90. Why is this the case? Because
manufacturers would have a strong incentive to raise those ``lowest''
prices substantially in order to keep from losing their profit margins.
The bottom line is that there is no simple solution to our problem.
By enacting the Medicare Plus Choice program as part of the
Balanced Budget Act of 1997, Congress sought to expand Medicare
beneficiaries access to prescription drugs by allowing them to join
health plans that offer this benefit. Congress' goal in the BBA was to
extend to Medicare beneficiaries the same range of choices that exist
for working Americans. Choosing between competing health plans offers
Medicare beneficiaries greater promise of accessing the drugs they need
than will government price controls.
The bipartisan commission developed a proposal that is worth real
discussion. The Breaux-Frist bill (S. 1895) would provide Medicare
beneficiaries the same options that most federal employees, including
the President and members of congress have. We should allow seniors the
opportunity to take advantage of the changes in health care delivery
benefiting every privately insured person. I am pleased that we are
finally talking about this innovative and free market approach to help
senior citizens.
We need to help them gain access to affordable prescriptions
through insurance coverage and the truly effective price competition of
an active marketplace.
That is why I support the Breaux-Frist bill because it would
restructure Medicare, using the Federal Employees Health Benefits
Program (FEHBP) as a model. This would ensure that seniors would have
access to newer drugs and devices because they would choose the plan
they want.
I look forward to hearing distinguished witnesses.
______
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
I'm pleased that the Subcommittee is holding this hearing today.
This is the third hearing this Committee has held on the topic of
senior citizens access to prescription drugs.
I've been studying this issue closely for a number of months now
and it is a tough one. It is clear that too many seniors have trouble
affording their medications. It is equally clear that many seniors have
drug coverage today that they like and don't want threatened by
anything we do in Congress.
Americans have the best health care in the world. My first goal in
helping seniors afford medicine is to preserve what is good about our
health system today. We are on the edge of remarkable breakthroughs in
new drug therapies to treat and even cure diseases that just ten years
ago were considered death sentences. We don't want to do anything to
jeopardize this work.
Yet, America's role as the world leader in drug research has its
costs. Our challenge is to find ways to make sure seniors have access
to needed medication without resorting to price controls or big-
government drug purchasing schemes.
Many folks under 65 years old are fortunate to have health
insurance to cover most or all of the costs of their prescription
drugs. But Medicare does not pay for most prescription drugs for
seniors. In my opinion, this shows that if a private insurance company
tried to market and sell the Medicare benefit to Americans today, I
would bet few would buy it--Medicare does not reflect how modern
medicine is practiced and delivered.
This is why I truly want to explore a way to give seniors access to
all the private health coverage options available to Americans under
the age of 65. Every Member of Congress has this choice. Lets give
seniors the same choice.
I want to develop legislation that provides all seniors access to
affordable, private drug coverage. I believe we should assist those
seniors who cannot afford to purchase this coverage. And I think it is
critical that whatever we do, that we protect not only low-income
seniors but those who have very high annual out-of-pocket drug costs.
Whatever is done to help seniors with their drug costs, it must
minimize the substitution of private health coverage with government
run programs. Our first witness today, Mrs. Rita Lewis, will talk about
her own experience. Like millions of other seniors, Rita is worried
that Congress will harm her coverage. There has to be a way for us to
strike a balance for those who need coverage and those who are already
covered.
Again, I want to thank the Chair for holding this hearing and look
forward to the witnesses testimony.
______
Prepared Statement of Hon. Sherrod Brown, a Representative in Congress
from the State of Ohio
Should the Medicare program offer prescription drug coverage? What
good is insurance if it covers the diagnosis, but not the cure? Of
course Medicare should cover prescription drugs.
But why can't we target coverage to just the lowest income seniors?
Two reasons.
Medicare works because every American contributes to it and every
American benefits from it. A third of all seniors lack drug coverage,
millions more are underinsured, employers are dropping their retiree
coverage and private health insurers are ratcheting down their
prescription drug benefits. This is a broad-based problem.
Whether or not Medicare should cover prescription drugs is not a
real question. If you believe this nation benefits from helping seniors
live in good health and above poverty, than Medicare should cover
prescription drugs.
But it is expensive to cover prescription drugs. Can the U.S.
afford it? Yes and no.
We are the wealthiest nation in the world. Our retirees are
collectively responsible for our current prosperity. Their security and
well-being resonate across families, communities, and ultimately the
nation. We can afford to--it is in out best interest to--provide
seniors health care coverage that makes sense and that means providing
prescription drug coverage.
But we can not afford to waste tax dollars that otherwise could be
used to bolster Medicare's long-term solvency. We can not afford to be
ripped off. To be fiscally responsible, to best serve the public, we
need to pay fair prices for prescription drugs.
So the question is, are current prices fair?, if you define
``fair'' as meaning ``necessary'' to finance future research and
development.
Maybe prices are fair. Maybe drug companies have no choice but to
charge such high prices. I doubt it. Knowing how much drug companies
are investing in marketing, knowing what their profit margins are, not
to mention their CEO salaries, and knowing any reduction in prices
could be largely offset by increase in the volume of sales, I doubt
prices need to be this high. But even if drug manufacturers could
justify their revenue requirements. How could they justify placing such
a disproportionate burden on Americans?
How can they justify charging Americans two and three and four
times what they charge individuals in other industrialized countries?
Why are prescription drugs more expensive here? Because other countries
won't tolerate outrageous prices. We do. We don't negotiate prices. We
don't demand that drug manufacturers reduce their prices to reflect the
federally funded portion of research and development. And we don't make
use of the collective purchasing power of 38 million seniors to demand
fairly priced drugs. Instead, we nod our heads when drug manufacturers
warn us that any action we take would stifle research and development.
Drug prices can come down in the United States without stifling
research and development. Take the case of medical devices. The
Medicare program is the largest purchaser of medical devices in the
United States. The Medicare program pays discounted prices for medical
devices and yet new devices are developed every day. Obviously a fast
way to make money is to charge inflated prices for prescription drugs.
It works beautifully for a product so important to so many people. That
does not make it necessary.
So, what do we do about high prices? The drug industry says the
best way to make prescription drugs affordable for seniors is to enroll
all 38 million in private health insurance plans. I'm not sure I follow
their logic. Look at what is happening in the private insurance market
today. Health insurance premium increases are back in the double
digits. Insurers blame prescription drug costs. Enrollees in private
plans can expect higher co-pays and lower prescription drug caps.
One of the fundamental truths about health insurance is the larger
the pool of enrollees, the more stable the premiums and benefits will
be. Fragmenting the risk pool has never been a good idea and it is
certainly not a good idea when it comes to such a big ticket item as
prescription drugs.
We have other options. I have introduced legislation that would
give drug manufacturers a choice. They could either disclose their true
costs and work with us to bring prices down, or they could license
their patents to generic drug companies and let the free market bring
prices down to a more reasonable level. Mr. Allen has introduced
legislation that would permit seniors to purchase drugs at discounted
prices. Mr. Sanders and Mr. Barry have introduced legislation that
would permit us to import drugs when they are priced less expensively
in other countries.
So I ask you again. Should Medicare provide prescription drug
coverage for seniors? Yes. Will it be expensive? Yes. Is there
something we can do to make it less expensive? Yes. Now is the time to
stop debating this issue, and do what is right for seniors.
Thank you, Mr. Chairman.
______
Prepared Statement of Hon. Anna G. Eshoo, a Representative in Congress
from the State of California
We've spent a great deal of time this Congress talking about the
need to shore up the Medicare program.
Yes, we must ensure the solvency of the program but we must also
modernize it.
The key to ensuring that the program covers the best that medical
science has to offer is to provide a comprehensive prescription drug
benefit.
When Medicare was created in 1965, seniors were more likely to
undergo surgery than to use prescription drugs.
Today, prescription drugs are often the preferred, and sometimes
the only, method of treatment for many diseases.
In fact, 77% of all seniors take a prescription drug on a regular
basis.
And yet, nearly 15 million Medicare beneficiaries have no insurance
coverage for prescription drugs whatsoever.
This means that a lot of senior citizens--most of whom are on
modest, fixed incomes--are spending a great deal of their monthly
incomes on prescription drugs. In fact, 18% of seniors spend over $100
a month on prescriptions.
My senior constituents have told me about being forced to limit the
amount they spend on groceries in order to pay for their prescription
drugs.
For some seniors, enrolling in Medicare managed care plans has
provided them drug coverage. However, 11 million beneficiaries don't
have access to any managed care plans.
During the last two years, Medicare managed care plans have
withdrawn from many regions, standing thousands of seniors, many of
whom only signed up to get drug coverage in the first place.
Today, only 16% of Medicare beneficiaries are enrolled in Medicare
HMOs.
Many managed care plans are dropping or severely limiting coverage.
A recent Kaiser study found that current drug coverage in
Medicare+Choice plans varies greatly and may be in jeopardy altogether
as plans face declining profits.
We can't rely solely on the private sector to provide this service.
Prescription drugs must be included in the basic Medicare benefits
package. And it must be affordable.
When he enacted the Medicare program, President Johnson said, ``the
benefits of this law are as varied and broad as the marvels of modern
medicine itself.''
I think we can all agree that the tremendous advances prescription
drugs have made in the diagnosis and treatment of every illness from
arthritis to Alzheimer's are today's greatest ``marvels of modern
medicine.''
Thirty-nine million seniors are relying on us to make sure they
have access to these marvels. Let's not disappoint them.
Thank you, Mr. Chairman. I look forward to hearing from the
witnesses.
Mr. Bilirakis. I would ask the first panel to come forward,
and as soon as I return, we will get started. Thank you.
[Brief recess.]
Mr. Bilirakis. I ask Mrs. Rita Lewis and Dr. Beatrice Braun
to please come to the table, take their seats. As Mr. Bilbray
has already introduced her, Mrs. Rita Lewis is director of the
Osteoporosis Support Group of San Diego; and Dr. Beatrice Braun
is a member of the Board of Directors of AARP. Welcome, good
ladies. I appreciate very much your being here.
Your written statement that you have already submitted to
the committee is already a part of the record. We will give you
5 minutes to hopefully supplement it or complement it, if you
will. Mrs. Lewis, please proceed. Take your time, but move that
mike close because we certainly want to hear everything you
have to say.
STATEMENTS OF RITA H. LEWIS, DIRECTOR, OSTEOPOROSIS SUPPORT
GROUP OF SAN DIEGO, CALIFORNIA; AND BEATRICE BRAUN, MEMBER,
BOARD OF DIRECTORS, AARP
Mrs. Lewis. Can you hear me?
Mr. Bilirakis. Yes.
Mrs. Lewis. Good morning. It is a great honor to be here
today before the Commerce Committee to share my thoughts about
the Medicare program and prescription drugs.
My name is Rita Lewis. I am 80 years old, and I live in San
Diego, California. For the past 16 years I have received my
Medicare benefits through a private health plan. I am very
pleased with the quality of the care I receive from my doctors,
nurses, and other health care providers.
As a resident of San Diego, I have a wide variety of plans
available to me. I stay with my plan because it works for me,
and the doctors and nurses have never let me down. For the $15
a month, I receive top notch care. The 11 medications I take
daily have minimal cost.
One of the best features of my plan is that I have so much
less paperwork than friends of mine who are in the old Medicare
program. They spend hours on the phone trying to sort out their
bills. With my plan, it is easy to understand. When I go to my
physician, I pay $5, and when I was hospitalized on several
occasions, my private plan picked up 100 percent of the costs.
This gives me peace of mind.
Now, I would like to take a moment to talk about my own
medical condition. When I was in my early 60's, I learned that
I had osteoporosis, the bone disease that affects older women
and some men. My doctors tried every available medicine to stop
my bone loss, but they did not work and I lost over seven
inches in height. My condition was so bad that my husband could
not give me a hug without breaking one of my ribs, sometimes
two.
A new drug was developed to stop the deterioration of my
bones. My doctor immediately prescribed this medication and I
began to see the effects. The progression of my osteoporosis
was stopped, and I have actually had bone mass increases. With
the discovery of this new drug, I am now able to walk again
every morning, 40 to 45 minutes, at a fast clip now.
In addition to osteoporosis, I have several other medical
conditions that are treated with prescription drugs. In total,
I take eight medications a day and three calcium pills that
amount to 11 pills. These drugs are vital to my health. My plan
covers most of the costs for these drugs. My co-pay ranges from
$10 to $30 for a 90-day program. I order my prescriptions by
telephone or through my mail order program. Some are new brand
name drugs, like my osteoporosis drug, and others are generic.
It costs me in the neighborhood of $600 a year for my
prescription drugs.
I understand that some Members of Congress would like to
add prescription drugs to the Medicare program. I am concerned
that a large government approach will be confusing and will
cost more. Like my husband Aaron says, ``There is no free
lunch.'' While it is important for seniors to have access to
prescription drug coverage, I think that plans like mine
provide the best solution.
In closing, let me leave you with one final thought. I am
80 years old. I take eight medications a day. I see many
doctors and nurses, and I have been in and out of the hospital.
My health care plan works for me. I would like more healthy
years to enjoy my husband, my children, my grandchildren, and
so do a lot of other seniors. Please remember seniors like me
when you consider changing Medicare. And thank you.
[The prepared statement of Rita H. Lewis follows:]
Prepared Statement of Rita H. Lewis
Good morning. It is a great honor to be here today before the
Commerce Committee to share my thoughts about the Medicare program and
prescription drugs.
My name is Rita Lewis. I am 80 years old and I live in San Diego,
California. For the past 16 years, I have received my Medicare benefits
through a private health plan. I am very pleased with the quality of
the care I receive from my doctors, nurses, and other health care
providers.
As a resident of San Diego, I have a wide variety of plans
available to me. I stay with my plan, because it works for me and the
doctors and nurses have never let me down. For $15 dollars a month, I
receive top notch care. The 11 meds I take daily have minimal cost.
One of the best features of my plan is that I have so much less
paperwork than my friends who are in the old Medicare program. They
spend hours on the phone trying to sort out their bills. With my plan
it is easy to understand. When I go to my doctor, I pay $5. And when I
was hospitalized on several occasions, my private plan picked up 100
percent of the costs. This gives me peace of mind.
Now, I would like to take a moment to talk about my own medical
condition. When I was in my 60s, I learned that I had osteoporosis, the
bone disease that affects older women, and some men. My doctors tried
every available medicine to stop my bone loss, but they did not work
and I lost over seven inches in height. My condition was so bad that my
husband could not give me a hug without breaking one of my ribs.
A new drug was developed to stop the deterioration of my bones. My
doctor immediately prescribed this medication and I began to see the
effects. The progression of my osteoporosis was stopped and I have
actually had bone mass increases. With the discovery of this new drug,
I am now able to walk again on my own and without canes. I keep fit by
walking five days a week for 40-45 minutes.
In addition to osteoporosis, I have several other medical
conditions that are treated with prescription drugs. In total, I take 8
medications a day and three calcium pills, for a total of 11 pills.
These drugs are vital to my health. My plan covers most of the costs
for these drugs. My copay ranges from $10 to $30 for a 90-day supply. I
order my prescriptions by telephone or through my mail order program.
Some are new brand name drugs, like my osteoporosis drug, and others
are generic. It costs me about $600 a year for my prescription drugs.
I understand that some Members of Congress would like to add
prescription drugs to the Medicare program. I am concerned that a large
government approach will be confusing and will cost more. Like my
husband Aaron always says, ``there is no free lunch.'' While it is
important for seniors to have access to prescription drug coverage, I
think that plans, like mine, provide the best solution.
In closing, let me leave you with one final thought. I am 80 years
old. I take 8 medications a day. I see many doctors and nurses and I
have been in and out of the hospital. My health care plan works for me.
I want more healthy years to enjoy my husband, children, and
grandchildren and so do other seniors. Please remember seniors like me
when you consider changing Medicare.
Mr. Bilirakis. Thank you very much, Mrs. Lewis.
Dr. Braun, please proceed.
STATEMENT OF BEATRICE BRAUN
Ms. Braun. Good morning. I am Bea Braun, from Spring Hill
in Florida, and a member of AARP's Board of Directors, and I
truly thank you, Mr. Chairman and members, for the opportunity
to testify today.
As we all know, since it was enacted Medicare has provided
access to affordable health care and has kept many older people
out of poverty, but the challenges are very large that we now
face. As a retired physician, 50 years out of medical school, I
have seen the practice of medicine change dramatically,
particularly in the area of prescription drugs. Penicillin was
just coming in when I was in medical school.
Simply stated, prescription drug coverage is smart
medicine. Yet, while most employer plans include drug coverage,
Medicare does not. We are pleased that Congress, the
administration and the drug industry recognize that
prescription drug coverage must be a part of a strengthened
Medicare program. The only question is how to do it.
The AARP believes that a Medicare prescription drug benefit
must be available to all and affordable for all beneficiaries,
but the benefit should be voluntary so no one has to give up
what they already have, as Mrs. Lewis says. And the benefit
must be affordable for all beneficiaries, and not just those
with low incomes. The benefit needs to assure that it helps
middle income beneficiaries handle mounting prescription costs.
Equally important, it needs to ensure enough participation
in the benefit to avoid risk selection. One of Medicare's
greatest strengths has been its success in pooling the risk of
nearly 40 million beneficiaries. This has let Medicare avoid
the cherry-picking that exists in the under-65 health insurance
market. This broad risk pool must be sustained in order to keep
Medicare strong and affordable.
While 65 percent of beneficiaries may have some type of
drug coverage, the employer-based retiree coverage is declining
rapidly. Medigap coverage is very expensive, and limited in
what and who it covers. And managed care coverage has proven
unstable. Premiums are going up, and in many cases there have
been pull-outs from various counties in the country, including
my own.
I am not attempting today to give a full review of the
prescription drug proposals before Congress. That will take
many more hearings. But as Congress undertakes this effort, I
would like to raise the following fundamental questions that
need to be answered by any drug proposal:
Will the proposed prescription drug coverage be affordable
to beneficiaries, and assure a viable risk pool for the
program? These go hand-in-hand. How would insurers be prevented
from cherry-picking beneficiaries? How would beneficiaries with
very high drug costs be protected? Does the proposed benefit
meet the needs of current and future beneficiaries?
AARP is reserving judgment on current proposals until these
and other questions about their impact on beneficiaries and the
program itself are answered. How to provide Medicare
beneficiaries with affordable prescription drugs is a huge
challenge. We urge the Congress, the drug industry and
consumers to engage in a serious debate on the merits of the
full range of approaches.
The success of any drug benefit proposal, as well as
broader changes in Medicare, depend on a clear understanding on
the part of the public and policymakers alike of the changes
being contemplated. This will require not only extensive dialog
but also a thorough analysis of how the proposal would affect
current and future beneficiaries. In fact, if legislation is
pushed through too quickly, before the effect on beneficiaries
is known, AARP would be compelled to alert our members of the
dangers in such legislation and why we could not support it.
The AARP is committed to working with Members of Congress
on a bipartisan basis to advance the debate over prescription
drug coverage and to carefully explore the best options for
securing Medicare's future. And I thank you, Mr. Chairman, for
giving us the opportunity and for your efforts to examine the
high costs of prescription drugs for our older Americans,
including me.
[The prepared statement of Beatrice Braun follows:]
Prepared Statement of Beatrice Braun, AARP Board Member
Mr. Chairman and members of the Committee, I am Beatrice Braun, a
member of AARP's Board of Directors. I want to thank you for your
interest in the issue of the high cost of prescription drugs and the
difficulties older Americans have in paying for needed medications.
AARP appreciates this opportunity to share our perspective on the need
for a Medicare prescription drug benefit and some of the broader issues
involved in reforming the Medicare program.
For over thirty years Medicare has provided older and disabled
beneficiaries with dependable, affordable, quality health insurance. I
live in Florida, which has one of the largest beneficiary populations
in the nation. As a retired physician, I have seen first hand how
Medicare has made a difference in the lives of older Americans.
Medicare has been instrumental in improving the health and life
expectancy of beneficiaries in Florida and across the nation. It has
also helped to reduce the number of older persons living in poverty.
Medicare's promise of affordable health care extends beyond the
current generation of retirees. Now, more than ever, Americans of all
ages are looking to Medicare's guaranteed protections as part of the
foundation of their retirement planning. AARP believes that in order
for Medicare to remain strong and viable for today's beneficiaries, and
for those who will depend on it in the future, we must confront the key
challenges facing the program.
Foremost among these challenges is ensuring that Medicare's
benefits and its means of delivering care remain dependable even as
they are updated to keep pace with the rapid advances in health care.
The practice of medicine has changed dramatically since the Medicare
program was created. We are now living in a time of amazing
breakthroughs in medical technology. Among the most striking are the
advances in the area of prescription drugs. Drug therapies that were
not available when Medicare began are now commonly used to prevent and
treat virtually every major illness. In many cases, new drugs
substitute for or allow patients to avoid more expensive therapies such
as hospitalization and surgery. In other cases, drugs facilitate
treatment or provide treatment where none existed before, improving the
quality and length of life for the patient. As a result, prudent
reliance on prescription drugs now goes to the very core of good
medical practice.
Ironically, while older Americans typically need more medications
than younger people, most employer plans include and rely on
prescription drug coverage as an essential tool for medical management,
but Medicare still does not. Consequently, high prescription drug
prices impose significant financial hardship on the millions of
Medicare beneficiaries who have inadequate or no insurance coverage for
prescription drugs. It is important to remember that beneficiaries
without coverage pay top dollar for their prescriptions because they do
not benefit from discounts negotiated by third party payers as do most
younger persons. AARP believes prescription drug coverage must be part
of an improved Medicare program. Simply stated, prescription drug
coverage is smart medicine.
The second challenge facing Medicare is our nation's changing
demographics. The retirement of the baby boom generation will nearly
double the number of Medicare beneficiaries in the program. Medicare's
financing and delivery systems must be capable of serving this enormous
influx of beneficiaries whose health care circumstances, needs, and
expectations will be similar in some respects to those of today's
beneficiaries, but very different in others. Just as important, longer
life spans are already causing rapid growth in the very old population.
Medicare must be prepared to handle the unique health care needs of a
growing number of older Americans who reach 85, or even 100.
To meet these challenges, the program's long-term financial
solvency must be secure. AARP supported the Balanced Budget Act of 1997
as a first step towards securing Medicare's long-term solvency. The
strong economy we now enjoy and the Medicare Trustees' projection of
solvency to the year 2015 are good news. But, this does not mean we can
afford to become complacent or that we can delay the debate over how
best to strengthen Medicare.
The deliberation over Medicare's future must be ongoing. It will
take a sustained effort to update and improve Medicare. Changing a
program that millions of Americans depend on for their health care is
no small task. There must be a careful and thorough examination of the
full range of issues--prescription drugs being only one issue among
them--and a similarly careful effort to make sure that policy makers
and the public alike understand the trade-offs that will be necessary.
AARP believes that it would be a serious mistake for anyone to
hinder debate on reform proposals. By the same token, it would be an
error for the Congress to rush to judgment on any reform option before
policy makers and the public understood the proposed changes and their
anticipated effect on beneficiaries, providers, and on the Medicare
program in general. As we all learned over the recent BBA revisions,
earlier experiences with the Catastrophic Coverage Act in the late
1980s, and from the health care reform debate of the early 1990s,
unless the American public understands the trade-offs they are being
asked to make, and the changes that they will face, initial support can
erode quickly.
the need for a medicare prescription drug benefit
AARP is pleased that the Subcommittee has begun to examine the
various Medicare prescription drug proposals before the Congress and is
developing its own prescription drug benefit plan. The work you are
embarking upon is extremely challenging; it is also immensely important
to millions of Americans who take prescription medications. It is our
hope that today's hearing will help focus attention on the need for an
affordable Medicare prescription drug benefit for all beneficiaries, as
well as on other Medicare reform issues.
As new prescription drugs are becoming available to treat and even
prevent more and more serious conditions and life-threatening
illnesses, reliance on these drugs has become especially significant
for older Americans. Eighty percent of retirees use a prescription drug
every day. While older Americans comprise only 12 percent of the U.S.
population, they account for one-third of prescription drug spending.
In fact, after premium payments, prescription drugs account for the
single largest component of health care out-of-pocket spending, for
non-institutionalized Medicare beneficiaries age 65 and older. On
average, these beneficiaries spend as much out-of-pocket for
prescription drugs (17 percent of total out-of-pocket health care
spending) as for physician care, vision services, and medical supplies
combined. By contrast, inpatient and outpatient hospital care each
accounts for about 3 percent of older beneficiaries' total out-of-
pocket health spending.
High use, high drug prices, and inadequate insurance coverage pose
serious problems for today's Medicare beneficiaries. A chronic health
problem necessitating some of the newest, most expensive prescription
drugs can deplete a retiree's financial resources. Some beneficiaries
are forced to choose between food and their medications. Others do not
refill their prescriptions or take the proper dosage in order to make
their prescriptions last longer. A new international health care survey
of the elderly by the Commonwealth Fund reports 7 percent of adults age
65 and over did not even fill a prescription due to cost.
Because of Medicare's current lack of prescription drug coverage,
many beneficiaries must pay for prescription drugs completely out-of-
pocket. While some beneficiaries may have employer-based retiree
coverage, or be able to purchase private supplemental coverage that
assists with costs, or join a Medicare HMO that offers a prescription
drug benefit, these coverage options are inadequate, limited,
expensive, and unstable. For instance, a new study by the Commonwealth
Fund, reports that many Medicare beneficiaries do not have continuous
prescription drug coverage. In 1996, just 53 percent of beneficiaries
had prescription drug coverage throughout the year.
Although 65 percent of Medicare beneficiaries have some type of
coverage for prescription drugs, this figure can be very misleading. In
fact, the majority of Medicare beneficiaries--not just those with low
incomes--need drug coverage in Medicare. Why?
First, Medicare beneficiaries' current prescription drug coverage
does not protect them from high out-of-pocket expenses. AARP estimates
that 25 percent of Medicare beneficiaries spent over $500 out-of-pocket
on prescription drugs in 1999, and over half of these beneficiaries had
some type of coverage. Forty-two percent of beneficiaries who spent
$1,000 or more on their prescription drugs (excluding insurance
premiums) had some type of drug coverage. For example, some
beneficiaries buy Medigap policies that provide a drug benefit. Two of
the three Medigap policies that cover prescription drugs have an annual
cap of $1,250 on drug coverage; the third policy has a $3,000 cap. All
three Medigap policies that have a prescription drug benefit require
the beneficiary to pay 50 percent coinsurance. It is interesting to
note that while Medigap drug coverage is quite limited, the premiums on
these policies exceed $1,000 a year. Other beneficiaries choose to
enroll in Medicare HMOs that offer some prescription drug coverage.
Yet, this year 32 percent of Medicare HMOs offering drug coverage have
a $500 cap that applies to brand or to brand and generic drugs, and
average copays in these plans have increased dramatically from last
year--an estimated 21 percent for brands and 8 percent for generics.
Second, current prescription drug coverage available to Medicare
beneficiaries is limited. Private Medigap policies may be the only
option for obtaining drug coverage for beneficiaries who do not have
access to employer coverage or Medicare+Choice plans. Yet, because
almost all Medigap policies with drug coverage exclude beneficiaries
based on pre-existing conditions once they have passed the first six
months of their Medicare eligibility, and because not all three Medigap
policies that include prescription drugs are not offered everywhere,
many Medicare beneficiaries desiring such coverage cannot obtain it.
Additionally, although Medicare HMOs are prohibited by law from
underwriting the coverage they offer, such plans are not available in
all parts of the country.
Third, current drug coverage options are not stable. For example,
beneficiaries who obtain prescription drug coverage from their former
employer are finding that coverage to be unstable. Retiree health
benefits that include prescription drug coverage are becoming more
scarce. While an estimated 60 to 70 percent of large employers offered
retiree health coverage during the 1980s, fewer than 40 percent do so
today. Of those employers who offer retiree benefits, 28 percent do not
offer drug coverage to Medicare eligible retirees.
Further, beneficiaries who have drug coverage through Medicare HMOs
cannot depend on having this coverage from year to year as plans can
change benefits on an annual basis or even terminate participation in
Medicare. For example, this year many beneficiaries in Medicare+Choice
plans are living through abrupt changes in their prescription drug
coverage that they did not foresee when they enrolled. Some of the most
visible of these changes include:
<bullet> Increasing premiums--Over the past few years, more and more
Medicare+Choice plans are charging premiums for their coverage,
and those premiums are climbing. This year 207,000
beneficiaries must pay over $80 per month to enroll in a
Medicare HMO. This compares to 1999 when only 50,000 Medicare
beneficiaries enrolled in Medicare HMOs had a premium above $80
per month.
<bullet> Higher cost-sharing--For the first time this year, all
Medicare HMOs that provide prescription drug coverage are
charging copays for those prescription drugs, and the average
beneficiary copay has increased significantly.
<bullet> Decreasing benefit--The annual cap on the typical
Medicare+Choice drug benefit has decreased. While in 1999 only
21 percent of Medicare HMOs had an annual cap of $500 or less
on their drug benefit, this year 32 percent of plans will have
a $500 cap.
<bullet> Loss of benefit--This year some Medicare+Choice plans dropped
their prescription drug benefit entirely. Although
Medicare+Choice has provided beneficiaries with an opportunity
for drug coverage, the volatility of the Medicare+Choice market
has made that coverage unpredictable and unstable from year to
year.
issues surrounding adding prescription drugs to medicare
AARP is committed to the creation of a voluntary, affordable
Medicare prescription drug benefit that would be available to all
beneficiaries, so that they may benefit from longer, healthier lives,
fewer invasive medical procedures, and reduced health care costs. We
appreciate the Subcommittee's interest in this issue and look forward
to working with the Congress and the Administration to assure that a
prescription drug benefit that is available and affordable to all
Medicare beneficiaries becomes part of Medicare's defined benefit
package. To that end, we have identified principles that we believe are
fundamental to the design of a Medicare prescription drug benefit:
<bullet> A Medicare prescription drug benefit must be available to all
Medicare beneficiaries. First, the benefit should be voluntary
so that beneficiaries are able to keep the coverage that they
currently have, if they choose to do so. A Medicare
prescription drug benefit should not be an incentive for
employers to drop or cut back on retiree health coverage.
Second, the benefit needs to be affordable to assure enough
participation and thereby avoid the dangers of risk selection.
To this end, the government contribution will need to be
sufficient to yield a beneficiary premium that is affordable,
and a benefit design that is attractive to beneficiaries. In
other words, this is not simply a matter of beneficiary
affordability, but equally important, the fiscal viability of
the risk pool. Medicare Part B is a model in this regard. The
Part B benefit is voluntary on its face, but Medicare's
contribution toward the cost of the benefit elicits virtually
universal participation.
<bullet> Prescription drugs should be a defined benefit and part of a
defined benefit package. It is critical that beneficiaries
understand what is included in their benefit and that they have
dependable and stable prescription drug coverage. In addition,
defining the drug benefit would reduce the opportunity for risk
selection.
<bullet> The benefit must assure beneficiaries have access to medically
appropriate and needed drug therapies.
<bullet> The benefit must include quality improvement components to
reduce medical errors and mismedication and to help reduce
overall health care costs.
<bullet> The benefit must include meaningful cost-containment
mechanisms for both beneficiaries and Medicare. This should
include drug-purchasing strategies that enable Medicare
beneficiaries and the program to take advantage of the
aggregate purchasing power of large numbers of beneficiaries.
<bullet> The benefit must provide additional subsidies for low-income
beneficiaries to protect them from unaffordable costs and
assure that they have access to the benefit.
<bullet> The benefit must be financed in a fiscally responsible manner
that is both adequate and stable. AARP believes that an
appropriate amount of the Federal budget surplus should be used
to help finance a prescription drug benefit.
<bullet> A new prescription drug benefit should be part of a strong and
more effective Medicare program. Prescription drug coverage
must be integrated into the program in a manner that
strengthens Medicare by improving the program's ability to
support modern disease management and prevention strategies.
Many of these strategies hold promise to both improve health
outcomes and lower program costs.
prescription drug proposals before the congress
The need to modernize the Medicare program to address the lack of
prescription drug coverage has become a major issue for the 106th
Congress. Several types of proposals for establishing a Medicare
prescription drug benefit have been introduced. At this time, AARP has
not taken a position on any of the proposals before Congress. As these
plans continue to be refined, we have reserved judgment until further
questions can be answered. We have not attempted in this testimony to
undertake an extensive review of all of the prescription drug proposals
introduced and the full range of questions that they raise. That
essential step will require many more hearings, close review by a range
of experts, and careful assessment of the impact of the proposed
changes on beneficiaries, plans, providers, and the program itself.
However, we have tried to summarize the major types of policy
approaches before the Congress and the fundamental questions that must
be answered about each.
President Clinton's Proposal
The approach put forward by President Clinton requires Medicare to
pay for 50 percent of beneficiaries' prescription drug costs. This
Medicare benefit would be available to all beneficiaries, but would be
voluntary. Benefit management would be contracted out to private
entities, such as pharmacy benefit managers (PBMs). This approach would
allow market forces to reduce drug prices for beneficiaries because the
contracted third parties could negotiate the same types of discounts
from manufacturers and pharmacies for Medicare as they currently
negotiate for health plans and HMOs. The government would be distanced
from the role of determining prices under this approach. Additional
financial assistance would be provided to low-income beneficiaries and
financial incentives would be offered to employers to ensure that they
retain current retiree health benefits. The Administration has now also
suggested a new catastrophic benefit, although the details have not
been spelled out.
While AARP is pleased that the President's proposal includes
prescription drug coverage for all beneficiaries, details of his plan
are forthcoming and there are still unanswered questions about how a
Medicare-based proposal would work. For instance:
<bullet> Will this prescription drug coverage be affordable to
beneficiaries?
<bullet> Are the proposed benefit package and subsidy sufficient to
attract a large number of beneficiaries?
<bullet> How would the President's new additional benefit to protect
those beneficiaries with extremely high drug costs work?
The Kennedy-Stark-Dingell bill takes a similar Medicare-based
approach as the President's, but would provide a different and more
generous benefit structure. Although the bill's proposed benefit would
include a deductible of $200, the beneficiary's coinsurance would be 20
percent rather than 50 percent, as proposed by the President. In
addition, the Kennedy-Stark-Dingell bill would include a cap on the
benefit of $1700 and stop-loss protection after the beneficiary has
$3000 in out-of-pocket prescription drug expenses. This proposal raises
the following questions:
<bullet> What happens to beneficiaries after they have exceeded the
benefit cap but before they are eligible for stop-loss
protection?
<bullet> Would beneficiaries support this type of benefit structure?
<bullet> Does this type of benefit meet the need of most current and
future beneficiaries?
The Breaux-Frist Proposal
The approach introduced by Senators Breaux (D-LA) and Frist (R-TN)
provides some subsidy to all beneficiaries interested in purchasing
prescription drug coverage. Unlike the President's plan, this approach
would not create a defined prescription drug benefit; rather, it allows
entities, such as insurance companies or health plans, to offer any
type of benefit so long as the benefit is equal to a certain actuarial
value. Plans would compete by varying their drug benefit design.
AARP is pleased that the Breaux-Frist bill improves upon earlier
versions of the proposal in that it would include some form of subsidy
for all beneficiaries who choose to purchase a ``high option'' plan.
However, we have several questions that relate to our belief that the
benefit must be affordable and avoid risk selection. These questions
include:
<bullet> Is the prescription drug benefit affordable? Is a 25 percent
premium subsidy enough to create a viable risk pool and make
the benefit affordable for most beneficiaries?
<bullet> How would insurers be prevented from ``cherry picking''
beneficiaries since the drug benefit would be pegged to an
actuarial cost and not to a particular benefit design?
<bullet> What will be the effect on quality of care and on
beneficiaries or program cost of having a prescription drug
that is administered separately rather than as part of the rest
of Medicare? Will this lack of integration lead to cost-
shifting or poorer quality care?
<bullet> Will prescription drug insurance that is offered through
private entities be more expensive for beneficiaries and for
the Medicare program than a benefit administered by Medicare
because Medicare does not have to make a profit, and has lower
administrative overhead costs?
<bullet> Will high-option stop-loss protection extend to the
prescription drug benefit? How would beneficiaries who have
very high drug costs be protected?
The Bilirakis Proposal
Another approach, illustrated by Representative Bilirakis' (R-FL)
bill, is to create a state-based approach for low-income beneficiaries,
while expanding Medicare's benefits to include stop-loss protection so
that the program would cover prescription drug costs once a
beneficiary's annual out-of-pocket expenses reached a specified
threshold. This approach would rely on the states to develop mechanisms
for reducing prescription drug costs for low-income beneficiaries.
While AARP opposes a Medicare prescription drug benefit for low-income
beneficiaries only, the approach of providing low-income drug
assistance outside of the Medicare program deserves further review.
However, a state-based approach with accompanying Medicare stop-loss
protection raises the following types of questions:
<bullet> How will the state low-income drug assistance program work?
Would all states offer a low-income prescription drug program?
<bullet> What processes would be established for enrollment and
outreach in the state-based low income prescription drug
programs?
<bullet> Would there be any incentives for Medicare+Choice plans to
keep offering a drug benefit or to offer wrap-around coverage?
<bullet> Would receipt of Medicare stop-loss protection be conditioned
on the purchase of private sector insurance?
The Allen Proposal
Another approach, reflected in Representative Allen's (D-ME) bill,
attempts to lower prescription drug prices by limiting the prices that
manufacturers could charge beneficiaries. This approach does not
involve the creation of a Medicare prescription drug benefit, but
rather would lower drug prices by legislatively tying the prices paid
by retail pharmacies for drugs sold to Medicare beneficiaries to the
best prices paid by the government. Although it does not provide a
Medicare benefit, the Allen approach has helped focus attention on the
inequity of prescription drug pricing and merits review. However, a
prescription drug discount approach raises the following types of
questions:
<bullet> Will manufacturer discounts be passed on to Medicare
beneficiaries?
<bullet> Will manufacturers engage in cost-shifting?
<bullet> Will a lower return on pharmaceuticals taken by beneficiaries
discourage manufacturers from further research and development
of drugs mainly used by older Americans?
options for medicare reform
The above policy approaches for dealing with the high cost of
prescription drugs illustrate one challenge we face in modernizing
Medicare. The President's Medicare reform proposal, the plan introduced
in the Senate by Senators Breaux and Frist, and proposals that will
likely emerge from the House, provide opportunities for furthering
debate about Medicare's future. We urge the Congress to carefully
examine the different reform options and begin to answer some of the
most critical issues surrounding broad changes to Medicare, including:
<bullet> How, and to what extent, would Medicare's long-term solvency
be improved?
<bullet> Would fee-for-service Medicare remain an affordable option for
beneficiaries of all incomes?
<bullet> Would all beneficiaries--regardless of the area of the country
in which they live--have access to the same set of defined
Medicare benefits?
<bullet> Would a prescription drug benefit be affordable and available
to all beneficiaries?
<bullet> Would the level of the government's contribution continue to
assure adequate choice for beneficiaries over time, without
regard to where they live?
<bullet> How would beneficiaries be protected from high out-of-pocket
costs?
<bullet> Would the entity responsible for administering Medicare be
accountable to Congress and to beneficiaries?
<bullet> How would Medicare reforms be financed?
key principles that should guide broader medicare reform
As this Committee also examines the broader issue of reforming
Medicare, AARP urges you to consider the fundamental principles that,
since Medicare's inception, have helped to shape it into such a
successful program. We believe strongly that these principles must be
the basis of any viable reform option.
Defined Benefits Including Prescription Drugs
All Medicare beneficiaries are now guaranteed a defined set of
health care benefits upon which they depend. A specified benefit
package that is set in statute is important for a number of reasons.
First, it assures that Medicare remains a dependable source of health
coverage over time. Second, a defined benefit package serves as an
important benchmark upon which the adequacy of the government's
contribution toward the cost of care can be measured. Without this kind
of benchmark, the government's contribution could diminish over time,
thereby eroding Medicare's protection. Third, a benefit package set in
statute reduces the potential for adverse selection by providing an
appropriate basis for competition among the health plans participating
in Medicare. And finally, a defined benefit package provides an element
of certainty around which individuals, employers, and state Medicaid
programs may plan.
As was laid out earlier in this statement, because prescription
drugs are central to the delivery of high quality health care, Medicare
should be like most other health insurance plans and include
prescription drugs as part of Medicare's defined benefit package
offered by all participating plans--including traditional fee-for-
service.
Adequate Government Contribution Toward the Cost of the Benefit Package
It is essential that the government's contribution or payment for
the Medicare benefit package keep pace over time with the cost of the
benefits. Currently, payment for traditional Medicare is roughly tied
to the cost of the benefit package. If the government's contribution
were tied to an artificial budget target and not connected to the
actual cost of the benefit package, there would be a serious risk of
both the benefits and government payment diminishing over time. The
effect of a flat government payment--regardless of the plan cost--could
be sharp year-to-year premium and cost-sharing increases for
beneficiaries. It could also mean significant differences in what
beneficiaries would have to pay for different Medicare plans.
Out-of-Pocket Protection
Changes in Medicare financing and benefits should protect all
beneficiaries from burdensome out-of-pocket costs. Medicare
beneficiaries age 65 and over, spent on average, about $2,430--nearly
20 percent of their income--out-of-pocket for health care expenses in
1999, excluding the costs of home care and long-term nursing care. In
addition to items and services not covered by Medicare, beneficiaries
have significant Medicare cost-sharing obligations: a $100 annual Part
B deductible, a $776 Part A hospital deductible, 20 percent coinsurance
for most Part B services, a substantially higher coinsurance for
hospital outpatient services and mental health care, and significant
coinsurance for skilled nursing facility care and very long hospital
stays.
AARP believes that Medicare beneficiaries should continue to pay
their fair share of the cost of Medicare. However, if cost-sharing were
too high or varied across plans, Medicare's protection would not be
affordable, and many beneficiaries would be left with coverage options
they might consider inadequate or unsatisfactory.
Viable Fee-for-Service
Medicare beneficiaries must continue to have access to a strong and
viable fee-for-service option. Managed care is not yet established as a
fully satisfactory choice for many beneficiaries. In addition, many
beneficiaries live in areas of the country where managed care plans are
not available or likely to become available. Without an affordable fee-
for-service option, these beneficiaries could end up paying as much or
more out-of-pocket for health care coverage that does not meet their
needs.
Protecting the Availability and Affordability of Medicare Coverage
Medicare should continue to be available to all older and disabled
Americans regardless of their health status or income. Our nation's
commitment to a system in which Americans contribute to the program
through payroll taxes during their working years and then are entitled
to receive the benefits they have earned is the linchpin of public
support for Medicare. Denying Medicare coverage to individuals based on
income threatens this principle. Similarly, raising the age of Medicare
eligibility would have the likely affect of leaving more Americans
uninsured. Thus, in the absence of changes that would protect access to
affordable coverage, AARP opposes efforts to raise the eligibility age
for Medicare. Analogies to Social Security's increasing age of
eligibility simply do not apply. Social Security's early retirement
benefits--though actuarially reduced--start at age 62, and most
retirees today begin to collect benefits at age 62 not at age 65.
Quality of Care
Medicare beneficiaries have come to depend upon quality care in
Medicare. Quality standards have been a hallmark of the program and
have often served as a model for the private sector. Systematic data
collection and analysis, careful quality monitoring, as well as new
techniques for promoting quality outcomes, must remain a part of any
reformed Medicare system.
Administration of Medicare
Effective administration of the program remains essential. The
agency or organization that oversees Medicare must be accountable to
Congress and beneficiaries for assuring access, affordability, adequacy
of coverage, quality of care, and choice. It must have the tools and
the flexibility it needs to improve the program--such as the ability to
try new options like competitive bidding or expanding centers of
excellence. It must ensure that a level playing field exists across all
options; modernize original Medicare fee-for-service so that it remains
a viable option for beneficiaries; ensure that all health plans meet
rigorous standards; and continue to reduce waste, fraud and abuse in
the program.
Financing
Medicare must have a stable source of financing that keeps pace
with enrollment and the costs of the program. Ultimately, financing
sources will need to be both broadly based and progressive.
Additionally, because health care costs are rising faster than
productivity, AARP supports using an appropriate portion of the on-
budget surplus to secure Medicare's financial health.
conclusion
The Medicare program needs to be ready to meet the unique
challenges it faces now and in the future. Foremost among the
challenges is ensuring that, even as the program adjusts to ensure its
future financial soundness, it must also adjust to keep pace with the
rapid advances in medicine. Therefore, AARP believes that an affordable
Medicare prescription drug benefit that is part of Medicare's defined
benefit package and available to all Medicare beneficiaries is
essential to any Medicare reforms.
How to provide Medicare beneficiaries with affordable prescription
drugs is a huge challenge. AARP urges all stakeholders--government,
industry, and consumers--to engage in a serious debate on the merits of
the full range of approaches. The success of any drug benefit proposal
as well as broader changes to Medicare depend on a clear
understanding--on the part of the public and policy makers alike--of
the changes that are being contemplated. This will require not only
extensive dialogue, but also a thorough distributional analysis of how
the proposed changes would affect the full range of current and future
beneficiaries.
If legislation is pushed through too quickly, before there has been
a thorough examination of the effect on beneficiaries and the program,
and before there is an emerging ``public judgment'' about the changes,
this would be a very serious mistake. In such a circumstance, we would
be compelled to alert our members to the dangers in such legislation
and why we could not support it.
We thank you for your efforts to examine proposals to establish a
prescription drug benefit for Medicare beneficiaries. AARP looks
forward to continuing to work with members of this Subcommittee and the
Congress to advance the debate over prescription drug coverage, and to
carefully explore the best options for securing Medicare's future.
Mr. Bilirakis. Thank you, Dr. Braun. Thank you both for
your testimony. Of course, Dr. Braun, it is always a pleasure
to welcome a fellow Floridian before the subcommittee.
As a Representative of one of the oldest districts in the
country and a senior myself, I am particularly sensitive about
the struggle many Medicare beneficiaries face in obtaining the
medicines they need. I have said repeatedly that our most
vulnerable seniors deserve help right now. Dr. Braun, your
written statement included a caution that I would summarize as
haste sometimes makes waste, and I certainly agree with you.
Over the past couple years, members of the Medicare
Commission, administration officials, experts in the private
sector, and many Members of Congress have given considerable
thought to these issues, but I believe that we must act. I
still feel that we must act this year to ensure that no senior
citizen is forced to choose between buying groceries and
filling a prescription. And, Dr. Braun, you clearly said it is
a huge challenge.
My fundamental question to both of you is, yes, we need to
reform Medicare, and yes, we need to do it as quickly as we
can, but we want to get it right. I ask you, if Congress and
the President do not reach an agreement on broader reform to
protect and improve Medicare this year, which almost certainly
would include prescription drugs, the question is, don't we
have a moral obligation to help the poorest and the sickest
beneficiaries now, rather than just wait until we can finally
get around to reform? And I would ask Mrs. Lewis if you have an
opinion----
Mrs. Lewis. I would totally agree with that.
Mr. Bilirakis. Do you have any explanation that you would
like to offer in that regard?
Mrs. Lewis. No, I really don't.
Mr. Bilirakis. Dr. Braun?
Ms. Braun. Yes, I certainly think we need to help our low-
income beneficiaries a great deal, but you and I both realize
that middle income beneficiaries actually are having a great
deal of trouble also, particularly if they have high drug
costs. The median household income, not individual income but
household income of those over 65 is $20,000 a year, which I
think all of us would have difficulty getting along on. And if
they have high drug costs, even though they are middle income,
they really have a big problem.
I would hope that we might be able to pass something that
would be available for all beneficiaries, that could be
affordable, and also that could be voluntary so it doesn't take
away from anything that people have, like Mrs. Lewis is very,
very fortunate with the coverage that she has. And I certainly
realize that we need to work cost containment into the
situation, and we also need to work quality into the situation.
There are just a lot of principles that we are going to need to
follow. And I don't think, while a low income benefit, not in
Medicare because Medicare really should be the same for all its
beneficiaries, but even outside of Medicare, our ideal, it
could be done certainly, as I know the chairman has proposed.
Mr. Bilirakis. What we have proposed, of course, is not
just the poorest, the low income beneficiaries outside of the
scope of Medicare----
Ms. Braun. Right, right.
Mr. Bilirakis. [continuing] people who are Medicare
beneficiaries, but we have also proposed something to help the
sickest because of the stop-loss provision. Dr. Braun, in an
ideal world, if you could satisfy the quality situations and
address the areas that Dr. Coburn and so many others have
mentioned, and you had no problems with the finances--and
Medicare program certainly has a lot of problems, financially
and otherwise--you could do something equally for all
beneficiaries, including Ross Perot and so many others in that
category. I certainly don't put you in that category----
Ms. Braun. No. I wish.
Mr. Bilirakis. [continuing] but you are not in the lowest
economic strata.
Ms. Braun. No, I am not in the lowest.
Mr. Bilirakis. Don't we have a moral obligation, if we have
a shortage of resources, to help at least the sickest people
and the poorest people now, and then hope that eventually we
might get to the point where we are able to reach the goal that
the AARP and Mr. Waxman and others have mentioned of doing
everything equally across the board for all Medicare
beneficiaries?
Ms. Braun. I really think the need is there for all
Medicare beneficiaries. That is the problem.
Mr. Bilirakis. For all, equally? An equal need?
Ms. Braun. No. Low income would certainly need subsidies,
and they do have a tremendous need, and I can understand the
chairman's thoughts on that subject, but I really do think
there is a need across the board for all beneficiaries. And I
think with the chairman's thoughts, doing it outside certainly
is better than trying to do something in Medicare which would
only be available for certain people. But I think we have a lot
of concerns about what would the States do with this, how many
would step up to the plate, and----
Mr. Bilirakis. Well, we don't know, but they seem to be
moving toward that. I understand that the National Conference
of State Legislatures has put that at the top of their agenda.
Well, my time has long expired. Mr. Waxman?
Mr. Waxman. Thank you, Mr. Chairman. I am pleased to hear
from the two witnesses today.
Dr. Braun, as I understand your testimony, you don't
disagree with Mrs. Lewis. If she has good coverage, you want
her to stay with her coverage.
Ms. Braun. Absolutely.
Mr. Waxman. She shouldn't have to be pushed into something
else if she doesn't want to.
Ms. Braun. Absolutely. I think that is wonderful. As I say,
in the county above me all the managed care has pulled out.
There isn't any. In my county one has pulled out. Another one
which had most of the managed care people went from zero to $93
a month for their premium. So there are real, real problems,
and I think our rural areas will never really have managed
care, so we do need to think in some other kinds of terms. Let
the people who have coverage keep it, but the people that don't
have it, we have got to think about.
Mr. Waxman. Well, not all managed care plans have coverage.
Ms. Braun. They are cutting down on it.
Mr. Waxman. But a lot of people don't want to be in managed
care, and if they stay in Medicare fee-for-service, which most
seniors do, they ought to be able to have some help with the
costs of their prescription drugs.
Now, a lot of people are saying that we ought to only help
people 150 percent of poverty and below. I guess they are
compassionate conservatives because they care about low income
people.
Ms. Braun. That is good to hear.
Mr. Waxman. It is good to hear, sort of surprising in some
cases, but it is good to hear. But what is wrong with that? Do
we have a problem for people above 150 percent of poverty?
After all, just by the way, 150 percent of poverty for a
married couple is $17,100.
Ms. Braun. That is right.
Mr. Waxman. For singles it is $12,750. That sounds pretty
low, and I know there are people above that that are having
problems with prescription drugs.
Ms. Braun. That is very true. That is very true. There are
a lot of people having problems with prescription drugs,
particularly if they have rather high costs, and that risk
needs to be spread. However the program is set up, we need to
pull in, make it possible for people to come into the program
so that it is worthwhile for the people who don't have problems
as well as for the others.
Mr. Waxman. If it is going to be voluntary, it has got to
be a program that is affordable----
Ms. Braun. Right.
Mr. Waxman. [continuing] and to be affordable, you have got
to bring in lots of people to participate.
Ms. Braun. That is right.
Mr. Waxman. Could anybody imagine what the reaction would
be among your membership in AARP if we said Medicare was only
going to be for people 150 percent of poverty and below?
Ms. Braun. No. I would hope that that day will never come.
Medicare is not a means-tested program. It is an insurance
program that people have paid into, even Ross Perot.
Mr. Waxman. Even Ross Perot has paid in, and everybody pays
into Medicare, and then when they are eligible, they are
entitled to it.
Ms. Braun. That is right.
Mr. Waxman. And if they are entitled to have insurance,
insurance ought to cover prescription drugs.
Ms. Braun. That is right. I would agree absolutely. In
today's medicine it doesn't make any sense not to have
prescription drug coverage.
Mr. Waxman. What do you think of the argument that we
shouldn't provide prescription drugs until we have reformed
Medicare? I suppose people could then say that if you haven't
reformed Medicare, you shouldn't do that unless you reform the
whole health care system. Are we just hearing arguments that
will keep us from doing anything?
Ms. Braun. That might be true. I do think it would be
ideal, if we could do it, to do it within the context of all of
Medicare, but I think it may be a situation that we really need
to move on and we won't be able. It will take us a while to
move on total Medicare reform. I think particularly it would
fit better into the whole program because the financing then
could be considered for the whole program rather than just for
a small program.
Mr. Waxman. I have the impression that some of the people
that are compassionate conservatives because they want to cover
low income people, have more compassion about the
pharmaceutical companies, making sure they can charge whatever
they want for prescription drugs. If only low income people
were covered, and of course we have the very low income now
under Medicaid eligible for prescription drug coverage, what
will it mean for drug companies? Won't they just continue to be
able to discriminate against the elderly and charge them higher
prices?
Ms. Braun. It would sound so, but certainly no matter what
kind of system is set up, it needs to have cost containment and
there need to be--some of the cost containment things that are
now in the private sector need to be introduced in order to
have cost containment across the board. I think that is very
necessary.
Mr. Waxman. What about this argument that Medicare drug
benefits are going to destroy research and development for new
drugs, and therefore if we want new drugs, we shouldn't provide
elderly people with Medicare coverage for their prescription
drug costs?
Ms. Braun. We really haven't seen any evidence of that
happening in legislation that has come about in the past, and I
certainly think we need to be sure that the research is still
in place, that they continue. However, research is the lifeline
of the pharmaceutical companies. It would be hard to think that
they wouldn't try to find new drugs because that is where the
profit is.
Mr. Waxman. A lot of my Republican colleagues pointed out,
and I think they are absolutely right, a lot of that money that
the drug companies get goes into marketing. They are doing
direct advertising on television, and they have other direct
marketing costs. Some of those marketing costs in some
companies rival what they are spending on research and
development. If they had to cut back, maybe they will cut back
on some of the marketing and continue the life flow of new
drugs that the research and development would bring.
Ms. Braun. Could be.
Mr. Waxman. Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Greenwood?
Mr. Greenwood. Thank you, Mr. Chairman.
Let me first say to Mrs. Lewis that I am delighted that you
can walk at a brisk pace for 45 minutes. That is more than most
Members of Congress can do. But it shows us the increased vigor
that today's elderly have. My parents are 78 years old, and
recently my mother and father and I jumped out of an airplane
together, went skydiving.
Mrs. Lewis. The word is determination.
Mr. Greenwood. We come from a crazy family.
I would like to address a question to Dr. Braun. In your
testimony, I think that the following is a direct quote. You
say, ``If legislation is pushed through too quickly, before
there has been a thorough examination of the effect on
beneficiaries and the program, and before there is an emerging
public judgment about the changes, this would be a very serious
mistake. In such a circumstance, we would be compelled to alert
our members to the dangers in such legislation and why we could
not support it.''
And I commend you for recommending to the Congress that we
take a very deliberative approach to this very, very critical
issue. In fact, I think in response to a question you said that
we need several more hearings, many more hearings to work this
out, and that may be the case.
That being so, there is an effort afoot in the House to
discharge from committee consideration the Allen-Waxman bill,
which would essentially say to this subcommittee and to the
full Commerce Committee and to our counterparts on the Ways and
Means Health Subcommittee and their full committee, ``Stop
thinking about it, stop deliberating, stop bringing witnesses
from the AARP or anyone else forward to really hone your
judgment on this.'' Just yank the bill out of committee without
consideration, wipe your hands of it, and throw it out on the
floor for what I think would be a very politicized vote and not
worthy of the greatest deliberative body on earth.
Having said all that, would you then agree that that would
be a precipitous thing to do, and meet your test of pushing
something through too quickly?
Ms. Braun. Well, I am not all that savvy on the politics
end of the situation, but I think we certainly stand with our
judgment that there does need to be a full debate, and that no
debate on anything that is being suggested should be hindered.
And we do need a chance to analyze bills and really see what
their impact is going to be on beneficiaries, and that is
really all I can say about that.
Mr. Greenwood. Okay. Let me ask you another question, if I
could, Dr. Braun. AARP's second largest source of revenue, next
to membership dues, is the sale of Medigap insurance. As you
know, in 1990 Congress required that seniors would have to buy
down their deductibles and purchase questionable items such as
foreign travel insurance before they are allowed to buy
prescription drug coverage. Moreover, the drug coverage that is
offered has 50 percent co-insurance and low benefit caps.
Do you think Congress ought to consider changing the
Medigap law and allowing AARP and others to sell a product that
has a better value for seniors? We believe right now that
Medigap is a good buy for seniors.
Ms. Braun. I think that whole situation needs to be looked
into, Congressman, because I think it is questionable. Those
Medigap, first of all, not everybody can get them because they
are all medically underwritten, so once you get something wrong
with you and need the medicine, you can't get them. But even
when you have them, they are expensive. They are all capped,
they have 50 percent co-payments, and the premiums are very
expensive. So they really perhaps are not that good a buy,
although some seniors want to feel that kind of security, and
so they hold onto them if they can afford them.
Mr. Greenwood. Wouldn't you say that that speaks to the
need to take a relatively comprehensive look at the structure
of Medicare, including Medigap, before we just sort of glom
onto a Medicare prescription drug benefit without looking at
the foundation of Medicare that would sit below it?
Ms. Braun. I think that is one of the problems of doing it
separately. It would be much easier to look at the whole
situation, and certainly nobody would welcome any more than we
do if Congress would find a way that we didn't need Medigap
insurance, that there wouldn't be all that much gap, so that
people would not need that extra insurance. It does seem kind
of strange that seniors have to have one insurance program, and
then they have to have another insurance over that to fill in
gaps. It doesn't make too much sense.
Mr. Greenwood. Thank you very much.
Ms. Braun. So it would work out better to do it with the
whole program, but on the other hand, perhaps it will be
possible to do it without doing the whole program.
Mr. Greenwood. It will be possible, but maybe not
advisable. Thank you very much for your answer to my question.
Mr. Bilirakis. I thank the gentleman.
Mr. Pallone, to inquire?
Mr. Pallone. Thank you, Mr. Chairman.
I wanted to ask Dr. Braun a couple of questions. I guess my
biggest concern here, and I expressed it in my opening
statement, is that we will, or at least on the Republican side
that they will continue to look to target lower income people
and not have a broad-based benefit under Medicare. And you
certainly, Dr. Braun, expressed some of the concerns about
that, but I just wanted to dwell if I could on two aspects of
that that bother me.
First of all, we know that when we are dealing with any
kind of insurance, from the point of view of the finances, the
broader the insurance pool, the better off we are. And you, you
know, obviously mentioned that, and I guess there are two parts
to my question. One is if you would maybe elaborate on that a
little more, because I think it is very important that this be
a very broad pool.
The other thing, though, is political, and I know you said
you are not so much savvy about the politics, but I am going to
venture to say as a politician that my concern about just
addressing the problem of the lower income is also based on the
fact that then what happens is you don't have the political
support, if you will, that you have for a broad-based benefit
that covers everyone.
In other words, one of the reasons why I think that
Medicare is so strong and that any effort to try to cut back or
do anything that might damage it, we have such a huge reaction
in the public, is because everybody gets coverage. All seniors
get coverage under Medicare. And if you start to make it, any
aspect of it, just low income based, you lose the political
support for Medicare which I think is very important if we are
going to continue to have it. And of course AARP is a grand
example of that because a lot of your members, you know, they
can be poor but a lot of them are even wealthy, I would venture
to say.
So I just wanted you to comment on those two aspects, one,
the need for a broad insurance pool, and also the political
aspect, that we don't want to undermine the support of the
public for a program if it becomes need-based, if you would.
And you don't have to, but I am just asking you to.
Ms. Braun. No, I think as far as the insurance is
concerned, any kind of insurance depends on having a very broad
risk pool, so you have some people who aren't using and other
people who are. We all know we carry fire insurance for our
houses, and we hope the houses don't burn down, but there are
enough people carrying it so that it is not terribly expensive
and they can pay for it when it does burn down.
And we need the same sort of thing with the insurance for
prescription drugs. I think it is very important that whatever
is done, we don't put a measure in Medicare which is just for
low income. I think it is very, very important to keep the
original plan of Medicare, which was that it would be a defined
benefit and the benefits would be available for everybody who
is eligible for Medicare. That is really, really important, I
think.
As far as the support, political support for the situation,
that may have some value, as you are saying. However, I think
the need is so strong in the middle income group that if we
simply do the low income, I think you are still, Congress is
still going to feel the pressure that people need coverage, and
very especially when they don't have any other place to get it.
Mr. Pallone. You know, you also talked, there was a recent
AARP study on seniors' out-of-pocket costs for drugs, and it
talked about the problem of access to affordable drugs cutting
across all beneficiaries and not just the low income.
Ms. Braun. Right.
Mr. Pallone. Even beneficiaries with current drug coverage
are not insulated, as you mentioned, from high out-of-pocket
costs. For example, those with Medigap or Medicare+Choice
coverage still may pay significantly out of pocket. Could you
comment on that?
Ms. Braun. Well, there are other out-of-pocket costs where
it is not just prescription drugs. That is just a part of it. I
think that the largest part actually is the premiums, but there
are--anything that is not covered by Medicare, the seniors are
going to have to get separately, and glasses and hearing aids,
all of those things are not covered and they can be very
expensive, so----
Mr. Pallone. I mean, the point is, we are getting a
situation, like with Medicare+Choice, where not only are
premiums being charged where they weren't before, but the out-
of-pocket costs, you know, co-payments and all those other
things are going up.
Ms. Braun. Yes. They are capping the drug costs in a lot of
cases where they didn't cap them before----
Mr. Pallone. I think that is why----
Ms. Braun. [continuing] and the 50-50 costs for them also
adds to the costs.
Mr. Pallone. Someone told me that there is almost no plan
anymore than doesn't provide some premium, you know, that the
option of not having premium has almost ceased to exist.
Ms. Braun. Yes, almost, that is very true.
Mr. Pallone. Thank you.
Thank you, Mr. Chairman.
Mr. Bilirakis. Thank you. I thank the gentleman.
Dr. Coburn, to inquire?
Mr. Coburn. Thank you.
Mrs. Lewis, thank you so much for sharing your medical
history with us. I think it is very important. I have a lot of
patients very similar to you, and they are really a joy to be
around.
I want to ask you a question. Your osteoporosis is measured
by getting a bone densitometry. How often do you get that test?
Mrs. Lewis. The past several years I have had a bone
density scan once a year. However, I had a fall and my pelvic
bone fractured not too long ago, and at that time, when I got
out of the hospital and recovered up to a certain point, we
then had another one, but that was a separate item.
Mr. Coburn. But since you have been on your new medicine,
your bone density has not decreased, it has actually increased.
Mrs. Lewis. It has, minimally----
Mr. Coburn. Minimally.
Mrs. Lewis. [continuing] but it has increased instead of
decreased.
Mr. Coburn. I am making this point, is she has been on an
effective medicine that was proven once that it was working,
and yet Medicare paid for another bone densitometry study each
year. Why? Not medically indicated, just it was done, and it
was done because it was out there. Once a patient starts
achieving a reversal, if they do, and not all do, and once you
have established that fact on a medicine, you don't need to do
another test.
My point being, is we need to look at all of Medicare
because one of the most abused tests out there today is a bone
densitometry test, and it is being done in doctor's offices
across the board, and people are getting charged for it,
Medicare is paying for it, and we are taking money out of the
Trust Fund to pay for it, and yet it is not necessarily
indicated. And so the point is, is there is money going out of
Medicare for something that is not necessary, where that money
could be directed toward drugs.
I would also raise another point, and that is, Mr. Pallone
has sponsored a bill that focuses on subsidizing low income and
uses private coverages, the SPICE bill. So, you know, I think
it is important that we keep things above board.
I also wanted to make one other point, and I wanted to ask
Dr. Braun. My Medicare, I mean my AARP number is DOLCA027, and
I happen to be a member of AARP, and the question I would have
for you, whatever we do on drugs, who should pay for it?
Ms. Braun. I think that has to be----
Mr. Coburn. What is AARP's position on who should pay for
that?
Ms. Braun. I think it has to be shared, and certainly the
beneficiaries need to share in that. I think everybody needs to
get together, the providers, the drug manufacturing companies,
everybody needs to get together, the government, to figure out
how we can do this in a fair kind of way that will make it
affordable to all beneficiaries.
Mr. Coburn. Do you think your grandchildren and mine should
pay for our drugs tomorrow?
Ms. Braun. The ones who are working now? I hope that----
Mr. Coburn. Yes, that they should pay for our drugs
tomorrow.
Ms. Braun. I hope that they are paying for what they will
get eventually. It is being used certainly at the present time,
but I really see that as an insurance, and insurance that they
are promised health benefits when the time comes that they will
retire. Now, goodness knows by that time how much it is going
to cost.
Mr. Coburn. Well, let me interrupt you, because the
demographics don't support that at all. The demographics do not
support that even with the benefits that we have today, that
our children can continue to pay the rate at what they are
paying and come anywhere close to supporting the baby boom
generation, of which I happen to be part of. And so what I
would like to know is, what is AARP's position on who should
pay the additional cost? There is going to be an additional
cost. Everybody agrees to that. Who should pay? Should our
children and grandchildren pay for it? Where is the money to
come from?
Ms. Braun. I think, as I say, I think the present day
beneficiaries certainly need to do their fair share with the
situation where they can afford to. The low income people
can't. I certainly think that the government, we have an on-
budget surplus fortunately now----
Mr. Coburn. No, we don't. Now, I made that point in my
opening statement. There is no on-budget surplus. Every bit of
the money in the surplus for last year, this year and next year
comes from excess Medicare payments, every penny. In other
words, maybe we ought to think about spending less money on
other programs so we can meet the obligations of our seniors.
Is that a possible solution?
Ms. Braun. That is a very difficult solution, depending on
what programs. And I am sure no matter what program you decide,
they are going to say you can't.
Mr. Coburn. How about the 110,000 IRS employees?
Ms. Braun. What?
Mr. Coburn. How about the 110,000 IRS employees? How about
the 100,000 Department of Agriculture employees? Is there any
room for us to gain efficiency in the Federal Government so we
can move resources to help our seniors with their drugs?
Ms. Braun. I would hope maybe there is. I am sure I have no
idea whether you need more or less----
Mr. Coburn. I guess one of the things I would like to see
is the AARP be a little more imaginative on where the money
ought to come from to help our seniors.
I see I am out of time. I want to thank you for your
testimony. I did not mean to be combative. I appreciate what
you all do.
Mr. Bilirakis. Thank you, Dr. Coburn.
Ms. DeGette, to inquire? We will go down the line. The
gentleman from Michigan?
Mr. Stupak. Thank you, Mr. Chairman.
There has been a lot of discussion about the discharge
petition, and I don't want that to be left like somehow we are
doing this evil process to get this bill to the floor. A
discharge petition, and I haven't been here as long as a lot of
people, maybe 8 years, has never been successful yet. We have
never had 218 people sign it.
Whenever you get close to 200, the majority party, in this
case the Republicans, would then bring some type of watered-
down bill or something that they would like, and that would be
the answer to stem the 218 votes from a discharge petition
being successful. So in order to have a fair and open, honest
debate, the only place we are going to get a chance is these
committees.
And so this discharge petition, after 2 years a lot of us
are frustrated. We have been on this process for over 2 years,
trying to get this legislation or this issue before the
Congress. So while maybe not successful in coming to the floor
the way we would like to see it, with a full, honest, fair
debate, at least through the discharge process we get the issue
out front and you can see we even have a hearing.
So I think the discharge petition and those people who had
the courage to sign it are doing the right thing to get this
debate moving, because I really can't understand why the drug
companies, and it is not the pharmacists but the drug
companies, why does a senior who has no drug coverage have to
pay twice as much for the same prescription? I think that is
unconscionable, I think it is a terrible thing we do, and we
have to stop this pricing discrimination by the pharmaceutical
companies.
Having said all that, having said all that, doctor, I would
like to follow up a question that Mr. Pallone was asking you
about the access and out-of-pocket expenses and things like
that. Older seniors and sicker seniors are more likely to have
higher drug costs. In fact, I think it is like most seniors
take 2.4 percent more, 2.4 times more drugs than people under
65. But while certain seniors are more likely to have high drug
costs, almost any senior could find themselves with enormous
drug bills after an unexpected illness. This fact points to the
need for a Medicare drug benefit that is available to everyone,
not just certain groups of senior citizens.
Dr. Braun, judging by what you have told us, it seems that
the only way to guarantee security for those in need is to
provide a benefit for all beneficiaries, because I believe
everyone is getting older, illness can come at any time,
requiring expensive drugs, and even with coverage, they have
limited coverage, as you have indicated. Would you agree that
the best way to proceed is with a universal benefit, be it 55-
up or 65-up? Would you agree that the best way to benefit is a
universal benefit for all seniors?
Ms. Braun. Yes. I think AARP has stated that we really feel
that it should be available for all Medicare beneficiaries, but
also that it should be voluntary so that people can keep what
they have if they want to keep what they have.
Mr. Stupak. And if it is voluntary, do you have any, have
you done any studies or anything that would indicate what
percentage of your seniors would participate in a benefit like
this?
Ms. Braun. I think it is going to depend on how it is set
up. That is the problem at the present moment, and that is what
we are going to need to look at, why these things need more
analysis, because we really need to see what the impact is
going to be on the beneficiary, and then we can find out from
our members where they stand or how they feel about that.
Mr. Stupak. And I apologize if this question has been asked
before, but the three plans that are floating around right now,
the President's proposal, the Stark bill which would make it
part of Medicare, and of course the Allen bill which would stop
the price discrimination from the pharmaceutical companies, of
those three bills, has your organization taken a position on
any one of those three?
Ms. Braun. No, we haven't taken a position on any of the
bills because we really think that they need more analysis. We
have questions on each one of the bills that we really need
answered, and therefore we are not in a position to take a
position at the moment.
Mr. Stupak. With your organization, have you prioritized
this as one of your priorities for this Congress, or have you
prioritized the issues?
Ms. Braun. We are certainly very hopeful that it will be
possible, but it does have to--you know, it does have to be
done right, as the chairman said.
Mr. Stupak. By ``have to be done right,'' does AARP have
any kind of a position paper that they would like us to study
or look at?
Ms. Braun. Well, I think you have the principles that we
have set up in the testimony, and those are the things by which
we are judging each one and from which we elicit questions that
we feel are not answered in the particular bill.
Mr. Stupak. Other than the testimony, there is no other
position paper or anything like that available from AARP?
Ms. Braun. Not that I know of, but I will check that out
for you.
Mr. Stupak. Thank you.
Mr. Bilirakis. Please summarize, Bart. Your time is up.
Mr. Stupak. Thank you. I will yield back.
Mr. Bilirakis. All right. Thank you.
Mr. Bryant?
Mr. Bryant. Thank you, Mr. Chairman, and I again thank the
panel for its excellent testimony.
What I hearing coming across from the other side of the
aisle about this discharge petition, people around Washington
that have been here longer than I have, and many on the other
side have been here much longer than I have, and I think
everybody understands what is going on with the discharge
petition. It is a very effective tool to use politically to
highlight an issue, and certainly something that was done I am
sure very often 5 years ago, before the Republicans took over.
And it can be used effectively, as I said, politically and
also to appear legislatively to put emphasis on a point, make a
point, I guess, but it has not been a very successful one in
bringing bills out of the House. Again, I can only speak for
the last 5 years that I have been here, but I am sure there was
not much success when the Republicans tried the same tactic
when the Democrats were in control for the 40 years or so
before that.
So let's just lay that on the table, and I think go back to
the idea that this is a very important issue and one that no
one, neither side I think really wants to be ramrodded or
pushed too quickly into trying to achieve a solution, which we
all want to do. Medicare is a very important piece of
legislation I think that has been a success, and when we start
talking about adding to it, which we all think is necessary
here with a drug benefit, we want to do it right. I think the
panel agrees, and I am sure everyone in this room agrees to
that. So let's don't, in the interest of politics and because
this might be a good campaign issue in November to help retake
control of Congress or help keep control of Congress, let's
don't rush to a judgment, if you will, in this case.
We hear something about price controls. I think some of the
legislation that has been offered in effect amounts to price
controlling, and I think that most of us here understand that
does not work very effectively, and certainly in this
environment of prescription drugs has the potential to really
chill the research and development. The drug that Mrs. Lewis
testified about that has so greatly helped her, that could--no
telling how many drugs that are like that out there right now,
yet to be discovered or that are in the pipeline of being
discovered, that could be affected by such measures as price
controls.
But I guess in the end I did want to ask Mrs. Lewis a
question about your particular case. You have testified, I
think, that your drug bill averages about $600 a year. Do you
know how much of that actually comes out of your pocket, or is
that what you pay out of your pocket?
Mrs. Lewis. That is what I pay out of my pocket.
Mr. Bryant. So your total drug bill is higher than the
$600?
Mrs. Lewis. Yes. There are other things that occur from 1
year to another. That means other prescriptions, but it is not
those that I take every week.
Mr. Bryant. That would be your premium combined with any
co-payments you have----
Mrs. Lewis. Right.
Mr. Bryant. [continuing] that would total about $600?
Mrs. Lewis. Exactly.
Mr. Bryant. The insurance company picks up, I guess, a
larger portion of your drug, prescription drug bill?
Mrs. Lewis. Yes, I am sure they do. It is a lot more.
Mr. Bryant. Well, the reason I was drawn to that $600
figure is because that was very close to the example that I
used in my opening statement in alluding to the President's
proposal that is on the table.
Mrs. Lewis. It wasn't taken from there.
Mr. Bryant. Right. Well, I wanted to graphically use you as
another example of that, realizing that the President's bill is
not necessarily going to be one to pass out of here, and
realizing that it is not mandatory; that, you know, whatever
comes out probably is going to be optional.
But whatever comes out, whether it is the President's bill
or something else, is going to kind of set the standard,
because I think what we see is the private sector will
eventually evolve around maybe to where the government would be
in this Medicare benefit, and you might have people dropping
their coverage for their retirees so they can go to the
government program.
So what we pass out of here realistically could set the
standard, and I am still concerned about the President's bill
where it would cost, on that average of $600 a year, it would
actually cost a person more money to be on that program when
you add up the premium of about $302 a year, together with a 50
percent co-pay on every prescription drug they buy. And at this
point it doesn't seem to have a stop-loss provision. I know he
has talked about adding some dollars to this plan, but not
really defining yet, to my knowledge, what type of stop-loss or
ceiling he would set where you wouldn't have to pay anything
beyond that.
But it is an expensive plan, and I think as the American
people learn about the President's plan, they are not going to
be happy with it. And I still think that we as a Congress can
simply do better, and I think that is the purpose of this
hearing, is finding out, listening to what you have to say so
we can do a better job than that, than his plan.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Bryant. And I would yield back.
Mr. Bilirakis. Thank you, Mr. Bryant.
Mr. Dingell, to inquire?
Mr. Dingell. Thank you, Mr. Chairman.
Mrs. Lewis, welcome. Thank you for being here. I am not
clear from your statement. Are you for or against having
prescription pharmaceuticals covered by Medicare?
Mrs. Lewis. I think it should, but I don't know where it
stops. I don't know what the extent of it would be.
Mr. Dingell. I see. Now, you haven't told me yet whether
you are for or against. You say you think it should be but you
don't know where the expense stops. That last part of your
statement doesn't mean that you are against covering
prescription pharmaceuticals under Medicare, does it?
Mrs. Lewis. To tell you the truth, I hesitate to give an
answer to that because I don't feel I know enough.
Mr. Dingell. Okay, so you don't know whether you are for or
against covering prescription medications in Medicare?
Mrs. Lewis. Well, I prefer to have Medicare.
Mr. Dingell. I still don't understand what you are telling
me. There are a lot of senior citizens who don't have the kind
of plan you have, and who don't have prescription
pharmaceuticals covered. Do you think they should have their
prescription pharmaceuticals covered or not?
Mrs. Lewis. I think it should be covered by Medicare.
Mr. Dingell. Ah, good. Thank you. Now, is your plan a
nationwide plan, or is it one which is just peculiar to your
area or to your State?
Mrs. Lewis. It is not throughout the country. It just
happens to be something that we have a great many companies
like this one.
Mr. Dingell. In California?
Mrs. Lewis. Yes.
Mr. Dingell. And they offer coverage only in California?
Mrs. Lewis. I don't believe so.
Mr. Dingell. Is this a plan where the premiums are paid for
under Medicare?
Mrs. Lewis. No.
Mr. Dingell. So the premiums, then, for the plan that
covers you and offers you prescription pharmaceuticals, is not
within the--is not covered----
Mrs. Lewis. It comes out of my Medicare.
Mr. Dingell. [continuing] or the benefits are not made
available because of payments from Medicare. Is that right?
Mrs. Lewis. Yes, it does.
Mr. Dingell. I am not quite sure I understand.
Mrs. Lewis. It does come from Medicare, a certain portion.
Mr. Dingell. So Medicare pays the premiums for the plan
that you have; is that what you are telling us?
Mrs. Lewis. Yes. My husband explained it in this fashion.
Medicare is taking care of a certain portion for individuals.
They are paying the insurance companies to give me some----
Mr. Dingell. How much do you pay in addition to what
Medicare pays for the plan that you have?
Mrs. Lewis. I pay----
Mr. Dingell. So Medicare pays a part of the premium and you
pay a part of the premium?
Mrs. Lewis. Yes.
Mr. Dingell. How much do you pay a month?
Mrs. Lewis. I pay $15 a month.
Mr. Dingell. In addition to what Medicare----
Mrs. Lewis. In addition to Medicare.
Mr. Dingell. Okay. If you didn't have prescription
pharmaceuticals covered, you would have a pretty serious
problem, wouldn't you?
Mrs. Lewis. Yes, I certainly would. As it happens, I will
admit to you that I don't pay taxes, we don't pay taxes, so you
know approximately what our income is.
Mr. Dingell. So having said that, I am trying to
understand, if a senior in another part of the country doesn't
have the availability of a plan of this kind, that senior is in
some substantial difficulty, isn't he?
Mrs. Lewis. My husband is reminding me that prior to being
with this company, my drug bills came to about $1,500 a year.
Mr. Dingell. Well, I am pleased that you have found a way
to resolve this.
Mrs. Lewis. I am very grateful, too.
Mr. Dingell. Mr. Chairman, I thank you.
Mr. Bilirakis. I thank the gentleman.
Let's see. Dr. Ganske?
Mr. Ganske. Thank you, Mr. Chairman. So many questions, so
little time.
Thank you, Ms. Lewis, for being with us. I am over here.
Thank you very much for coming.
Mrs. Lewis. You are very welcome.
Mr. Ganske. Dr. Braun, I thank you also. I received an
interesting letter from a constituent who I will not name, or
the FDA may go after him, but he says that he got a
prescription from his doctor and the cost was $2.43 per pill.
Then he started to look through the internet, and he found the
following.
He said, ``I can order through Pharmaworld in Geneva,
Switzerland, after paying either of two American doctors $70
for a phone consultation, a price of $1.05 per pill. I can
order through Canadian pharmacies''--see attached letter--``if
I use a doctor certified in Canada, or my doctor can order it
on my behalf through his office for 96 cents per pill, plus
shipping. I can send $15 to a Texan''--and he encloses a
letter--``and get a number at a Mexican pharmacy who will send
it without a prescription and it is priced at $52 per 100
pills.''
Now, it so happens that when we passed the North American
Free Trade Agreement, the one thing that our own government
blocks our consumers from getting across the border is
prescription drugs, although obviously there are senior
citizens who are going through the internet and doing this at
50 percent off. I mean, I hear this from all of my colleagues
along the Canadian border and along the Mexican border. We have
examples of people just going over and getting their
prescription drugs at significant discounts.
Does AARP have a position on whether, if we address this
pharmaceutical benefit problem, we should change the law to
allow senior citizens to shop across the borders to fill their
prescriptions?
Ms. Braun. I don't believe that we have. That would only
advantage people who lived close enough to the border to be
able to go back and forth.
Mr. Ganske. Not necessarily, because you could live--this
gentleman lives in Des Moines, Iowa, right in the middle of the
country, and he can do this through the mail.
Ms. Braun. Through the net, yes.
Mr. Ganske. So, has AARP taken a position on that?
Ms. Braun. We haven't taken a position. We have some
concerns that the FDA has also, to be sure that the packaging
and the warnings and the drug was the same in the first place,
so there are I think a lot of questions from that point of
view, but we haven't taken a position on that one way or the
other.
Mr. Ganske. Is AARP going to take a position on that issue?
Are you looking at----
Ms. Braun. I don't know. We have certainly discussed it
and, like you, we have gotten questions from our constituents
or, you know, our members, wanting to----
Mr. Ganske. Well, I hear this from my constituents all the
time, and they are all AARP members.
Ms. Braun. And it is a concern, of course. Yes. Of course,
the other thing, fortunately lots of seniors are using the net,
but there certainly are an awful lot of them that wouldn't know
how to go about that at all.
Mr. Ganske. That is true.
Ms. Braun. So this person is very fortunate.
Mr. Ganske. So this is something AARP is looking at?
Ms. Braun. Yes.
Mr. Ganske. As a recommendation?
Ms. Braun. Yes. Our members have asked that we----
Mr. Ganske. Changing our FDA regulations?
Ms. Braun. Yes. Our members have asked that we look at it,
and we started to consider it this year, and it is going to be
considered.
Mr. Ganske. Have you received a lot of requests from your
members to look at that issue?
Ms. Braun. We have. Yes, we have received requests.
Mr. Ganske. Okay. Now, let me get into the issue of
funding. According to a recent CBO report, Congressional Budget
Office report, if we followed 1997, the Balanced Budget Act, we
would see in the next 10 years roughly about $1 trillion in
surplus above and beyond Social Security, and we have said we
are going to keep that Social Security account separate. The
second assumption was--that is if you keep 1997 BBA and there
is no emergency funding. That is about a trillion in surplus.
The second scenario is, if you would just freeze spending
at today's level, then you would get about roughly a $600
billion surplus over 10 years. The third scenario from the CBO
was that if you increased spending according to a cost-of-
living allowance and you factored in average emergency funding,
you would have about $300 billion in projected surpluses.
Now, we just passed a bill in Congress that, if it became
law, would eat up $182 billion. That is the marriage tax
penalty. And we are also very concerned about increasing
coverage for the uninsured, for health insurance. So let's just
say that we increase, let's take the third scenario. We have
got $300 billion----
Mr. Bilirakis. Please speed up your question so we can get
a quick response to it.
Mr. Ganske. Okay. We have got $300 billion in surplus, or
say $400 billion, and we have got some tax relief in there that
eats up half of that. Okay. That leaves us with say $200
billion. We have also got a problem with Medicare as it
currently exists in a few years not having enough money.
So my point is this: How much of what is probably a real
surplus should we devote to a pharmacy benefit, No. 1, just as
a percentage?
Mr. Bilirakis. I am sorry, Greg, but you are taking
advantage of----
Mr. Ganske. Excuse me, Mr. Chairman. I will finish this
real soon.
And, second, how much of that should go to--how much, what
percentage should senior citizens contribute to that pharmacy
benefit?
Mr. Bilirakis. The gentleman's time has expired. Do you
have a quick answer to that, Dr. Braun?
Ms. Braun. Yes. I think AARP does support using some of
that amount to support Medicare, to support prescription drugs
being covered. As to the exact figures, I am----
Mr. Ganske. Would senior citizens be willing to assume 50
percent of the cost----
Mr. Bilirakis. The gentlelady----
Mr. Ganske. I only want to know about percentage----
Mr. Bilirakis. The gentlelady from Colorado is recognized.
Ms. DeGette. Thank you, Mr. Chairman.
I would like to talk with you, Dr. Braun, for a couple of
minutes about some of the proposals that we have been hearing
about to provide drug benefits to seniors through State
prescription programs. Are you aware of these types of
programs, doctor?
Ms. Braun. Yes.
Ms. DeGette. Do you know whether they are available in all
of the States?
Ms. Braun. No. Actually, they are available in very few
States, and I think it was something like 14, maybe now up to
17 at this point, but it is certainly not even a majority.
Ms. DeGette. Thank you. And something I have been a little
bit concerned about is that if we use a block grant type
approach, all States may not adopt this benefit right away. For
example, Arizona didn't create a Medicaid program until 1985,
which was 20 years after the program was authorized by
Congress. And I am wondering if you see this as a potential
hazard if we go to a State-based scenario?
Ms. Braun. Yes, I think we do have that concern. I think
the chairman himself has that concern about his own. I won't
put words in his mouth.
Ms. DeGette. Let me ask another question, which is the GAO
study I think we are going to hear about on the drug benefits
currently available to seniors, including the State pharmacy
benefit programs. GAO found that there is an enormous amount of
variability among the State-based programs, and the deductibles
in these programs could go from zero to $640. Have you found
that to be an issue?
Ms. Braun. Yes, that is a major problem, just as it is in
Medicaid.
Ms. DeGette. And what is AARP's position on block grants in
general in the pharmaceutical arena, to States?
Ms. Braun. I think that is one way of taking care of the
very low income, but certainly not, you know, our preferred
way, which would be to be sure that everybody has the benefit.
Ms. DeGette. Thank you. Mr. Chairman, I just would like you
to indulge me for a moment. I, even though I didn't hear Mrs.
Lewis testify, I read her testimony, and I think it is very
useful to have beneficiaries come in and actually talk to us
about what is going on.
I was a little dismayed when I heard her tell Mr. Dingell
that she and her husband are on a fixed income and don't even
have to pay taxes, and I am sure it was very expensive for them
to fly here from California and to stay at a hotel and come and
testify. I am wondering if, using the chairman's prerogative,
we could agree that the committee could find some way to pay
their travel expenses here today so they wouldn't have to pay
for this?
Mr. Bilirakis. Well, I really can't respond to that in a
way that you would prefer because, you know, there is
precedent. I honestly don't even know what the arrangements
were that were made. Staff would know. So we will look into
that.
Ms. DeGette. If we can help----
Mr. Bilirakis. I very much appreciate your concern.
Ms. DeGette. [continuing] I would like to help out in any
way we can. Thank you, and I will yield back the balance of my
time.
Mr. Bilirakis. Thank you.
Mr. Bilbray?
Mr. Bilbray. Thank you, Mr. Chairman.
Doctor, I really appreciate your candor about, you know,
where we go from here on this issue, because I think AARP, you
know, could take the easy route and say, ``Well, just spend
more money on this program, don't look at the comprehensive
repercussions.'' And I appreciate the fact that you realize and
are willing to stand up and say spending just more money is not
always the answer. We need to look at how it affects the whole
thing.
Ms. Braun. We have children and grandchildren, too.
Mr. Bilbray. And I really, I just think that, hope that
some of us on both sides of the aisle are willing to take that
responsibility on in saying it isn't as simple as we would like
to say. It is not a 30-second sound bite, even if it is an
election year. So I think that we can develop that bipartisan
support on this issue following your leadership, and I think
that is critical.
Mrs. Lewis, I understand that you have been enrolled in a
Medicare health maintenance organization for 16 years.
Mrs. Lewis. That is correct.
Mr. Bilbray. Can you tell the committee--and I need to
preface this by saying, Mr. Chairman, in my community in San
Diego, almost 60 percent of seniors are on some kind of health
maintenance program, and so this is at least one community
where we have seen the private sector step in and actually
provide some great options. At least that is what I hear from
my constituents, and I know that isn't available in other
places.
But, Mrs. Lewis, can you explain to the committee how you
first selected this kind of coverage, first of all?
Mrs. Lewis. It is kind of a personal message.
Mr. Bilbray. Yes. Can you tell us how you found out about
it? You know, how did this----
Mrs. Lewis. A neighbor in the area that we lived in at that
time told me what this particular company offered, and it
sounded too good to be true, but it proved to be true. I can't
give you figures. I have no way of knowing exactly what it may
cost them above and beyond what I pay. I don't know. I just
know it is very comfortable.
Mr. Bilbray. So if you were not in a situation where you
were talking to your neighbors, where you had that kind of
community communication, you may not have ever known about this
program?
Mrs. Lewis. It is possible. I believe that there were
articles in the newspaper at that time, but I hadn't read it.
Mr. Bilbray. Your recommendation, at least that we should
be looking at this type of option being made available for all
seniors as much as possible----
Mrs. Lewis. Yes, I do.
Mr. Bilbray. [continuing] why do you make that
recommendation, again?
Mrs. Lewis. I would make the recommendation because it is
the perfect situation for my husband and I. I don't know about
other people and how they run their homes and what their income
is. It is not any of my business.
Mr. Bilbray. The ranking member of the full committee
pointed out that with this private program, in cooperation with
the public support that we give Medicare+, we were looking at,
what $45 a month plus $15 of your own money a month for the
Medicare+Choice?
Mrs. Lewis. And $5 a visit to a doctor.
Mr. Bilbray. $5 to $10 co-pay.
Mrs. Lewis. Right.
Mr. Bilbray. And with your limited income, you can maintain
that financial participation in the program?
Mrs. Lewis. We manage it.
Mr. Bilbray. Okay. Doctor, I know this is a tough one for
you because I know that you have to confront your own internal
politics of the AARP. We all have our internal politics. Does
it really seem like it is impossible for us to make this kind
of choice and this type of participation in the choice
available to all seniors through either a private or a public
program?
Ms. Braun. Do you mean making HMOs available all over the
country? Is that what you are saying?
Mr. Bilbray. Not just HMOs, but let's just say this
cooperative effort. The Congressman, the doctor was talking
about the fact that how much participation would AARP be
willing to have the seniors involved, and I think that we maybe
here have a prototype to at least look at, that here is seniors
with limited income who are participating in a program, and
frankly I think to a degree a bit of pride that they are
participating in the program. It is not just being given to
them. It is not just coming from their grandchildren and
children. Is there any possibility that AARP could support at
least looking into this strategy and having it, either public
or private, having seniors participate at this level?
Mr. Bilirakis. A short response, please, Dr. Braun, if you
can.
Ms. Braun. I still am not quite sure what you are talking
about, but I think it is wonderful where it is available, but
it is not available in a great many places, and probably never
will be in rural areas.
Mr. Bilbray. Mr. Chairman, my question was, though, if it
was available, would you support requiring seniors to
participate at this level in the financing formula?
Ms. Braun. In the financing formula?
Mr. Bilbray. Yes.
Ms. Braun. Sure.
Mr. Bilbray. Okay. Thank you very much. I appreciate it.
Thank you, doctor.
Mr. Bilirakis. Mr. Barrett?
Mr. Barrett. Thank you, Mr. Chairman, and I do thank you
for holding these hearings. I think they are very beneficial.
I feel compelled to address some of the questions or the
implicit questions that were posed by several Members who are
no longer here, from the other side. And the first one dealt
with a question that was posed to Dr. Braun, as to asking you
to choose between Medicare coverage prescription drugs or
cutting some other government service. It was presented, at
least as I heard the question, it was presented that these were
the only two options, that you were either going to get this or
we are going to have to cut some--if you were going to get
this, we were going to have to cut some other service.
I think that we have to put that notion to bed right away
because, as Mr. Ganske indicated and others indicated, we have
passed legislation conferring tax breaks on married couples,
some who suffer a marriage penalty, others like myself who have
a marriage bonus. And the decision was made that that was an
easy choice to make, that we could have a tax cut for $182
billion that would benefit, a lion's share of those benefits
would go to wealthier people.
So I just want to make sure that we understand that we are
not just talking here about services versus Medicare benefits,
that there is another factor in here, and that is tax cuts and
who is going to benefit from those tax cuts. And so if we are
going to have an honest debate, I think that that has to be
included in that debate.
The other question that was posed or implicit question that
was posed, one of my colleagues talked about the price
controls. Now, I infer from his statement that he was talking
about Tom Allen's bill, and I want to address that head-on
because there is absolutely nothing, absolutely nothing in that
bill that sets price controls. The prices are set by the
pharmaceutical companies in conjunction with the HMOs or the
Federal Government, whoever they are bargaining with.
They drive a bargain between themselves and their preferred
customers. What the Allen bill does, it says once you
pharmaceutical companies, once you have set that price, then
you can't discriminate, and for many of us that is a very, very
important notion, that seniors--and I don't think that there is
anybody in this room that would dispute the fact, and I
emphasize the word ``fact,'' that seniors in this country who
are not in HMOs, who do not have insurance plans, pay
significantly higher amounts for those drugs than anybody else
basically in this world, that American seniors are hit harder
than anybody else, certainly than anybody in this country.
My concern, as we debate this issue and we move toward a
discussion as to whether Medicare should cover prescription
drugs, is if we simply take the current pricing mechanism that
is out there, the current marketing practices, and plop them
from where they are and plop them into Medicare, we have not
addressed, we still have not addressed that issue of price
discrimination against seniors. All we have done is said,
``Well, seniors will still be discriminated against, but rather
than coming out of their own pocket, it is going to come out of
the government's pocket.''
And I think for the pharmaceutical companies that is just
fine. If they can continue to have that price differential,
they don't care who is paying for it. If it is seniors, fine;
if it is the government, that is fine, too. But I get more
sympathetic to some of the questions from some of my colleagues
who are concerned about the cost of the Medicare program,
because I think if we have a plan that simply shifts the
current marketing system into Medicare and don't do anything
about this price discrimination, that eventually it is going to
weaken the system.
The question I have for you, Dr. Braun, is along the lines
of the questions that I think again Mr. Ganske was posing. I
would like to see the AARP be more aggressive in saying, ``We
want freedom of choice for our constituents,'' for your
constituents; that if these drugs are being sold in Canada at a
lower price, if they are being sold in Switzerland at a lower
price, if they are being sold in Mexico at a lower price, well,
freedom of choice, everybody loves freedom of choice. If we are
talking about how bad it is to put price controls on companies,
it is also bad to put purchasing controls on purchasers, and we
should take those off as well. Then the free market can just
run wild.
So I would ask you to reconsider or to consider more in
depth the position that your organization takes, because I
think that that will help move this debate forward.
So, having said that, Mr. Chairman, I would yield back the
time.
Mr. Bilirakis. Thank you very much.
Mr. Lazio, to inquire?
Mr. Lazio. I am not going to ask any questions. The only
point I want to make, and it is partly in response to my
colleague, Mr. Barrett, is that if every senior was in a PBM,
they would all have the benefit of that leverage or that market
leverage. All of them would be able to participate in lower
prices. And so there are market mechanisms short of mandates
that would help drive prices down and give all seniors the
benefits that seniors who have Medigap policies, that they
enjoy or that their insurance companies enjoy or that their
employers enjoy.
And with that I----
Mr. Barrett. If the gentleman would yield----
Mr. Lazio. Yes, I am happy to yield to the gentleman.
Mr. Barrett. And I understand what you are saying and I
agree with it, but I think that almost by definition, the most
vulnerable and most isolated seniors are the ones that are
least likely to be attracted to those market mechanisms. And
just as the chairman was, I think, asking some legitimate
questions as to shouldn't we be helping the most infirm and the
sickest first, I think that we have to recognize that the very
people who are least likely to join those organizations are the
ones that are going to be the most vulnerable ones that the
chairman was speaking of.
Mr. Lazio. Reclaiming my time, we can create a structure,
an infrastructure that provides the right incentives so that
all seniors can and will and will want to participate in that
kind of market-related mechanism. It is just a question of
whether we are going to embrace the market system or we are
going to look for, in my opinion, look to a mandated approach
that will have a good deal of unforeseen consequences for
seniors, especially during this time of sort of a wild
technological explosion.
I love to talk to kids when they come to Washington,
because I say, ``I envy you, the things that you will see in
your lifetime, the creativity, the innovation, the discovery.''
I mean, this is the age of biological discovery. I just hope
that whatever we do does not hamstring our ability to continue
to explore the ends of the envelope when it comes to those
biological discoveries.
Mr. Pallone. Could I ask the gentleman to yield? This goes
back, I think it is part of what you were getting at and part
of what Mr. Bilbray was getting at, but I was confused when Mr.
Bilbray asked Dr. Braun this question or Mrs. Lewis this
question about mandates.
Was he suggesting that, when he was asking you, was he
asking whether or not you would support mandating, if you will,
that every senior pay a certain amount the way Mrs. Lewis is?
Or was he actually saying that he thought there should be some
sort of mandate that seniors should have to participate in
managed care? It wasn't clear to me, and I was just wondering
maybe if you would clarify that. Is it your position that you
think that every senior should be forced to pay a certain
amount, or would you favor that every senior would be able,
should have to participate in managed care? I was just confused
about the question and maybe how you responded to it.
Mr. Lazio. Let me just, because I don't have all that much
time, and I would be happy to yield if we have time, but it
also matters who controls the formulary. If the government
controls the formulary, if the government controls what type of
pharmaceuticals are going to be available at what cost, we are
going to have, in my opinion, some significant distortions to
the market that will have impact on discovery and innovation.
So, you know, it is a broader question I think in a sense
than just should seniors be in some form of PBM. But----
Mr. Greenwood [presiding]. If the gentleman would yield on
that----
Mr. Lazio. [continuing] you know, in other words----
Mr. Greenwood. Excuse me. The gentleman has yielded to the
temporary Chair. I also would like to comment about some of the
rhetoric that is used here.
There is no discrimination against seniors for prescription
drug benefits, for prescription drug products. There is an
experience that anyone of any age has when they walk into a
drug store and buy one product at a time, retail, without
benefit of having a plan to pay for them. That is what happens
in the retail market, whether you are buying bicycles or drugs.
What we are trying to do is create a system so that seniors
get the benefit of group purchasing leverage, so that they can
enjoy those kinds of reductions in prices and that we can
subsidize the cost of what they do have to pay. But I think we
ought to, if we are going to be truly bipartisan and get beyond
some of the rhetoric here, we ought to stop this rhetoric as if
somebody is discriminating against seniors. We want to get
seniors out of the one-by-one retail market and put them in a
group plan.
And I will recognize Ms. Eshoo for inquiry.
Ms. Eshoo. Thank you, Mr. Chairman, and thank you to both
of the witnesses that make up our first panel.
First I have some observations and then I have a question.
I think that what has come from you to the members of this
committee today is that a universal system is important. That
is what Medicare is as an insurance policy for the seniors of
our country, so the issue of should it be for a handful, should
it be for this group or should it be for that group, should we
segment the market, I think that as far as AARP is concerned
you have laid that to rest. You are saying that we need a
universal system.
We understand that Medigap insurance policies can be
expensive. I know in my own experience in paying for that
coverage through AARP for my mother and father, I started out
in the mid-eighties at $35 a month for the two of them, and the
year that my father died, which was 2 years ago, it had gone up
to close to $300-plus for the two of them. That is my own
personal experience. I still thought that it was a pretty good
buy because we couldn't get it anywhere else.
We know that there has been a reliance on the private
insurers, i.e. the health management organizations, the HMOs,
that they are not obligated to remain in a geographic area, nor
are they obligated to keep up with the promise that they may
have first offered to those in order to bring them in to their
insurance organization. In the Bay area, the San Francisco Bay
area, which is a known area throughout the country, it is an
area where the economy, the ground is on fire, we are doing so
well. And yet insurance company after insurance company has
pulled out of the market, and so what Mrs. Lewis enjoys, many
of the seniors that the Bay area delegation represents, they no
longer enjoy those benefits because the insurance companies
have pulled out of the market.
And with regard to the issue of reforming Medicare before
we offer another benefit, I would like to place something else
on the table. This is a reform that we are talking about here.
This is a very important reform to the system because no one
would design a system today without prescription drug coverage.
What was a part of the system in 1965, where they had surgical
coverage, in-hospital coverage was a must then. Prescription
drug coverage is a must today.
I think that once again the people of our country are ahead
of our government. They know that this is something that should
be a part of this system. In listening to you, Dr. Braun, I
want to urge you to take back to the AARP and its respective
policy committees, to come back to the Congress with what you
see is the best way of structuring this; not whether we should
have it, not whether we shouldn't. I think that all of these
things, most frankly, all of the Members, regardless of their
party, regardless of where they are, for the most part anyway,
in terms of their ideology, we know that we need to provide
this.
And to ask AARP to figure out our budget I think is unfair,
but I think we do need to look at how the best way this should
be constructed, because there is a 500-pound gorilla in the
room but no one wants to take a look at it. The pharmaceutical
companies do not want HCFA to do the administrating. We know
that. I mean, I don't know how many people have said it here,
but they don't want that because they are hearing that there
will be price controls, and let's put it right out there. There
are other models to take a look at. I don't know which way you
may go, but I think it might be a worthy exercise for AARP to
take a look at it.
The one consistency in all of this is that seniors indeed
do use drugs, legally, and that they are increasingly paying
more and more out of their pocket for that. Too many are having
to make an awful choice between their rent, food, other
necessities, on fixed, rather low incomes, and we need to do
something about this. So I would ask you to go back to your
policy committee and do some examination of which system you
think would work better, or the combinations thereof.
Now, my question. Some of the proposals that have been
introduced would allow plans to vary the benefits that seniors
get. For example, HMOs would be allowed to tailor the drug
benefit however they wanted. Some might choose to put high co-
payments on certain drugs; others might choose not to cover
certain drugs at all. Could you comment, Dr. Braun, on why you
think it is so important----
Mr. Greenwood. The gentlelady's time has expired.
Ms. Eshoo. And she is going to answer, which has not
expired.
Mr. Greenwood. No. I'm afraid the gentlelady's time has
expired.
Ms. Eshoo. Oh, Mr. Chairman, we are all spending a lot of
time here today. I mean, 30 seconds, can I ask the committee
for 30 seconds?
Mr. Greenwood. Certainly you can ask. We will yield you the
additional 30 seconds.
Ms. Eshoo. Thank you.
Could you comment, Dr. Braun, on why you think it is so
important to ensure that Medicare provides a defined benefit?
Ms. Braun. I think we need the defined benefit so that, if
we bring competition into the field, you really need to know
what you are competing on. And therefore I think, you know, we
do need to have a defined benefit in the program.
Ms. Eshoo. Thank you.
Mr. Greenwood. The gentleman, Mr. Strickland, is recognized
for inquiry.
Mr. Strickland. Thank you, Mr. Chairman.
I took note of the accurate point that seniors are not
discriminated against in a technical sense in drug pricing, but
the fact is that more seniors in this country are more likely
to be ill and need more medications, and so in a practical
sense they are the part of our population that bears the brunt
of this price discrimination. It is not only directed toward
seniors, but seniors bear a disproportionate burden for that
price discrimination than any other sector of our population,
so I think in a practical sense we can say seniors are being
discriminated against in the way drugs are priced.
I have heard references to price controls today, and many
of my colleagues who tout the world economy I think probably do
not recognize the fact that all the other countries have price
controls of one sort or another on prescription drugs, so once
again it is the American consumer that is bearing the brunt of
what we say is necessary in terms of pharmaceutical profits in
order to carry out the research to bring new and better, more
effective drugs on stream. The fact is that the American
consumer is being treated grossly unfairly in the way these
drugs are being priced.
And the third thing I would like to say to our honored
guests here today is that I represent an area in southern Ohio
that is a very poor Appalachian area, and I encounter on a
weekly basis seniors who would give everything they have, which
may not be very much, to have access to the kind of benefit
plan that you described in San Diego. And I am very sorry that
I was not here when you gave your testimony. I have read it,
and I am anxious to find out how such a generous benefit could
be available and still allow whoever is providing it to be
financially solvent.
But I want to thank you for being here. I think you both
have contributed greatly to our understanding of this problem.
Mr. Barrett. Would the gentleman yield?
Mr. Strickland. Yes, I would.
Mr. Barrett. I just want to respond to the chairman on my
statement using ``discrimination'' and make it very clear what
I meant. The current marketing system has a much greater
discriminatory impact on seniors, who disproprotionately are
not covered by health plans that help pay for the cost of
prescription drugs. The intent, the stated intent may not be to
discriminate against seniors, but because seniors are
disproportionately not covered by health care plans, they bear
the brunt of this discriminatory marketing system. That is what
I meant, and that is what I meant to say.
Mr. Ganske. Would the gentleman yield?
Mr. Pallone. Would the gentleman yield?
Mr. Strickland. I yield to the gentleman from New Jersey.
Mr. Pallone. I just wanted to ask the gentleman to yield
the time that he has left.
Dr. Braun, just again so I understand you, when Mr. Bilbray
was asking Mrs. Lewis about--or asking you about Mrs. Lewis'
plan and saying that he wanted to know whether you would
support, you know, everyone being mandated to have something
like that, it wasn't clear if he was asking whether or not we
should mandate that everyone pay a certain amount per month,
like she has a $15 per month co-pay or something, or whether he
was asking if everyone should be part of a managed care plan.
And you answered affirmatively, and I just wanted to clarify
that, AARP's position on that.
Ms. Braun. No, I certainly did not see it as mandatory for
everybody to join a managed care plan. I think I was responding
to the fact that the low costs that Mrs. Lewis has certainly
are something that could be borne by beneficiaries, that that
is within a normal range of what could be borne.
Mr. Pallone. Okay. Thank you.
Mr. Greenwood. If I may, if the gentleman would yield 30
seconds to me, the point that I was making, Mr. Barrett, is
that I think the word ``discrimination'' is a poor word to
describe the phenomenon of the marketplace.
I cannot go to Detroit, knock on General Motors' door and
ask them to sell me a Chevrolet for the same price that a
dealer would get the Chevrolet, because I am not buying train
loads of them. There is no economy of scale there. So that is
what we are confronting in the retail market. It is not
discrimination, it is an economic fact of life that we want to
overcome. We want to change that economic set of circumstances
so seniors do have the purchasing power, virtually wholesale
purchasing power, not retail purchasing power.
Mr. Barrett. If the gentleman would yield again, just for
15 seconds----
Mr. Greenwood. Fifteen seconds.
Mr. Barrett. [continuing] my point is the impact. I think
we have to look at the impact, and I stand behind my statement
that the impact against seniors is far more discriminatory.
Mr. Greenwood. All right. Enough of these semantical
battles. The Chair recognizes Mr. Waxman, who wishes to make a
unanimous consent request for a submission to the record. Is
that correct?
Mr. Waxman. Yes, Mr. Chairman. I have two documents from
AARP and another one from Leadership Council of Aging
Organizations. I would like to have it made part of the record.
[The information referred to follows:]
AARP
January 28, 2000
The Honorable Pete Stark
239 Cannon House office Building
U.S. House of Representatives
Washington, D.C. 20515
Dear Representative Stark: I am writing in response to your letter
concerning the design of a Medicare prescription drug benefit. Your
commitment to prescription drug coverage for Medicare beneficiaries and
long-standing leadership on this issue continue to be deeply
appreciated.
Like you, AARP is committed to creating a Medicare prescription
drug benefit for all beneficiaries as a high priority in Medicare
reform. We believe modernizing Medicare's benefit package to keep up
with advances in medicine is a must. Because prescription drugs are
central to the delivery of high quality health care, Medicare should be
like most other health insurance plans and include prescription drugs
as part of Medicare's defined benefit package offered by all
participating plans as well as in traditional fee-for-service.
AARP is committed to pursuing the answers to the questions you have
raised and to continuing to advance the debate over the best way to
assure that a prescription drug benefit that is available and
affordable to all Medicare beneficiaries becomes part of Medicare's
defined benefit package. We have identified some fundamental principles
to guide the development of a Medicare prescription drug benefit:
<bullet> A Medicare prescription drug benefit must be available to all
Medicare beneficiaries.
<bullet> Prescription drugs should be part of Medicare's defined
benefit package. It is critical that beneficiaries understand
what is included in their benefit and that they have dependable
and stable prescription drug coverage.
<bullet> The benefit needs to be affordable to assure enough
participation and thereby avoid the dangers of risk selection.
To this end, the government contribution will need to be
significant enough to yield a premium that is affordable and
attractive and a benefit design that is responsive to
beneficiaries' needs. Medicare Part B is a model in this
regard. The Part B benefit is voluntary, but Medicare's
contribution toward the cost of the benefit elicits virtually
universal participation.
<bullet> Beneficiaries should be able to keep the coverage that they
currently have, if they choose to do so. A Medicare
prescription drug benefit should not be an incentive for
employers to drop or cut back on retiree health coverage.
<bullet> The benefit must assure that beneficiaries have access to
needed drug therapies.
<bullet> The benefit must include quality improvement components to
reduce medical errors and mismedication and to help reduce
overall health care costs.
<bullet> The benefit must include meaningful cost-containment for both
beneficiaries and the Medicare program. This should include
drug purchasing strategies that enable Medicare beneficiaries
and the program to take advantage of the aggregate purchasing
power of Medicare beneficiaries.
<bullet> The benefit must provide additional subsidies for low-income
beneficiaries to protect them from unaffordable costs and
assure that they have access to the benefit.
<bullet> The benefit must be financed in a fiscally responsible manner
that is both adequate and stable. AARP believes that an
appropriate amount of the Federal budget surplus should be used
to help finance a prescription drug benefit.
<bullet> A new prescription drug benefit should be part of a strong
Medicare program. Prescription drug coverage must be integrated
into the program in a manner that preserves and strengthens
Medicare.
We understand your interest in ranking the importance of the
variables involved in designing a drug benefit. At this time, however,
AARP is in the process of evaluating what would make sense from a
policy perspective as well as the type of benefit that would best meet
the needs of current and future beneficiaries. For example, there are
strong indications that older Americans want stop-loss coverage, but
there are also indications that they want some degree of first dollar
protection. Yet, depending on the amount of the corresponding premium,
beneficiaries may not be able to afford a comprehensive benefit. More
importantly, we are not yet prepared to say what type of drug benefit
design the public will support because we do not know what other
changes will occur as part of Medicare reform and that their impact
will be on beneficiaries.
We believe these principles will help define a Medicare
prescription drug benefit that our broad-based membership can support.
The task of designing a drug benefit will not be easy, but we look
forward to working with you in this effort to carefully explore the
best options for a Medicare prescription drug benefit. Please do not
hesitate to contact me or have your staff contact Tricia Smith or Mila
Becker of our Federal Affairs Department at (202) 434-3770.
Sincerely,
Horace B. Deets
______
Leaderhip Council of Aging Organizations
February 7, 2000
United States House of Representatives
Washington, DC 20515
Dear Representative: The undersigned members of the Leadership
Council of Aging Organizations (LCAO) look forward to working with the
Congress on the creation of a Medicare prescription drug benefit.
As you consider current proposals and draft new prescription drug
proposals, we would like you to consider the following issues that are
of the highest priority to our organizations and the millions of
Americans that we represent.
Benefits
<bullet> Medicare should guarantee access to a voluntary prescription
drug benefit as a part of its defined benefit package.
<bullet> Medicare's prescription drug benefit should provide
comprehensive coverage, including the most current, effective,
and individually appropriate drug therapies.
<bullet> Medicare's contribution toward the cost of the prescription
drug benefit must keep pace with the increase in prescription
drug costs and not be tied to budgetary caps.
<bullet> Adding a Medicare prescription drug benefit must not reduce
access to other Medicare benefits.
Coverage
<bullet> The Medicare prescription drug benefit should be available to
all Medicare eligible older Americans and persons with
disabilities, regardless of income or health status.
<bullet> The Medicare prescription drug benefit must be voluntary and
must provide safeguards against the erosion of current
prescription drug coverage provided by others.
Affordability
<bullet> The financing of a new Medicare prescription drug benefit
should protect all beneficiaries from burdensome out-of-pocket
expenses and unaffordable cost sharing, particularly low-income
beneficiaries.
<bullet> The new benefit must protect individuals from extraordinary
expenses for prescription drugs.
<bullet> The government subsidy must be sufficient to guard against
risk selection and to provide an attractive benefit design.
<bullet> Sufficient subsidies should be provided for low-income
beneficiaries to ensure that they have access to the benefit.
Administration
<bullet> The new prescription drug benefit should be efficiently
managed, include appropriate cost-containment, and reflect the
purchasing power of the Medicare beneficiary pool.
Quality
<bullet> The new Medicare prescription drug benefit must meet rigorous
standards for quality of care, including appropriate monitoring
and quality assurance activities.
<bullet> The Medicare program should work to prevent the overuse,
underuse, and misuse of prescription drugs.
We request that you carefully consider the issues presented above
as you develop your Medicare prescription drug proposals. We look
forward to working with you to ensure that the Medicare program is
strengthened by your efforts.
Sincerely,
AARP; AFSCME Retiree Program; Alzheimer's Association; American
Association for International Aging; American Association of Homes and
Services for the Aging; American Federation of Teachers Program on
Retirement and Retirees; American Society of Consultant Pharmacists;
Asociacion Nacional Pro Personas Mayores; Association for Gerontology
and Human Development in Historically Black Colleges and Universities;
Association of Jewish Aging Services; B'nai B'rith Center for Senior
Housing and Services; Eldercare America, Inc.; Families, USA; The
Gerontological Society of America; Gray Panthers; National Academy of
Elder Law Attorneys; National Asian Pacific Center on Aging; National
Association of Area Agencies on Aging; National Association of Foster
Grandparent Program Directors; National Association of Nutrition and
Aging Services Programs; National Association of Retired and Senior
Volunteer Program Directors, Inc.; National Association of Senior
Companion Project Directors; National Association of State Long-Term
Care Ombudsman Programs; National Association of State Units on Aging;
National Caucus and Center on Black Aged, Inc.; National Committee to
Preserve Social Security and Medicare; National Council of Senior
Citizens; National Council on the Aging, Inc.; National Hispanic
Council on Aging; National Indian Council on Aging, Inc.; National
Osteoporosis Foundation; National Senior Citizen Law Center; Older
Women's League.
Mr. Greenwood. Without objection, the Chair would enter a
request for unanimous consent to submit for the record a CRS
report titled, ``Discharge Use in the House: Recent Use and
Historical Context,'' which goes to the comments of Mr. Stupak
that it is unlikely that discharge resolutions result in
legislation. This is a list from CRS as to how frequently that
happens. Without objection, so entered.
[The information referred to follows:]
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Mr. Waxman. It has happened.
Mr. Greenwood. It has happened.
We thank the witnesses for your tenacity and your fortitude
to stay here for at least 3 hours. We figure that during the 3
hours we listened to you for 40 minutes and you listened to us
for 3 hours and 20 minutes, but we thank you for that, and you
are excused now, please.
Mr. Bilirakis. I join in my gratitude to Mrs. Lewis and Dr.
Braun, and would now invite the second panel to come forward
finally. May we have order, please?
Ms. Bonnie Washington, director of the Office of
Legislation, Health Care Financing Administration, accompanied
by Dr. Jack Hoadley, who is director of the Division of Health
Financing Policy; and Dr. William J. Scanlon, director of
Health Financing and Public Health Issues with the General
Accounting Office. Welcome, Ms. Washington and Drs. Hoadley and
Scanlon.
Again, your written statement is a part of the record. We
are going to set the clock at 5 minutes. You know, we are
obviously running behind because we had those two votes and
what not. I certainly will not plan to cut you off if you need
an extra minute or 2 or 3. So we will start off with Ms.
Washington. Please proceed.
STATEMENTS OF BONNIE WASHINGTON, DIRECTOR, OFFICE OF
LEGISLATION, HEALTH CARE FINANCING ADMINISTRATION, ACCOMPANIED
BY JACK HOADLEY, DIRECTOR, DIVISION OF HEALTH FINANCING POLICY;
AND WILLIAM J. SCANLON, DIRECTOR, HEALTH FINANCING AND PUBLIC
HEALTH ISSUES, GENERAL ACCOUNTING OFFICE
Ms. Washington. Thank you, Chairman Bilirakis, Congressman
Waxman, and other distinguished subcommittee members. Thank you
for inviting us here today to discuss the need to provide
prescription drug coverage in Medicare.
All beneficiaries need access to an affordable drug
benefit. Pharmaceuticals are as essential today as hospital
care was when Medicare was created, but too many people are
missing out. As many people lack drug coverage today as lacked
hospital coverage when Medicare was created. Three out of five
Medicare beneficiaries do not have dependable coverage, and
only half have coverage the whole year through. One-third of
Medicare beneficiaries have no drug coverage at all.
Beneficiaries without coverage are forced to pay full
retail prices out of their own pockets because they do not get
the generous discounts that are offered to large purchasers.
The result is that many beneficiaries go without the medicine
they need to keep them healthy and out of the hospital.
Coverage is not just a problem for the poor. More than half
of the beneficiaries who don't have coverage for drugs have
incomes above 150 percent of poverty. Those with coverage are
often finding that it costs more and covers less over time, and
for some beneficiaries it is disappearing altogether as
employers drop retiree coverage. Clearly, all beneficiaries
need access to affordable drug coverage.
The President has identified four key principles that a
Medicare drug benefit must meet. First, it must be a voluntary
benefit available to all beneficiaries, because access can be a
problem for all kinds of beneficiaries.
The benefit must have competitive and efficient
administration, be integrated into the Medicare benefit
package, but use the private sector to deliver it.
It must be affordable for both beneficiaries and taxpayers.
This means providing enough assistance so almost all
beneficiaries participate. Otherwise, mostly those with high
drug costs would enroll, and the benefit would become
unaffordable and eventually become unsustainable.
Finally, the benefit must ensure access to all medications
that physicians deem to be medically necessary, and it also
must encourage high quality care with quality standards such as
protections against medication errors.
The President's plan meets those principles. It is
voluntary, and it is managed by private sector pharmacy benefit
managers. It is affordable, with a 50 percent premium subsidy
and extra help for low income beneficiaries. And Mrs. Lewis
should know that the President's plan guarantees that HMOs like
hers will be able to continue to provide the drug coverage that
she depends on. Right now, as you know, many HMOs don't, and
many that do have been cutting back or raising the premiums for
that coverage.
Chairman Bilirakis, we have broad consensus that we must
act to establish a Medicare drug benefit that everyone can
count on. We have a growing budget surplus and dramatic
improvements in Trust Fund solvency. We have a historic
opportunity to strengthen and modernize the Medicare program
and keep our commitment to meet the medical needs of the
elderly and the disabled.
Thank you again for inviting us to be here, and we look
forward to continuing to work with this committee on proposals
to modernize Medicare. Dr. Hoadley and I would be happy to
answer any questions that you have.
[The prepared statement of Bonnie Washington follows:]
Prepared Statement of Bonnie Washington, Director, Office of
Legislation, HCFA
Chairman Bilirakis, Congressman Brown, distinguished Subcommittee
members, thank you for inviting us to discuss the need, and our
proposal, to provide prescription drug coverage for Medicare
beneficiaries.
We must act now to ensure that all beneficiaries have an affordable
prescription drug benefit. Pharmaceuticals are as essential to modern
medicine today as hospital care was when Medicare was created.
Lack of prescription drug coverage among senior citizens and people
with disabilities today is similar to the lack of hospital coverage
among senior citizens when Medicare was created. Three out of five lack
dependable coverage. Only half of beneficiaries have year-round
coverage, and one third have no drug coverage at all. They must pay for
essential medicines fully out of their own pockets, and are forced to
pay full retail prices because they do not get the generous discounts
offered to insurers and other large purchasers. The result is that many
go without the medicines they need to keep them healthy and out of the
hospital.
Drug coverage is not just a problem for the poor. More than half of
beneficiaries who lack coverage have incomes above 150 percent of the
federal poverty level (above $17,000 for an elderly couple). Even those
with most types of coverage find it costs more and covers less.
Copayments, deductibles and premiums are up. And coverage is often
disappearing altogether as former employers drop retiree coverage and
Medigap is not available to everyone. Clearly all beneficiaries need
access to affordable prescription drug coverage.
key principles
The President has identified four key principles that a Medicare
drug benefit must meet.
<bullet> It must be a voluntary benefit accessible to all
beneficiaries. Since access is a problem for beneficiaries of
all incomes, ages, and areas, we must not limit a Medicare
benefit to a targeted group.
<bullet> It must be affordable to beneficiaries and the program. We
must provide assistance so almost all beneficiaries
participate. Otherwise, primarily those with high drug costs
would enroll and the benefit would become unaffordable.
<bullet> It must have a competitive and efficient administration. We
must integrate the benefit into Medicare but use the private
sector to deliver it.
<bullet> It must ensure access to needed medications and encourage
high-quality care. Beneficiaries must have access to the
medications that their physicians deem to be medically
necessary, and they must have the assurance of minimum quality
standards, including protections against medication errors.
The President's plan meets these principles.
<bullet> Beneficiaries will have access to an optional drug benefit
through either traditional Medicare or Medicare managed care
plans. Those with retiree coverage can keep it.
<bullet> Premiums will be affordable, with extra assistance for those
with low-incomes.
<bullet> There will be no price controls or new bureaucracy; instead,
the new benefit will be offered through private pharmacy
benefit managers who can efficiently negotiate fair prices. All
qualified pharmacies will be allowed to participate.
<bullet> Beneficiaries can get all drugs prescribed by their physicians
from private benefit managers who meet minimum quality
standards.
We have broad consensus that we must act now to establish a drug
benefit for Medicare beneficiaries. We have an historic opportunity
provided by the growing budget surplus and dramatic improvements in
Medicare Trust Fund solvency. We have an obligation to keep our
commitment to meet the medical needs of seniors and the disabled. And
this can only be done by making a voluntary, affordable, accessible,
competitive, efficient, quality drug benefit available to all
beneficiaries, as proposed by the President, in the context of Medicare
reform.
background
Prescription drugs can prevent, treat, and cure more diseases than
ever before, both prolonging and improving the quality of life. Proper
use should minimize hospital and nursing home stays, and may help
decrease the total cost of care.
Recognizing that prescription drugs are essential to modern
medicine, the private sector now includes outpatient drug coverage as a
standard benefit in almost all policies. Further, all plans in the
Federal Employees Health Benefits Program are required to offer a
prescription drug benefit. No one would design Medicare today without
including coverage for prescription drugs. Prescription drugs are
particularly important for seniors and disabled Americans, who often
take several drugs to treat multiple conditions. All across the
country, Medicare beneficiaries are suffering physical and financial
harm because they lack coverage.
Current coverage for prescription drugs for Medicare beneficiaries
is incomplete and unreliable, as shown by data based on the Medicare
Current Beneficiary Survey (MCBS). The MCBS is used to gather data on
prescription drug coverage and spending. Although that survey only
provides information through 1995, we have used additional information
that allows us to discuss some disturbing trends since that time.
We project that this year more than half of Medicare beneficiaries
will use prescription drugs costing $500 or more, and 38 percent will
spend more than $1000. Each year, about 85 percent of Medicare
beneficiaries fill at least one prescription. Yet one third of
beneficiaries have no coverage for drugs at all. And, in 1996, more
than half did not have drug coverage for the entire year.
About half of the beneficiaries without coverage have incomes above
150 percent of poverty, demonstrating that this is not just a low-
income problem. All these beneficiaries are forced to pay excessively
high costs for needed prescriptions because they do not get the deep
discounts offered only to insurers and other large purchasers.
This situation is worse for the 10 million Medicare beneficiaries
who live in rural areas. Nearly half of these beneficiaries have
absolutely no drug coverage. They have less access to employer-based
retiree health insurance because of the job structure in rural areas.
And three-quarters of rural beneficiaries do not have access to
Medicare+Choice plans and the drug coverage that many of these plans
provide.
In 1995, about 30 percent of Medicare beneficiaries had private
sector coverage offered by former employers to retirees. And this
coverage is eroding. The number of firms with 500 or more employees
offering retiree health coverage dropped 40 percent in 1994 to 30
percent in 1998, according to the employee benefits research firm
Mercer/Foster Higgins (numbers for small firms would be even lower).
The true impact of this trend has not yet been realized, because
some employers' decisions to drop coverage apply only to future
retirees. Furthermore, a recent survey prepared for the Kaiser Family
Foundation reported that 40 percent of large employers would consider
cutting back on prescription drug coverage in the next three to five
years. As today's workers retire, the population of Medicare
beneficiaries with access to retiree coverage is likely to be well
below the levels reported in our surveys.
About one in six Medicare beneficiaries today are enrolled in
Medicare+Choice plans, most of which include some drug coverage.
Although Medicare+Choice plans are only required to provide the
traditional Medicare benefit package, the majority of them also provide
prescription drugs, which is one reason why they have been popular with
Medicare beneficiaries.
Nearly one-third of all beneficiaries, however, lack a
Medicare+Choice option because they live in areas where there are no
plans. And where plans are available, they have been raising premiums
and copayments for drugs, while lowering caps on drug coverage. In
2000, three quarters of plans cap benefit payments at or below $1000,
and nearly one-third of plans cap coverage at $500 or less, even though
the majority of Medicare beneficiaries use prescription drugs costing
$500 or more each year.
About one in eight Medicare beneficiaries have drug coverage
through Medicaid. Eligibility for Medicaid, however, is restricted to
beneficiaries under 100% of poverty, and the majority of beneficiaries
eligible for such coverage--60 percent--are not enrolled in the
program. This enrollment problem persists despite increasing outreach
efforts to enroll those who are eligible.
Roughly one in ten Medicare beneficiaries obtain drug coverage from
a supplemental Medigap plan. Medigap coverage, however, is expensive
and its availability is not guaranteed except right after a beneficiary
turns 65.
Costs for these policies are rising rapidly, by 35 percent between
1994 and 1998, according to Consumer Reports, in part because those
being covered this way are less healthy than the average beneficiary.
The General Accounting Office (GAO) found that almost half of all
Medigap insurers implemented substantial increases in 1996 and 1997,
with AARP--one of the largest Medigap providers, and the only one
offering a community-rated policy covering prescription drugs--
increasing rates by 8.5 percent in 1997, 10.9 percent in 1998, and 9.4
percent in 1999.
The GAO also found that Medigap premiums for plans that include
drug coverage vary widely, both within and across States. For example,
premiums charged to a 65-year-old beneficiary for the standardized
``I'' Medigap plan ranged from $991 to $5,943 in 1999. And the average
premium for the standardized ``H'' Medigap plan ranges from $1,174 in
Virginia to $2,577 in Georgia.
Furthermore, premiums for Medigap coverage can increase with age in
most States. In some parts of the country, beneficiaries over age 75
are paying more than $100 per month for a plan with drug coverage over
and above the premium for a comparable plan without drug coverage. This
occurs despite the fact that the maximum annual payment for drug costs
in the ``H'' and ``I'' plans is only $1250 per year, barely over $100 a
month.
the president's plan
The President has proposed a comprehensive Medicare reform plan
that includes a voluntary, affordable, accessible, competitive,
efficient, quality drug benefit that will be available to all
beneficiaries. The President's plan also dedicates over half of the on-
budget surplus to Medicare and extends the life of the Medicare Trust
Fund to at least 2025. It also improves preventive benefits, enhances
competition and use of private sector purchasing tools, helps the
uninsured near retirement age buy into Medicare, and strengthens
program management and accountability.
The President's drug benefit proposal makes coverage available to
all beneficiaries, regardless of their incomes. The hallmark of the
Medicare program since its inception has been its social insurance
role--everyone, regardless of income, is entitled to the same basic
package of benefits. This is a significant factor in the unwavering
support for the program from the American public and must be preserved.
All workers pay taxes to support the Medicare program and therefore all
beneficiaries should have access to a new drug benefit.
A universal benefit also helps ensure that enrollment is not
dominated by those with high drug costs (adverse selection), which
would make the benefit unaffordable and unsustainable. And, as I
described earlier, lack of drug coverage is not a low-income problem--
beneficiaries of all incomes face barriers.
The benefit is completely voluntary. If beneficiaries have what
they think is better coverage, they can keep it. And the President's
plan includes assistance for employers offering retiree coverage that
is at least as good as the Medicare benefit to encourage them to offer
and maintain that coverage. This will help to minimize disruptions in
parts of the market that are working effectively, and it is a good deal
for beneficiaries, employers, and the Medicare program.
We expect that most beneficiaries will choose this new drug option
because of its attractiveness, affordability, and stability.
For beneficiaries who choose to participate, Medicare will pay half
of the monthly premium, with beneficiaries paying an estimated $26 per
month in 2003. The independent HCFA Actuary has concluded that at least
50 percent of the premium must be subsidized in order to ensure
adequate participation. A lesser subsidy would result in adverse
selection and thus an unaffordable and unsustainable benefit.
Under the President's plan, Medicare will pay half the cost of each
prescription, with no deductible. The benefit will cover up to $2,000
of prescription drugs when coverage begins in 2003, and increase to
$5,000 by 2009, with a 50 percent beneficiary coinsurance. After that,
the dollar amount of the benefit cap will increase each year to keep up
with inflation.
For beneficiaries with higher drug costs, they will continue to
receive the discounted prices negotiated by the private benefit
managers after they exceed the coverage cap. And, to help beneficiaries
with the highest drug costs, we are setting aside a reserve of $35
billion over the next 10 years, with funding beginning in 2006. It will
be available so that Congress and the Administration can work in
collaboration to design protections for those with the greatest need.
Benefit managers, such as pharmacy benefit manager firms and other
eligible companies, will administer the prescription drug benefit for
beneficiaries in the traditional Medicare program. These entities will
bid competitively for regional contracts to provide the service, and we
will review and periodically re-compete those contracts to ensure that
there is healthy competition. The drug benefit managers--not the
government--will negotiate discounted rates with drug manufacturers, as
they do now in the private sector. We want to give beneficiaries a fair
price that the market can provide without a statutory fee schedule or
price controls.
The drug benefit managers will have to meet access and quality
standards, such as implementing aggressive drug utilization review
programs. And their contracts with the government will include
incentives to keep costs and utilization low.
In general, all therapeutic classes of drugs will be covered. Each
drug benefit manager will be allowed to establish a formulary, or list
of covered drugs. They will have to cover off-formulary drugs when a
physician requests a specific drug that is not on the formulary.
Coverage for the handful of drugs that are now covered by Medicare will
continue under current rules and will not be included in the new drug
benefit package.
And Medicare+Choice plans will benefit from the President's Plan.
Beneficiaries enrolled in Medicare+Choice plans will receive this
optional coverage through those plans, and the plans will use their
existing management tools to negotiate prices and formularies. In some
markets today, M+C plans offer prescription drug coverage using the
excess from payments intended to cover basic Medicare benefits. Under
the President's proposal, M+C plans in all markets will be paid
explicitly for providing a drug benefit, so they no longer have to
depend on what the rate is in a given area to determine whether they
can offer a benefit. We estimate that plans will receive $54 billion
over 10 years to pay for the costs of drug coverage.
We will no longer see the extreme regional variation in
Medicare+Choice drug coverage. Today, only 23 percent of rural
beneficiaries with access to Medicare+Choice have access to
prescription drugs, compared to 86 percent of urban beneficiaries.
Under the President's plan, both rural and urban beneficiaries will
have drug coverage available from all Medicare+Choice plans in their
area. And beneficiaries will not lose their drug coverage if a plan
withdraws from their area or if they choose to leave a plan.
The President's budget proposes to pay for the drug benefit through
a combination of premiums and dedication from the on-budget surplus.
Premiums will be collected like Medicare Part B premiums, as a
deduction from Social Security checks for most beneficiaries who choose
to participate. Beneficiaries pay roughly half of program costs.
Low-income beneficiaries would receive special assistance. States
may elect to place those who now receive drug coverage through Medicaid
in the Medicare drug program instead, with Medicaid paying premiums and
cost sharing as for other Medicare benefits. We would expand Medicaid
eligibility so that all beneficiaries with incomes up to 135 percent of
poverty would receive full assistance for their drug premiums and cost
sharing. Beneficiaries with incomes between 135 and 150 percent of
poverty would pay a partial, sliding-scale premium based on their
income. The Federal government will fully fund States' Medicaid costs
for the beneficiaries between 100 and 150 percent of poverty.
meeting basic principles
In any proposal to provide a prescription drug benefit for Medicare
beneficiaries, it is essential that the key principles identified by
the President be met.
<bullet> It must be a voluntary benefit accessible to all
beneficiaries.
<bullet> It must be affordable to beneficiaries and the program.
<bullet> It must be competitive and efficient.
<bullet> It must ensure access to needed medications and encourage
high-quality care.
Unfortunately, some of the proposals to establish a Medicare drug
benefit fail to meet one or more of these criteria.
Proposals that cover prescriptions for only some diseases fail to
provide access for all beneficiaries who need coverage. The number of
conditions for which effective drug treatments are available is growing
at an unprecedented pace. All beneficiaries need to know that they will
have affordable access to the drugs they need when they need them.
Proposals that provide assistance only to low-income beneficiaries
also fail to guarantee access for all beneficiaries. Most lacking drug
coverage have incomes above 150 percent of poverty, and it is
increasingly difficult for them to afford the medicines they need as
drug prices rise faster than inflation. It also is essential that we
maintain the principle that all Medicare benefits are equally available
to all beneficiaries. This is a pillar of the program's strength and
overwhelming support among the American people.
Proposals with a premium subsidy of only 25 percent would make the
benefit unaffordable to many low and middle-income beneficiaries unable
to shoulder the remaining 75 percent. As a result, the benefit would
attract a disproportionate number of enrollees with high drug costs.
That would drive up the price of premiums, which would further
discourage those with lower incomes or lower drug costs from enrolling,
and in the end result in an unsustainable program. As mentioned above,
the independent HCFA actuary has concluded that a subsidy of at least
50 percent is essential to attract a range of enrollees wide enough to
maintain an adequate risk pool.
Proposals with continuous or annual open enrollment periods would
be especially vulnerable to attracting enrollees with high drug costs
because beneficiaries could wait until they had substantial drug costs
before enrolling. This would exacerbate adverse selection problems
caused by an inadequate premium subsidy.
Proposals that link a drug benefit to a high-option Medicare plan
with additional benefits like a stop-loss for out-of-pocket costs also
make the drug benefit less affordable. Beneficiaries who elect the high
option would have to pay not only for drug coverage but also for all
the other higher costs of the high option plan that many would not
need, want, or be able to afford.
Proposals that fail to establish private sector benefit managers
everywhere, and instead merely allow private plans to offer coverage
when and where they wish, fail to ensure access for all beneficiaries.
The benefit would be available only in regions where Medigap and other
private plans step forward to offer it. Medigap insurers have already
said they would not find stand-alone drug policies an attractive
business proposition and are currently offering drugs less frequently.
Medigap plans also have little experience negotiating with drug
manufacturers and do not pool the purchasing power of seniors. That
could well make the coverage unaffordable for many beneficiaries.
And, finally, proposals that do not include a minimum or specified
benefit design cannot ensure access or high-quality care. They would
allow insurers offering the coverage to ``cherry-pick'' by tailoring
benefits in a way that would limit the value of the benefit to those
with greater prescription drug needs. And they would not ensure that
minimal safety protections, such as medication error prevention
programs, are in place.
conclusion
The need for a prescription drug benefit in Medicare is clear. The
consensus across the political spectrum that it should be added is
broad. The principles on which it must be based are strong. The
opportunity is before us. The time to act is now.
I look forward to working with all of you on this critical issue. I
thank you for holding this hearing, and I am happy to answer your
questions.
Mr. Bilirakis. Thank you, Ms. Washington. Dr. Hoadley,
would you like to add anything.
Mr. Hoadley. Not at this point.
Mr. Bilirakis. Dr. Scanlon, please proceed, sir.
STATEMENT OF WILLIAM J. SCANLON
Mr. Scanlon. Thank you very much, Mr. Chairman and members
of the committee. I am very pleased to be here as you discuss
options to increase Medicare beneficiaries' access to
prescription drugs.
There has been growing concern about the gap in the
Medicare program created by the lack of outpatient prescription
drug coverage, a gap which may leave some of Medicare's most
vulnerable beneficiaries unable to afford needed drugs or
heavily burdened by their cost. While you have heard today much
of the statistics that are in our testimony about the lack of
coverage for some Medicare beneficiaries and the fragility of
coverage from others, I would like to add one fact that I think
illustrates some of the tradeoffs that you have heard about in
terms of being able to afford drugs or to afford the other
necessities of life, a tradeoff that has consequences for one's
health potentially.
And that is that having coverage has a significant impact
on your access to drugs. Medicare beneficiaries without drug
coverage but who are sick tend to buy fewer drugs than their
counterparts with drug coverage. Research shows that
beneficiaries in poor or fair health, without coverage, spend
30 to 50 percent less on drugs than similar beneficiaries with
coverage. And that difference in spending is considerable
because, as we have also heard, beneficiaries with coverage are
much more likely to be getting discounts on the drugs that they
purchase.
Potential remedies to afford greater access to prescription
drugs that have been discussed have fallen into two categories.
The first involves proposals to subsidize an insurance benefit,
either through a publicly operated program or in the form of a
drug-only private insurance policy. The second would provide
access to the elderly to discounted prices available to other
purchasers.
Adding a drug benefit to Medicare, an example obviously of
the public sector approach, has probably received the most
attention. Therefore, in the rest of my oral remarks I would
like to comment on that option, though I would note at the same
time that the issue of designing and managing a public drug
benefit applies equally if the program is federally managed
through Medicare or managed by State government.
A fundamental consideration in developing a Medicare
prescription drug benefit would be to make the best use of
resources that are available. If you believe that resources are
limited, a first step in that regard would be to target those
resources to provide the greatest benefit, potentially focusing
assistance on lower income beneficiaries who are not eligible
for Medicaid or those with larger catastrophic drug expenses.
A second major concern will be how to ensure that the
program dollars are spent efficiently and effectively.
Accomplishing this will be challenging. Looking at the
experience of other third party payers who have pursued
different strategies to control their spending, and thinking
about how to apply them in a public program, illustrates some
of the challenge.
The world in which the insured individuals purchase drugs
at retail pharmacies, at retail prices, and then seek
reimbursement, is giving way to a world in which third party
payers influence which drug is purchased, how much is paid for
it, and where it is purchased. Medicaid programs provide an
example of one approach to cost control which focuses on
seeking discounted prices.
The Medicaid drug rebate program requires drug
manufacturers to give State Medicaid programs rebates for
outpatient drugs based on the lowest or best prices that they
charge other purchasers. While effective in securing the
Medicaid programs billions in rebates, the impact of these
discounts on the pharmaceutical market needs to be noted.
Manufacturers' adjustments of prices and discounts following
the introduction of Medicaid rebates meant that other payers
faced higher prices.
The Medicaid rebate approach has not included techniques
included by other payers to limit spending by exercising
controls on utilization. These other payers, including private
insurers and Medicare+Choice plans, have sought to manage their
drug benefits by attempting to control and channel drug
utilization through the use of formularies and cost sharing.
These mechanisms not only contribute to controlling use, but
they also allow payers to concentrate purchases on selected
drugs and thereby use purchasing power to obtain even greater
discounts from manufacturers.
Adopting some of these techniques with Medicare might
provide the potential for better control of costs. However, how
to adapt them to deal with the unique characteristics and
enormity of the Medicare program raises many questions.
I would like to end my comments by broadening the
discussion a bit. Adding a drug benefit to Medicare is
correctly seen as a modernization of the Medicare benefit
package and program. But however we feel, you also need to
recognize there are other and bigger challenges to modernizing
Medicare. That is to make sure it is sufficient and sustainable
to serve the needs of the baby boom and future generations of
beneficiaries, and that we can satisfy other social needs and
preferences.
We are in a period of prosperity. The deficit has
evaporated. Surpluses are projected for the next 10 years. The
growth of Medicare spending has temporarily abated. But,
nevertheless, we face substantial challenges brought about by
demographics.
The baby boom generation will add approximately 30 million
to Medicare rolls by 2030. While those numbers alone might
imply huge increases in spending, the likely improvements in
medical service that all will want access to will also create
additional pressure.
We have been aware of the financial pressures facing
Medicare. However, they have been discussed most often in terms
of the solvency of the Hospital Insurance, HI, Trust Fund. We
need to broaden our focus. HI Trust Fund solvency is an issue.
As the graphic over there indicates, the fund will be depleted
about the year 2014. Indeed, for the majority of the 1990's
there were outflows from that fund every year.
The HI Trust Fund, however, is only a part of the picture.
It funds Part A. Part B coverage of physicians and other
services is almost 40 percent of the program, and it is funded
75 percent out of general revenues. Thus, we need to focus on
the full share of our resources that will be needed by
Medicare.
As this next graphic shows, Medicare, Medicaid and Social
Security will absorb increasing shares of Gross Domestic
Product and Federal revenues this century. Indeed, if Federal
revenues were to remain at a constant share of GDP, by 2030
these entitlements will be crowding out some discretionary
spending like defense or education. By 2050, all discretionary
spending would be crowded out, as would some interest on the
debt.
This picture means that prudence demands that we focus
broadly on Medicare and not just on the absence of prescription
drug coverage. We should be making every effort to ensure
needed services are purchased efficiently, that the burden of
financing is distributed equitably, and that the program
remains sustainable and affordable for future generations.
Thank you very much, Mr. Chairman.
[The prepared statement of William J. Scanlon follows:]
Prepared Statement of David M. Walker, Comptroller General of the
United States
Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today as you discuss options for increasing Medicare
beneficiaries' access to prescription drugs. There are growing concerns
about gaps in the Medicare program, most notably the lack of outpatient
prescription drug coverage, which may leave Medicare's most vulnerable
beneficiaries with high out-of-pocket costs that they may not be able
to afford. In 1996, almost a third of Medicare beneficiaries lacked
prescription drug coverage. The remaining two-thirds had at least some
drug coverage through other sources--most commonly employer-sponsored
health plans. Although the proportion of beneficiaries who had drug
coverage rose between 1995 and 1996, recent evidence indicates that
this trend of expanding drug coverage is unlikely to continue.
Moreover, the burden of prescription drug costs falls most heavily on
the Medicare beneficiaries who lack drug coverage or those who have
substantial health care needs. In 1999, an estimated 20 percent of
Medicare beneficiaries had drug costs of $1,500 or more--a substantial
sum for those lacking some form of insurance to subsidize the purchase.
At the same time, however, long-term cost pressures facing the
Medicare program are considerable. There appears to be an emerging
consensus that substantive financing and programmatic reforms are
necessary to put Medicare on a sustainable footing for the future.
These fundamental program reforms are vital to reducing the program's
growth, which threatens to absorb ever-increasing shares of the
nation's budgetary and economic resources. Thus, proposals to help
seniors with the costs of prescription drugs should be carefully
crafted to avoid further erosion of the projected financial condition
of the Medicare program, which, according to its trustees, is already
unsustainable in its present form.
On the one hand, you must grapple with the hard choices involved in
making the Medicare program sustainable for future generations. On the
other, you are faced with the plight of many seniors who cannot afford
the medical miracles that may be achieved through access to
pharmaceutical advances. Expanding Medicare's benefit package could
address the latter. However, a recent study suggests that such an
expansion could add between 7.2 and 10 percent annually to Medicare's
costs.<SUP>1</SUP> Increased spending of that magnitude would only
exacerbate the tough choices that will be required to put Medicare on
sustainable footing for the future.
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\1\ M.E. Gluck, National Academy of Social Insurance Medicare
Brief: A Medicare Prescription Drug Benefit (April 1999), p. 8. http//
www.nasi.org/Medicare.medbr1.htm (4/22/99).
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You are considering these issues at a historic crossroad. After
nearly 30 years of deficits, the combination of hard choices and
remarkable economic growth has led to a budget surplus. We appear--at
least for the near future--to have slain the deficit dragon. In its
most recent projections, the Congressional Budget Office (CBO) shows
both unified and on-budget surpluses throughout the next 10 years.
While this is good news and even superior to the projections made last
year, it does not mean that hard choices are a thing of the past.
First, it is important to recognize that by their very nature
projections are uncertain. This is especially true today because, as
CBO notes, it is too soon to tell whether recent boosts in revenue
reflect a major structural change in the economy or a more temporary
divergence from historical trends. Indeed, CBO points out that assuming
a return to historical trends and slightly faster growth in Medicare
would change the on-budget surplus to a growing deficit. This means we
should treat surplus predictions with caution. Current projected
surpluses could well prove to be fleeting, and thus appropriate caution
should be exercised when creating new entitlements that establish
permanent claims on future resources.
Moreover, while the size of future surpluses could exceed or fall
short of projections, we know that demographic and cost trends will, in
the absence of meaningful reform, drive Medicare spending to levels
that will prove unsustainable for future generations of taxpayers.
Accordingly, we need to view this period of projected prosperity as an
opportunity to address the structural imbalances in Medicare, Social
Security, and other entitlement programs before the approaching
demographic tidal wave makes the imbalances more dramatic and possible
solutions more painful.
As the foregoing suggests, the stakes associated with Medicare
reform are high for the program itself and for the rest of the federal
budget, both now and for future generations. Current policy decisions
can help us prepare for the challenges of an aging society in several
important ways: (1) reducing public debt to increase national savings
and investment, (2) reforming entitlement programs to reduce future
claims and free up resources for other competing priorities, and (3)
establishing a more sustainable Medicare program that delivers
effective and affordable health care to our seniors.
My remarks today will focus on Medicare beneficiaries' access to
prescription drugs and the environment in which you consider increasing
that access. Two proposals before you, one offered in the President's
budget and the other contained in the Breaux-Frist bill,<SUP>2</SUP>
would incorporate Medicare prescription drug coverage in the context of
larger Medicare reform. Other proposals that focus only on increasing
access to affordable prescription drugs are also being considered.
These proposals would either subsidize prescription drug coverage or
lower prices faced by beneficiaries without coverage. To put these
proposals in context, I will discuss the factors contributing to the
growth in prescription drug spending and efforts to control that
growth. I will also discuss design and implementation issues to be
considered regarding proposals to improve seniors' access to affordable
prescription drugs. I then will repeat my message about the Medicare
program's current financial condition and its long term sustainability.
---------------------------------------------------------------------------
\2\ S. 1895, Medicare Preservation and Improvement Act of 1999.
---------------------------------------------------------------------------
But before I turn to the specifics, let me reiterate that although
people want unfettered access to health care, and some have needs that
are not being met, health care costs compete with other legitimate
priorities in the federal budget, and their projected growth threatens
to crowd out future generations' flexibility to decide which of these
competing priorities will be met. Thus, in making important fiscal
decisions for our nation, policymakers need to consider the fundamental
differences between wants, needs, and what both individuals and our
nation can afford. This concept applies to all major aspects of
government, from major weapons system acquisitions to issues affecting
domestic programs. It also points to the fiduciary and stewardship
responsibility that we all share to ensure the sustainability of
Medicare for current and future generations within a broader context of
also providing for other important national needs and economic growth.
We have an opportunity to use our unprecedented economic wealth and
fiscal good fortune to address today's needs but an obligation to do so
in a way that improves the prospects for future generations. This
generation has a responsibility to future generations to reduce the
debt burden they will inherit, to provide a strong foundation for
future economic growth, and to ensure that future commitments are both
adequate and affordable. Prudence requires making the tough choices
today while the economy is healthy and the workforce is relatively
large.
rising drug spending elevates beneficiary access concerns and the
importance of cost-control efforts
Extensive research and development over the past 10 years have led
to new prescription drug therapies and improvements over existing
therapies that, in some instances, have replaced other health care
interventions. For example, new medications for the treatment of ulcers
have virtually eliminated the need for some surgical treatments. As a
result of these innovations, the importance of prescription drugs as
part of health care has grown. However, the new drug therapies have
also contributed to a significant increase in drug spending as a
component of health care costs. The Medicare benefit package, largely
designed in 1965, provides virtually no coverage. In 1996, almost one
third of beneficiaries had employer-sponsored health coverage, as
retirees, that included drug benefits. More than 10 percent of
beneficiaries received coverage through Medicaid or other public
programs. To protect against drug costs, the remainder of Medicare
beneficiaries can choose to enroll in a Medicare+Choice plan with drug
coverage if one is available in their area or purchase a Medigap
policy.<SUP>3</SUP> The availability, breadth, and price of such
coverage is changing as the costs of expanded prescription drug use
drives employers, insurers, and managed care plans to adopt new
approaches to control the expenditures for this benefit. These
approaches, in turn, are reshaping the drug market.
---------------------------------------------------------------------------
\3\ As an alternative to traditional Medicare fee-for-service,
beneficiaries in Medicare+Choice plans (formerly Medicare risk health
maintenance organizations) obtain all their services through a managed
care organization and Medicare makes a monthly capitation payment to
the plan on their behalf.
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Rise in Prescription Drug Spending
Over the past 5 years, prescription drug expenditures have grown
substantially, both in total and as a share of all health care outlays.
Prescription drug spending grew an average of 12.4 percent per year
from 1993 to 1998, compared with a 5 percent average annual growth rate
for health care expenditures overall. (See table 1.) As a result,
prescription drugs account for a larger share of total health care
spending--rising from 5.6 percent to 7.9 percent in 1998.
Table 1: National Expenditures for Prescription Drugs, 1993-98
----------------------------------------------------------------------------------------------------------------
Annual growth
Prescription in Annual growth
drug prescription in all health
Year expenditures drug care
(in billions) expenditures expenditures
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
1998............................................................ $90.6 15.4 5.6
1997............................................................ $78.5 14.0 4.7
1996............................................................ $68.9 12.9 4.6
1995............................................................ $61.0 10.6 4.8
1994............................................................ $55.2 9.0 5.5
1993............................................................ $50.6 8.7 7.4
Average annual growth between 1993 and 1998..................................... 12.4 5.0
----------------------------------------------------------------------------------------------------------------
Source: Health Care Financing Administration (HCFA), Office of the Actuary.
Total drug expenditures have been driven up by both greater
utilization of drugs and the substitution of higher-priced new drugs
for lower-priced existing drugs. Private insurance coverage for
prescription drugs has likely contributed to the rise in spending,
because insured consumers are shielded from the direct costs of
prescription drugs. In the decade between 1988 and 1998, the share of
prescription drug expenditures paid by private health insurers rose
from almost a third to more than half. (See fig. 1.) The development of
new, more expensive drug therapies--including new drugs that replace
old drugs and new drugs that treat disease more effectively--also
contributed to the drug spending growth by boosting the volume of drugs
used as well as the average price for drugs used. The average number of
new drugs entering the market each year rose from 24 at the beginning
of the 1990s to 33 now. Similarly, biotechnology advances and a growing
knowledge of the human immune system are significantly shaping the
discovery, design, and production of drugs. Advertising pitched to
consumers has also likely upped the use of prescription drugs. A recent
study found that the 10 drugs most heavily advertised directly to
consumers in 1998 accounted for about 22 percent of the total increase
in drug spending between 1993 and 1998.<SUP>4</SUP> Between March 1998
and March 1999, industry spending on advertising grew 16 percent to
$1.5 billion. All of these factors suggest the need for effective cost
control mechanisms to be in place under any option to increase access
to prescription drugs.
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\4\ Barents Group LLC for the National Institute for Health Care
Management Research and Educational Foundation, Factors Affecting the
Growth of Prescription Drug Expenditures (July 9, 1999);, p. iii.
Figure 1: Comparison of National Outpatient Drug Expenditures, 1988 and
1998
[GRAPHIC] [TIFF OMITTED]62971.034
Note: Out-of-pocket expenditures include direct spending by
consumers for prescription drugs, such as coinsurance, deductibles, and
any amounts not covered by insurance. Out-of-pocket premiums paid by
individuals are not counted here.
Source: HCFA, Office of the Actuary.
Current Medicare Beneficiary Drug Coverage
Prescription drugs are an important component of medical care for
the elderly because of the prevalence of chronic and other health
conditions associated with aging. In 1995, Medicare beneficiaries had
an average of more than 18 prescriptions filled.<SUP>5</SUP> This
varies substantially across beneficiaries, however, reflecting the
range of their needs and also financial considerations such as third-
party prescription drug coverage. In 1995, an elderly person's total
average annual drug costs were $600 <SUP>6</SUP> compared with a little
more than $140 for a non-elderly persons.<SUP>7</SUP> For some,
prescription drug spending was considerably higher--6 percent of
Medicare beneficiaries spent $2,000 or more.<SUP>8</SUP> A recent
report had projected that by 1999 an estimated 20 percent of Medicare
beneficiaries would have total drug costs of $1,500 or more--a
substantial sum for people lacking some form of insurance to subsidize
their purchases or for those facing coverage limits. <SUP>9</SUP>
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\5\ M. Davis and others, ``Prescription Drug Coverage, Utilization,
and Spending Among Medicare Beneficiaries,'' Health Affairs, Vol. 18,
No. 1 (Jan./Feb. 1999);, p. 237.
\6\ M. Davis, p. 239.
\7\ Agency for Health Care Policy and Research Center for Cost and
Financing Studies, National Medical Expenditure Survey data, Trends in
Personal Health Care Expenditures, Health Insurance, and Payment
Sources, Community-Based Population, 1987-1995 (Mar. 1997), p. 10.
http://www.meps.ahcpr.gov/nmes/papers/trends/intnet4d.pdf (6/10/99).
\8\ J.A. Poisal and others, ``Prescription Drug Coverage and
Spending for Medicare Beneficiaries,'' Health Care Financing Review,
Vol. 20, No. 3 (Spring 1999), p. 20.
\9\ M.E. Gluck, p. 2.
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In 1996, almost a third of Medicare beneficiaries lacked drug
coverage altogether. (See fig. 2.) The remaining two-thirds had at
least some drug coverage--most commonly through employer-sponsored
health plans. The proportion of beneficiaries who had drug coverage
rose between 1995 and 1996, owing to increases in those with Medicare
HMOs, individually purchased supplemental coverage, and employer-
sponsored coverage. However, recent evidence indicates that this trend
of expanding drug coverage is unlikely to continue.
Figure 2: Sources of Drug Coverage for Medicare Beneficiaries, 1996
[GRAPHIC] [TIFF OMITTED]62971.035
``All Other'' includes coverage under non-risk Medicare HMOs,
state-based plans, the Department of Defense, and the Department of
Veterans Affairs.
Source: HCFA, based on the 1996 Medicare Current Beneficiary
Survey.
Although employer-sponsored health plans provide drug coverage to
the largest segment of the Medicare population with coverage, there are
signs that this could be eroding. Fewer employers are offering health
benefits to retirees eligible for Medicare and those that continue to
offer coverage are asking retirees to pay a larger share of costs. The
proportion of employers offering health coverage to retirees eligible
for Medicare declined from 40 percent in 1993 to 28 percent in 1999.
This decline is at least in part due to the rise in the cost of
providing this coverage, which grew about 21 percent from 1993 to 1999.
At the same time, the proportion of employers asking retirees to pay
the full cost of their health coverage increased from 36 percent to 40
percent.
In 1999, 13 percent of Medicare beneficiaries obtained prescription
drug coverage through a Medicare+Choice plan, up from 8 percent in
1996. Medicare+Choice plans have found drug coverage to be an
attractive benefit that beneficiaries seek out when choosing to enroll
in managed care organizations. However, owing to rising drug
expenditures and their effect on plan costs, the drug benefits the
plans offer are becoming less generous. Many plans restructured drug
benefits in 2000, increasing enrollees' out-of-pocket costs and
limiting their total drug coverage.
Beneficiaries may purchase Medigap policies that provide drug
coverage, although this tends to be expensive, involves significant
cost-sharing, and includes annual limits. Standard Medigap drug
policies include a $250 deductible, a 50 percent coinsurance
requirement, and a $1,250 or $3,000 annual limit. Furthermore, Medigap
premiums have been increasing in recent years. In 1999, the annual
premium for one type of Medigap policy with a $1,250 annual limit on
drug coverage, ranged from approximately $1,000 to $6,000.
All beneficiaries who have full Medicaid benefits <SUP>10</SUP>
receive drug coverage that is subject to few limits and low cost-
sharing requirements. For beneficiaries whose incomes are slightly
higher than Medicaid standards, 14 states currently offer pharmacy
assistance programs that provided drug coverage to approximately
750,000 beneficiaries in 1997. The three largest state programs
accounted for 77 percent of all state pharmacy assistance program
beneficiaries. <SUP>11</SUP> Most state pharmacy assistance programs,
like Medicaid, have few coverage limitations.
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\10\ Certain low-income Medicare beneficiaries are dually eligible
for Medicare and Medicaid.
\11\ These programs are operated in New Jersey, New York, and
Pennsylvania.
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The burden of prescription drug costs falls most heavily on the
Medicare beneficiaries who lack drug coverage or who have substantial
health care needs. Drug
coverage is less prevalent among beneficiaries with lower incomes. In
1995, 38 percent of beneficiaries with income below $20,000 were
without drug coverage, compared to 30 percent of beneficiaries with
higher incomes. Additionally, the 1995 data show that drug coverage is
slightly higher among those with poorer self-reported health status. At
the same time, however, beneficiaries without drug coverage and in poor
health had drug expenditures that were $400 lower than the expenditures
of beneficiaries with drug coverage and in poor health. This might
indicate access problems for this segment of the population.
Even for beneficiaries who have drug coverage, the extent of the
protection it affords varies. The value of a beneficiary's drug benefit
is affected by the benefit design, including cost-sharing requirements
and benefit limitations. Evidence suggests that premiums are on the
rise for employer-sponsored benefits, Medigap policies, and most
recently, Medicare+Choice plans. Although reasonable cost sharing
serves to make the consumer a more prudent purchaser, copayments,
deductibles, and annual coverage limits can reduce the value of drug
coverage to the beneficiary. Harder to measure is the effect on
beneficiaries of drug benefit restrictions brought about through
formularies designed to limit or influence the choice of drugs.
Cost-Control Approaches Are Reshaping the Pharmaceutical Market
During this period of rising prescription drug expenditures, third-
party payers have pursued various approaches to control spending. These
efforts have initiated a transformation of the pharmaceutical market.
Whereas insured individuals formerly purchased drugs at retail prices
at pharmacies and then sought reimbursement, now third-party payers
influence which drug is purchased, how much is paid for it, and where
it is purchased.
A common technique to manage pharmacy care and control costs is to
use a formulary. A formulary is a list of prescription drugs, grouped
by therapeutic class, that a health plan or insurer prefers and may
encourage doctors to prescribe. Decisions about which drugs to include
in a formulary are based on the drugs' medical value and price. The
inclusion of a drug in a formulary and its cost can affect how
frequently it is prescribed and purchased and, therefore, can affect
its market share.
Formularies can be open, incentive-based, or closed. Open
formularies are often referred to as ``voluntary'' because enrollees
are not penalized if their physicians prescribe nonformulary drugs.
Incentive-based formularies generally offer enrollees lower copayments
for the preferred formulary or generic drugs. Incentive-based or
managed formularies are becoming more popular because they combine
flexibility and greater cost-control features than open formularies. A
closed formulary limits insurance coverage to the formulary drugs and
requires enrollees to pay the full cost of nonformulary drugs
prescribed by their physicians.
Another way in which the market has been transformed is through the
use of pharmacy benefit managers (PBM) by health plans and insurers to
administer and manage prescription drug benefits. PBMs offer a range of
services, including prescription claims processing, mail-service
pharmacy, formulary development and management, pharmacy network
development, generic substitution incentives, and drug utilization
review. PBMs also negotiate discounts and rebates on prescription drugs
with manufacturers.
expanding access to prescription drugs involves difficult design
decisions
Expanding access to more affordable prescription drugs could
involve either subsidizing prescription drug coverage or allowing
beneficiaries access to discounted pharmaceutical prices. The design of
a drug coverage option, that is, the scope of the benefit, the covered
population, and the mechanisms used to contain costs, as well as its
implementation will determine the effect of the option on
beneficiaries, Medicare or federal spending, and the pharmaceutical
market. A new benefit would need to be crafted to balance competing
concerns about the sustainability of Medicare, federal obligations, and
the hardship faced by some beneficiaries. Similarly, the effect of
granting some beneficiaries access to discounted prices will hinge on
details such as the price of the drugs after the discount, how
discounts are determined and secured, and which beneficiaries are
eligible.
The relative merits of any approach should be carefully assessed.
We suggest that the following five criteria be considered in evaluating
any option. (1) Affordability: an option should be evaluated in terms
of its effect on public outlays for the long term. (2) Equity: an
option should provide equitable access across groups of beneficiaries
and be fair to affected providers. (3) Adequacy: an option should
provide appropriate beneficiary incentives for prudent utilization,
support standard treatment options for beneficiaries, and not impede
effective and clinically meaningful innovations. (4) Feasibility: an
option should incorporate such administrative essentials as
implementation and cost and quality monitoring techniques. (5)
Acceptance: an option should account for the need to educate the
beneficiary and provider communities about its costs and the realities
of trade-offs required by significant policy changes.
Adding a Medicare Benefit
Expanding Medicare coverage to include prescription drugs would
entail numerous benefit design decisions that would affect the cost of
this expansion as well as its acceptability. A basic design decision
concerns whether financial assistance provided for the benefit would be
targeted to those with the greatest need--owing to a lack of existing
drug coverage, high drug expenditures, or poverty--or whether the
public financial subsidies would be available to all beneficiaries. The
President's proposal extends coverage to all beneficiaries, with
greater government subsidies for the poor. The Breaux-Frist Medicare
reform proposal incorporates optional drug coverage, which is
subsidized fully for the poor and partially for others. The generosity
of the benefit--the extent of beneficiary copayments, coverage limits,
and catastrophic protections--will also be a major factor in assessing
the impact of this benefit on the Medicare program. The President's
benefit design incorporates 50 percent beneficiary copayments; an
annual benefit limit; and a cap on catastrophic drug costs, which is
yet to be designed. Under the Breaux-Frist approach, competing health
plans could design their own copayment structure, with requirements on
the benefit's actuarial value but no provision to limit beneficiary
catastrophic drug costs.
Benefit cost-control provisions for the traditional Medicare
program may present some of the thorniest drug benefit design
decisions. Recent experience provides two general approaches. One would
involve the Medicare program obtaining price discounts from
manufacturers. Such an arrangement could be modeled after Medicaid's
drug rebate program. While the discounts in aggregate would likely be
substantial, this approach lacks the flexibility to achieve the
greatest control over spending. It could not effectively influence or
steer utilization because it does not include incentives that would
encourage beneficiaries to make cost-conscious decisions. The second
approach would draw from private sector experience in negotiating price
discounts from manufacturers in exchange for shifting market share.
Some plans and insurers employ PBMs to manage their drug benefits,
including claims processing, negotiating with manufacturers,
establishing lists of drug products that are preferred because of
efficacy or price, and developing beneficiary incentive approaches to
control spending and use. Applying these techniques to the entire
Medicare program, however, would be difficult because of its size, the
need for transparency in its actions, and the imperative for equity for
its beneficiaries.
Medicaid Programs Rely on Rebates and Have Limited Utilization Controls
As the largest government payer for prescription drugs, Medicaid
drug expenditures account for about 17 percent of the domestic
pharmaceutical market. Before the enactment of the Medicaid drug rebate
program under the Omnibus Budget Reconciliation Act of 1990 (OBRA),
state Medicaid programs paid close to retail prices for outpatient
drugs. Other large purchasers, such as HMOs and hospitals, negotiated
discounts with manufacturers and paid considerably less.
The rebate program required drug manufacturers to rebate to state
Medicaid programs a percentage off of the average price wholesalers pay
manufacturers. The rebates were based on a percentage reduction that
reflects the lowest or ``best'' prices the manufacturer charged other
purchasers and the volume of purchases by Medicaid recipients. In
return for the rebates, state Medicaid programs must cover all drugs
manufactured by pharmaceutical companies that entered into rebate
agreements with HCFA.<SUP>12</SUP>
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\12\ OBRA 1990 allowed the states to exclude certain classes of
drugs.
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After the rebate program's enactment, a number of market changes
affected other purchasers of prescription drugs and the amount of the
rebates that Medicaid programs received. Drug manufacturers
substantially reduced the price discounts they offered to many large
private purchasers, such as HMOs. Therefore, the market quickly
adjusted by increasing drug prices to compensate for rebates obtained
by the Medicaid program.
Although the states have received billions of dollars in rebates
from drug manufacturers since OBRA's enactment, state Medicaid
directors have expressed concerns about the rebate program. The
principal concern involves OBRA's requirement to provide access to all
the drugs of every manufacturer that offers rebates, which limits the
utilization controls Medicaid programs can use at a time when
prescription drug expenditures are rapidly increasing. Although the
programs can require recipients to obtain prior authorization for
particular drugs and can impose monthly limits on the number of covered
prescriptions, they cannot take advantage of other techniques, such as
incentive-based formularies, to steer recipients to less expensive
drugs. The few cost-control strategies available to state Medicaid
programs can add to the administrative burden on state Medicaid
programs.
Other Payers Employ Various Techniques to Control Expenditures
Other payers, such as private and federal employer health plans and
Medicare+Choice plans, have taken a different approach to managing
their prescription drug benefits. They typically use beneficiary
copayments to control prescription drug use, and they use formularies
to both control use and obtain better prices by concentrating purchases
on selected drugs. In many cases, these plans and insurers retain a
PBM's services to manage their pharmacy benefit and control spending.
Beneficiary cost-sharing plays a central role in attempting to
influence drug utilization. Copayments are frequently structured to
influence both the choice of drugs and the purchasing arrangements.
While formulary restrictions can channel purchases to preferred drugs,
closed formularies, which provide reimbursement only for preferred
drugs, have generated substantial dissatisfaction among consumers. As a
result, many plans link their cost-sharing requirements and formulary
lists. The fastest growing trend today is the use of a formulary that
covers all drugs but that includes beneficiary cost-sharing that varies
for different drugs--typically a smaller copayment for generic drugs, a
larger one for preferred drugs, and an even larger one for all other
drugs. Reduced copayments have also been used to encourage enrollees
using maintenance drugs for chronic conditions to obtain them from
particular suppliers, like a mail-order pharmacy.
Plans and insurers have turned to PBMs for assistance in
establishing formularies, negotiating prices with manufacturers and
pharmacies, processing beneficiaries' claims, and reviewing drug
utilization. Because PBMs manage drug benefits for multiple purchasers,
they often may have more leverage than individual plans in negotiating
prices through their greater purchasing power.
Traditional fee-for-service Medicare has generally established
reimbursement rates for services like those provided by physicians and
hospitals and then processed and paid claims with few utilization
controls. Adopting some of the techniques used by private plans and
insurers might help better control costs. However, how to adapt those
techniques to the characteristics and size of the Medicare program
raises questions.
Negotiated or competitively determined prices would be superior to
administered prices only if Medicare could employ some of the
utilization controls that come from having a formulary and differential
beneficiary cost-sharing. In this manner, Medicare would be able to
negotiate significantly discounted prices by promising to deliver a
larger market share for a manufacturer's product. Manufacturers would
have no incentive to offer a deep discount if all drugs in a
therapeutic class were covered on the same terms. Without a promised
share of the Medicare market, these manufacturers might reap greater
returns from charging higher prices and by concentrating marketing
efforts on physicians and consumers to influence prescribing patterns.
Implementing a formulary and other utilization controls could prove
difficult for Medicare. Developing a formulary involves determining
which drugs are therapeutically equivalent so that several from each
class can be included. Plans and PBMs currently make those
determinations privately--something that would not be possible for
Medicare, which must have transparent policies that are determined
openly. Given the stakes involved in selecting drugs, one can imagine
the intensive efforts to offer input to and scrutinize the selection
process.
Medicare may also find it impossible to delegate this task to one
or multiple PBMs. A single PBM contractor would likely be subject to
the same level of scrutiny as the program. Such scrutiny could
compromise the flexibility PBMs have used to generate savings. An
alternative would be to grant flexibility to multiple PBMs that are
each responsible only for a share of the market. Contracting with
multiple PBMs, though, raises other issues. If each PBM has exclusive
responsibility for a geographic area, beneficiaries who need certain
drugs could be advantaged or disadvantaged merely because of where they
live. If multiple PBMs operated in each area, beneficiaries could
choose one to administer their drug benefit. This raises questions
about how to inform beneficiaries of the differences in each PBM's
policies and whether and how to risk-adjust payments to PBMs for
differences in the health status of the beneficiaries using them.
Extending Federal Price Discounts to Beneficiaries
Another option before the Congress would allow Medicare
beneficiaries to purchase prescription drugs at the lowest price paid
by the federal government. Because of their large purchasing power,
federal agencies, such as, the Departments of Veterans Affairs (VA) and
Defense (DOD), have access to prescription drug prices that often are
considerably lower than retail prices. Extending these discounts to
Medicare beneficiaries, or some groups of beneficiaries, could have a
measurable effect on lowering their out-of-pocket spending, although
whether this would adequately increase access or raise prices paid by
other purchasers that negotiate drug discounts is unknown.
Typically, federal agencies obtain prescription drugs at prices
listed in the federal supply schedule (FSS) for
pharmaceuticals.<SUP>13</SUP> FSS prices represent a significant
discount off the prices drug manufacturers charge
wholesalers.<SUP>14</SUP> Under the Veterans Health Care Act of 1992,
drug manufacturers must make their brand-named drugs available to
federal agencies at the FSS price in order to participate in the
Medicaid program. <SUP>15</SUP> The act requires that the FSS price for
VA, DOD, the Public Health Service, and the Coast Guard be at least 24
percent below the price that the manufacturers charge
wholesalers.<SUP>16</SUP>
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\13\ The FSS for pharmaceuticals is a price catalog currently
containing over 17,000 pharmaceutical products available to federal
agencies.
\14\ FSS prices are set through negotiations between VA, on behalf
of the government, and drug manufacturers and are based on the prices
that manufacturers offer their most favored nonfederal customers.
\15\ The act covers single-source drugs, innovator multiple-source
drugs, insulin, and biological products such as vaccines and
antitoxins. The act does not cover noninnovator multiple-source or
generic drugs.
\16\ The act requires that manufacturers sell drugs covered by the
act at no more that 76 percent of the nonfederal average manufacturer's
price, a level referred to as the federal ceiling price. The nonfederal
average manufacturer's price is the weighted average price of each
single form and dosage unit of a drug that is paid by wholesalers in
the United States to a manufacturer, taking into account any cash
discounts or similar price reductiions. Prices paid by the federal
government are excluded from this calculation.
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Although most federal prescription drug purchases are made at FSS
prices, in some cases, federal agencies are able to purchase drugs at
even lower prices. For example, VA has used national contracts awarded
on a competitive basis for specific drugs considered therapeutically
interchangeable. These contracts enable VA to obtain larger discounts
from manufacturers by channeling greater volume to certain
pharmaceutical products.
Providing Medicare beneficiaries access to the lowest federal
prices could result in important out-of-pocket savings to those without
coverage who are paying close to retail prices. However, concerns exist
that extending federal discounts to Medicare beneficiaries could lead
to price increases to federal agencies and other purchasers since the
discount is based on prices determined by manufacturers. Federal
efforts to lower Medicaid drug prices demonstrate the potential for
this to occur. While it is not possible to predict how federal drug
prices would change if Medicare beneficiaries are given access to them,
the larger the market that seeks to take advantage of these prices, the
greater the economic incentive would be for drug manufacturers to raise
federal prices to limit the impact of giving lower prices to more
purchasers.
expanding benefits needs to be considered in light of larger medicare
fiscal concerns
The current Medicare program, without improvements, is ill suited
to serve future generations of seniors and eligible disabled Americans.
On the one hand, the program is fiscally unsustainable in its present
form, as the disparity between program expenditures and program
revenues is expected to widen dramatically in the coming years. On the
other hand, Medicare's benefit package contains gaps in desired
coverage, most notably the lack of outpatient prescription drug
coverage, compared with private employer coverage. Any option to
modernize the benefits runs the risk of exacerbating the fiscal
imbalance of the programs. That is why we believe that expansions
should be made in the context of overall program reforms that are
designed to make the program more sustainable over the long term. Any
discussions about expanding beneficiary access to prescription drugs
should carefully consider targeting financial help to those most in
need and minimizing the substitution of public funds for private funds.
Employers that offer drug coverage through a retiree health plan may
choose to adapt their health coverage if a Medicare drug benefit is
available. A key characteristic of America's voluntary, employer-based
system of health insurance is an employer's freedom to modify the
conditions of coverage or to terminate benefits.
Medicare's Financial Condition
Unlike private trust funds that can set aside money for the future
by investing in financial assets, the Medicare Hospital Insurance (HI)
Trust Fund--which pays for inpatient hospital stays, skilled nursing
care, hospice, and certain home health services--is essentially an
accounting device. It allows the government to track the extent to
which earmarked payroll taxes cover Medicare's HI outlays. In serving
the tracking purpose, the 1999 Trustees' annual report showed that
Medicare's HI component has been, on a cash basis, in the red since
1992, and in fiscal year 1998, earmarked payroll taxes covered only 89
percent of HI spending. In the Trustees' report, issued in March 1999,
projected continued cash deficits for the HI trust fund. (See fig. 3.)
[GRAPHIC] [TIFF OMITTED]62971.036
When the program has a cash deficit, as it did from 1992 through
1998, Medicare is a net claimant on the Treasury--a threshold that
Social Security is not currently expected to reach until 2014. To
finance these cash deficits, Medicare drew on its special issue
Treasury securities acquired during the years when the program
generates a cash surplus. In essence, for Medicare to ``redeem'' its
securities, the government must raise taxes, cut spending for other
programs, or reduce the projected surplus. Outlays for Medicare
services covered under Supplementary Medical Insurance (SMI)--physician
and outpatient hospital services, diagnostic tests, and certain other
medical services and supplies--are already funded largely through
general revenues.
Although the Office of Management and Budget (OMB) has recently
reported a $12 billion cash surplus for the HI program in fiscal year
1999 due to lower than expected program outlays, the long-term
financial outlook for Medicare is expected to deteriorate. Medicare's
rolls are expanding and are projected to increase rapidly with the
retirement of the baby boomers. Today's elderly make up about 13
percent of the total population; by 2030, they will comprise 20 percent
as the baby boom generation ages and the ratio of workers to retirees
declines from 3.4 to 1 today to roughly 2 to 1.
Without meaningful reform, the long-term financial outlook for
Medicare is bleak. Together, Medicare's HI and SMI expenditures are
expected to increase dramatically, rising from about 12 percent in 1999
to about a quarter of all federal revenues by mid-century. Over the
same time frame, Medicare's expenditures are expected to double as a
share of the economy, from 2.5 to 5.3 percent, as shown in figure 4.
[GRAPHIC] [TIFF OMITTED]62971.037
The progressive absorption of a greater share of the nation's
resources for health care, like Social Security, is in part a
reflection of the rising share of elderly population, but Medicare
growth rates also reflect the escalation of health care costs at rates
well exceeding general rates of inflation. Increases in the number and
quality of health care services have been fueled by the explosive
growth of medical technology. Moreover, the actual costs of health care
consumption are not transparent. Third-party payers generally insulate
consumers from the cost of health care decisions. In traditional
Medicare, for example, the impact of the cost-sharing provisions
designed to curb the use of services is muted because about 80 percent
of beneficiaries have some form of supplemental health care coverage
(such as Medigap insurance) that pays these costs. For these reasons,
among others, Medicare represents a much greater and more complex
fiscal challenge than even Social Security over the longer term.
When viewed from the perspective of the entire budget and the
economy, the growth in Medicare spending will become progressively
unsustainable over the longer term. Our updated budget simulations show
that to move into the future without making changes in the Social
Security, Medicare, and Medicaid programs is to envision a very
different role for the federal government. Assuming, for example, that
the Congress and the President adhere to the often-stated goal of
saving the Social Security surpluses, our long-term model shows a world
by 2030 in which Social Security, Medicare, and Medicaid increasingly
absorb available revenues within the federal budget. Under this
scenario, these programs would absorb more than three-quarters of total
federal revenue. (See fig. 5.) Budgetary flexibility would be
drastically constrained and little room would be left for programs for
national defense, the young, infrastructure, and law enforcement.
[GRAPHIC] [TIFF OMITTED]62971.038
[GRAPHIC] [TIFF OMITTED]62971.039
While the problems facing the Social Security program are
significant, Medicare's challenges are even more daunting. To close
Social Security's deficit today would require a 17 percent increase in
the payroll tax, whereas the HI payroll tax would have to be raised 50
percent to restore actuarial balance to the HI trust fund. This
analysis, moreover, does not incorporate the financing challenges
associated with the SMI and Medicaid programs.
Early action to address the structural imbalances in Medicare is
critical. First, ample time is required to phase in the reforms needed
to put this program on a more sustainable footing before the baby
boomers retire. Second, timely action to bring costs down pays large
fiscal dividends for the program and the budget. The high projected
growth of Medicare in the coming years means that the earlier the
reform begins, the greater the savings will be as a result of the
effects of compounding.
The actions necessary to bring about a more sustainable program
will no doubt call for some hard choices. Some suggest that the size of
the imbalances between Medicare's outlays and payroll tax revenues for
the HI program may well justify the need for additional resources. One
possible source could be general revenues. Although this may eventually
prove necessary, such additional financing should be considered as part
of a broader initiative to ensure the program's long-range financial
integrity and sustainability.
What concerns us most is that devoting general funds to the HI
trust fund may be used to extend HI's solvency without addressing the
hard choices needed to make the whole Medicare program more sustainable
in economic or budgetary terms. Increasing the HI trust fund balance
alone, without underlying program reform, does nothing to make the
Medicare program more sustainable--that is, it does not reduce the
program's projected share of GDP or the federal budget. From a
macroeconomic perspective, the critical question is not how much a
trust fund has in assets but whether the government as a whole has the
economic capacity to finance all Medicare's promised benefits--both now
and in the future. We must keep in mind the unprecedented challenge
facing future generations in our aging society. Relieving them of some
of the financial burden of today's commitments would help preserve some
budgetary flexibility for future generations to make their own choices.
If more fundamental program reforms are not made, we fear that
general fund infusions would interfere with the vital signaling
function that trust fund mechanisms can have for policymakers about
underlying fiscal imbalances in covered programs. The greatest risk is
that dedicating general funds to the HI program will reduce the sense
of urgency that impending trust fund bankruptcy provides to
policymakers by artificially extending the solvency of the HI program.
Furthermore, increasing the trust fund's paper solvency does not
address cost growth in the SMI portion of Medicare, which is projected
to grow even faster than HI in coming decades, assuming no additional
SMI benefits.
The issue of the extent to which general funds are an appropriate
financing mechanism for the Medicare program would remain important
under financing arrangements that differed from those in place in the
current HI and SMI structures. For example, under approaches that would
combine the two trust funds, a continued need would exist for measures
of program sustainability that would signal potential future fiscal
imbalance. Such measures might include the percentage of program
funding provided by general revenues, the percentage of total federal
revenues or gross domestic product devoted to Medicare, or program
spending per enrollee. As such measures were developed, questions would
need to be asked about the appropriate level of general revenue
funding. Regardless of the measure chosen, the real question would be
what actions should be taken when and if the chosen cap is reached.
Long-Term Fiscal Policy Choices
Beyond reforming the Medicare program itself, maintaining an
overall sustainable fiscal policy and strong economy is vital to
enhancing our nation's future capacity to afford paying benefits in the
face of an aging society. Decisions on how we use today's surpluses can
have wide-ranging impacts on our ability to afford tomorrow's
commitments.
As we know, there have been a variety of proposals to use the
surpluses for purposes other than debt reduction. Although these
proposals have various pros and cons, we need to be mindful of the risk
associated with using projected surpluses to finance permanent future
claims on the budget, whether they are on the spending or the tax side.
Commitments often prove to be permanent, while projected surpluses can
be fleeting. For instance, current projections assume full compliance
with tight discretionary spending caps. Moreover, relatively small
changes in economic assumptions can lead to very large changes in the
fiscal outlook, especially when carried out over a decade. In its
January 2000 report, <SUP>17</SUP> CBO compared the actual deficits or
surpluses for 1986 through 1999 with the first projection it had
produced 5 years before the start of each fiscal year. Excluding the
estimated impact of legislation, CBO stated that its errors in
projecting the federal surplus or deficit averaged about 2.4 percent of
GDP in the fifth year beyond the current year. For example, such a
shift in 2005 would mean a potential swing of about $285 billion in the
projected surplus for that year.
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\17\ The Economic and Budget Outlook: Fiscal Years 2001-2010 (CBO,
Jan. 2000).
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Although most would not argue for devoting 100 percent of the
surplus to debt reduction over the next 10 years, saving a good portion
of our surpluses would yield fiscal and economic dividends as the
nation faces the challenges of financing an aging society. Our work on
the long-term budget outlook illustrates the benefits of maintaining
surpluses for debt reduction. Reducing the publicly held debt reduces
interest costs, freeing up budgetary resources for other programmatic
priorities. For the economy, running surpluses and reducing debt
increase national saving and free up resources for private investment.
These results, in turn, lead to stronger economic growth and higher
incomes over the long term.
Over the last several years, our simulations illustrate the long-
term economic consequences flowing from different fiscal policy
paths.<SUP>18</SUP> Our models consistently show that saving all or a
major share of projected budget surpluses ultimately leads to
demonstrable gains in GDP per capita. Over a 50-year period, GDP per
capita is estimated to more than double from present levels by saving
all or most of projected surpluses, while incomes would eventually fall
if we failed to sustain any of the surplus. Although rising
productivity and living standards are always important, they are
especially critical for the 21st century, for they will increase the
economic capacity of the projected smaller workforce to finance future
government programs along with the obligations and commitments for the
baby boomers' retirement.
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\18\ See Budget Issues: Long-Term Fiscal Outlook (GAO/T-AIMD/OCE-
98-83, Feb. 25, 1998) and Budget Issues: Analysis of Long-Term Fiscal
Outlook (GAO/AIMD/OCE-98-19, Oct. 22, 1997).
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concluding observations
Updating the Medicare benefit package may be a necessary part of
any realistic reform program to address the legitimate expectations of
an aging society for health care, both now and in the future. Expanding
access to prescription drugs could ease the significant financial
burden some Medicare beneficiaries face because of outpatient drug
costs. Such changes, however, need to be considered as part of a
broader initiative to address Medicare's current fiscal imbalance and
promote the program's longer-term sustainability. Balancing these
competing concerns may require the best from government-run programs
and private sector efforts to modernize Medicare for the future.
Further, the Congress should consider adequate fiscal incentives to
control costs and a targeting strategy in connection with any proposal
to provide new benefits such as prescription drugs.
The Congress and the President may ultimately decide to include
some form of prescription drug coverage as part of Medicare. Given this
expectation and the future projected growth of the program, some
additional revenue sources may in fact be a necessary component of
Medicare reform. However, it is essential that we not take our eye off
the ball. The most critical issue facing Medicare is the need to ensure
the program's long range financial integrity and sustainability. The
1999 annual reports of the Medicare Trustees project that program costs
will continue to grow faster than the rest of the economy. Care must be
taken to ensure that any potential expansion of the program be balanced
with other programmatic reforms so that we do not worsen Medicare's
existing financial imbalances.
Current budget surpluses represent both an opportunity and an
obligation. We have an opportunity to use our unprecedented economic
wealth and fiscal good fortune to address today's needs but an
obligation to do so in a way that improves the prospects for future
generations. This generation has a stewardship responsibility to future
generations to reduce the debt burden they will inherit, to provide a
strong foundation for future economic growth, and to ensure that future
commitments are both adequate and affordable. Prudence requires making
the tough choices today while the economy is healthy and the workforce
is relatively large. National saving pays future dividends over the
long term, but only if meaningful reform begins soon. Entitlement
reform is best done with considerable lead-time to phase in changes and
before the changes that are needed become dramatic and disruptive. The
prudent use of the nation's current and projected budget surpluses
combined with meaningful Medicare and Social Security program reforms
can help achieve both of these goals.
Mr. Chairman, this concludes my prepared statement. I will be happy
to answer any questions you or other Subcommittee Members may have.
gao contacts and acknowledgments
For future contacts regarding this testimony, please call Paul L.
Posner, Director, Budget Issues, at (202) 512-9573 or William J.
Scanlon, Director, Health Financing and Public Health Issues at (202)
512-7114. Other individuals who made key contributions include Linda F.
Baker, Laura A. Dummit, John C. Hansen, Tricia A. Spellman, and James
R. McTigue.
Mr. Bilirakis. Thank you, Dr. Scanlon. Thanks to all of
you.
Well, Ms. Washington, as you know, I have introduced
legislation to establish a protection for beneficiaries who
have high annual drug costs, the sickest. Even though we are
talking about it being outside of the scope of the Medicare
program, at this point in time it would include all Medicare
beneficiaries who qualify, so it does hit this universal
coverage idea, by the way, which has been mentioned in the
past.
The President's budget proposed to set aside $35 billion
for that purpose. And maybe this is a little premature, and if
it is, certainly I won't press you, but can you elaborate on
the administration's specific plans in that regard?
Ms. Washington. Yes, sir. As you said, we agree that
protecting beneficiaries with high out-of-pocket costs is
important, and it was one of the areas that we wanted to
improve on in the proposal that we submitted last year. We
don't have a specific benefit design. We want to work with the
Congress to come up with a benefit design that could be
affordable for the program and the beneficiaries, to protect
them from some of these high out-of-pocket costs. We think that
the $35 billion that we set aside will be enough to craft a
benefit that offers significant protection. But other than
that, we want to work with you on the details.
Mr. Bilirakis. Other than that, you have nothing.
Dr. Hoadley, do you have anything to add to that?
Mr. Hoadley. No.
Mr. Bilirakis. Dr. Scanlon, add anything to it?
Mr. Scanlon. Mr. Chairman, we believe very strongly that
catastrophic protection is one of the important things to think
about----
Mr. Bilirakis. We don't use that word. We don't use
``catastrophic.''
Mr. Scanlon. Sorry. Stop-loss protection. But I would also
point out that stop-loss protection for Medicare in general is
also an important thing to think about, because of the two
glaring omissions from the Medicare benefit package that was
enacted in 1965. Outpatient prescription drugs may be one, and
beneficiaries' cost-sharing liability, which can be quite high,
is the other.
Mr. Bilirakis. Well, thanks. Some have suggested that
enactment of targeted prescription drug assistance, not just in
our plan but any targeted prescription drug assistance, would
undermine broader reform to preserve Medicare for the future.
You know, a similar ``all or nothing'' argument was advanced
during the debate on health care reform in 1994, and then the
end result was what? Well, it was that Americans in need of
health insurance were forced to wait 2 years for enactment of
legislation to provide portability of insurance and coverage
for preexisting conditions.
We must not repeat that mistake, and this is why I feel so
very strongly about it. Now, you know, we have seen the charts
here, we have talked about it previously. We all know that
Medicare faces a severe financial crisis. The impending
bankruptcy of the program, I would think, would be sufficient
incentive to make sure that regardless of whether we advance
some sort of targeted prescription drug assistance, that it is
not going to take away from the need to reform Medicare
consistent with all of the discussions that have taken place.
I would like to ask all of you to comment regarding that.
You know, I represent such a strong senior citizen area. I am a
big supporter of Medicare. And under perfect circumstances,
whatever the coverage might be should be universal to all
Medicare beneficiaries, but we don't have perfect
circumstances. We face the bankruptcy of a program that we have
to take into consideration as far as spending is concerned.
You know, I just have trouble quite understanding this
business of ``all or nothing'' when in fact there are people
out there who are hurting right now who can be helped in the
meantime, until we can get to the point of reforming the
system, which is going to take a while, and in this political
year many people feel that we are probably not going to be able
to get around to it. I hope that they are wrong.
So, Ms. Washington, again it is a policy issue, and I don't
know whether it is something you want to address.
Ms. Washington. Well, I think that we agree. The President
agrees that the problem really has two parts. It is modernizing
the benefit package with prescription drugs, and it is ensuring
that the solvency of the program continues in the long run. And
the President, as you know, has proposed a plan that addresses
both circumstances.
I think there are particular problems for prescription
drugs for the low-income, but I believe we could work together
to enact a universal drug benefit this year. As you know, over
half of the beneficiaries who don't have coverage do have
incomes over $150,000, and I think that part of the success of
Medicare is the fact that it is available to everyone. So I
think you can work together to design----
Mr. Bilirakis. About half of those who don't have--forgive
me for interrupting--who don't have coverage have incomes of
over $150,000?
Ms. Washington. Sorry. I misspoke. 150 percent of poverty,
which is about $17,000 for a couple. I got 150 and then I got
sidetracked.
Mr. Bilirakis. You had the figure right, at least, right?
Ms. Washington. But I think we can work together to do a
universal benefit this year, affordable to both the
beneficiaries and the program.
Mr. Bilirakis. Don't we wish that were truly the case,
though?
Dr. Scanlon, my time has expired, but if you have
anything----
Mr. Scanlon. But Chairman, I am afraid I can't offer you
much advice on this decision. I think as the role of the
analyst, what we can do is provide you the elements of the
bigger picture. And I recognize that sometimes incremental
approaches are easier to accomplish in the short term, but
keeping the focus on the bigger picture and knowing how the
incremental strategy will build to be able to deal with that
broader question I think is very important. There is no debate
that resources are a portion of this question, and it is your
decision as to how those can be used best.
Mr. Bilirakis. Well, thank you for all the help that we
always get from GAO.
Mr. Waxman?
Mr. Waxman. Thank you very much, Mr. Chairman.
Ms. Washington, just so we understand how severe this
problem is of prescription drugs for the elderly, as I
understand it, only about half the beneficiaries have coverage
throughout the year. Is that an accurate statement?
Ms. Washington. That is right.
Mr. Waxman. And that coverage is not dependable. Employers
are cutting back. Managed care plans are cutting back if not
eliminating drug coverage. And then the Medigap policies are
very, very costly. Some people just can't afford a Medigap
policy.
Ms. Washington. Right. That is true.
Mr. Waxman. Since the administration testified last year on
this issue in September, I believe you have gotten some new
information about what is happening in managed care plans with
respect to the drug coverage they offer. Are managed care drug
benefits expanding or shrinking?
Ms. Washington. Unfortunately, Congressman Waxman, managed
care drug benefits are shrinking. This year, 70 percent of the
plans are capping their drug benefit at or below $1,000 for the
year, and of those, one-third of total plans cap benefits at
$500 or lower. This last figure has increased by 50 percent
from the previous year, 1999.
Mr. Waxman. So we have large numbers of seniors without
prescription drug coverage or with undependable coverage. It
seems to me that we are in the same situation with regard to
drug coverage that we were in 1965 with respect to
hospitalization coverage, which drove government to enact the
Medicare program, primarily to cover hospital care because
seniors just couldn't afford it and didn't have it available to
them. Is that an accurate statement?
Ms. Washington. That is right, sir. Approximately 50
percent of people in 1963 had access to hospital insurance, and
that is about where we are with Medicare drug coverage today.
Mr. Waxman. Now, Dr. Scanlon, in 1963, 1964 and then 1965,
the Congress could have said there is a bigger picture, and
therefore we shouldn't solve this problem until we deal with
the bigger picture. That could have kept the Congress from
doing anything, couldn't it? That is just sort of a rhetorical
question.
Mr. Scanlon. I can't give you the details. I know. I can't
give you the details of the bigger picture then, but I think
that our picture now is quite different than it was in 1965.
Medicare has absorbed a much larger share of our economy than
it did in 1965, and I think that in 1965 we would have
certainly included drug coverage if we had recognized the role
that drugs were going to play in medical care.
But the reality was that medical care was so different
then, and that was in part how we approached Medicare. I think
over time we have refined Medicare dramatically to reflect the
fact that medical science and the delivery of medical care has
changed quite a bit.
Mr. Waxman. You would think, then, an insurance program for
seniors in this country ought to have prescription drugs?
Mr. Scanlon. If we were designing an insurance program
today, it should have prescription drug coverage. Virtually the
entire elderly population uses some drugs. Those that are going
to end up with catastrophically high drug costs are a smaller
segment and you don't necessarily have the ability to plan for
that or have the ability to save for that. That's why having
insurance is an extremely positive benefit for beneficiaries.
Mr. Waxman. We could have taken that approach with Medicare
in 1965 and said, well, just cover catastrophic costs for
hospitalization and doctor expenses, and let people figure if
they can come up with the money before they get that coverage
triggered in, couldn't we?
Mr. Scanlon. I am not saying that we should have only a
catastrophic drug benefit. I think because of catastrophic
costs, a drug benefit is extremely important. Having a drug
benefit that begins at a lower level is also important to
prevent the exacerbation of conditions, so that you do not
incur other kinds of higher expenses. I think it is also
important, though, that there be a sharing of the burden of
this benefit.
Mr. Waxman. Well, we want to share the burden, so we want
to get as many people covered as possible in any kind of
voluntary prescription drug government program, wouldn't we?
You would agree that if we are going to do it, we should do it
for all Medicare beneficiaries, not just the 150 percent of
poverty level?
Mr. Scanlon. I think that the decision as to whether you do
it for all Medicare beneficiaries is one that you have to base
on resources, and this use versus other uses of those
resources, and that I think is a decision we can't make at GAO
for you.
Mr. Waxman. I have seen articles with headlines that say
``GAO Says Don't Provide A Prescription Drug Coverage Under
Medicare Until All Of Medicare Is Modernized.'' Is that a
recommendation or just a reporter's interpretation of what your
statements have been?
Mr. Scanlon. I think those are reporters' interpretations
out of context, because the GAO position has been that we
should think about modernizing the Medicare program in its
totality. Prescription drug coverage is one aspect of it. Stop-
loss coverage is another. Making the purchases of all services
more efficient is a third. And I think those are the major
principles of GAO's position on this.
Mr. Waxman. So we have lots of tradeoffs, but ultimately it
is up to the elected officials to make the public policy calls.
We are not going to solve all the world's problems at once, so
we have to decide what is the most severe one facing us, and
the most severe one facing the elderly in this country, I
believe, is the lack of coverage, not the crisis that may be in
2014 or 2030. That is my opinion.
Mr. Greenwood [presiding]. I think the gentleman's time has
expired. The Chair recognizes himself for 5 minutes.
Ms. Washington, in his State of the Union address, the
President recognized a senior citizen in the gallery whose name
was Pat Brown and cited him as an example, and noted that he
had an annual prescription drug cost of $4,200 and he had no
drug coverage. Could you, in order to illustrate the
President's proposal, tell us how her--excuse me--Mrs. Brown
would be helped by the President's proposal.
Ms. Washington. Yes, sir. The President's proposal offers
prescription drug coverage up to a limit each year, and the
premium for beneficiaries is subsidized by the government at 50
percent and the beneficiary pays the other 50 percent. Drugs
are covered up to a limit of $2,000 in the first year and
$5,000 when fully phased in.
And so, Mrs. Brown would receive assistance. She would pay
the monthly premium, which in 2003 would be $26 a month. And
then, she would receive her drugs at a discount that would be
offered by the pharmacy benefit manager, or the HMO that she
belongs to, and she would pay up to a 50 percent co-pay for the
cost of the drugs that she receives each year.
Mr. Greenwood. Let me see if our math is the same here.
According to my math, she would pay, in 2003 she would pay
$3,500 out of her pocket under the Clinton plan, of the $4,200,
because the government's contribution is capped at $1,000. She
would be paying approximately $300 in premiums, plus one-half
of the $2,000 maximum benefit, or $2,200, and therefore her
uncovered drug spending would be $3,500. Do we have different
mathematicians working for us here?
Ms. Washington. Well, I think there are two points. The
first point is that if she is uninsured now or she participates
in a Medigap plan, she is not realizing the benefits of the
discounts that the pharmacy benefit managers can give her. So,
her costs would hopefully be lower with drug coverage. I think
when the benefit is fully phased in at $5,000, she would
receive more help than she would in the first year.
Mr. Greenwood. If she lives that long, and we hope she
does.
Mr. Waxman. Without a drug program, she might not.
Mr. Greenwood. Right, right. Well, without a good drug
program she might not, that is the problem. And of course I
think this goes to one of the essential dilemmas here, is with
finite resources do we want to make sure that we cover more of
her costs and focus this on the lower end of the socioeconomic
scale, or provide a relatively thin coverage, at least for the
first several years, to everyone. That is a basic philosophical
consideration for us.
You mentioned the fact that you hadn't, I think it was in
response to a question, that the President and the
administration hadn't developed a benefits package, and that
you intended to work with the Congress, you hoped to work with
Congress on that. In fact, it is my understanding that, A, we
have no legislative language from the White House at all with
regard to the President's proposal; and, B, I am not aware, and
I am one of the guys supposedly writing this legislation, I am
not aware of any overtures from the administration to work with
the Congress.
And let me say to you that it is my fervent hope that what
we end up doing is having a package on the President's desk
that we have negotiated with the administration, that we all
can feel good about, Republicans and Democrats, and get signed
into law this year. But to do that I think we are going to--
time is obviously very limited--we are going to have to see
language from the administration, some very concrete and
detailed language. We are really going to have to establish a
dialog here, where representatives of the administration and
representatives of the Congress, both chambers, both sides of
the aisle, are working toward that common goal, because we
won't get it otherwise.
Could you comment on that?
Ms. Washington. Yes, sir. Back in July, we released a very
detailed plan of the President's proposal that was about 40
pages long. We are working on legislative language now, and I
can certainly get back to you about what the plans are for
that. But we would be happy to sit down and work with this
committee, like we have in the past, to discuss the issues and
see what we can do.
Mr. Greenwood. Well, I will personally take you up on that
because I believe that that is a dialog that has to begin
sooner rather than later, and I have been around here long
enough to know that when it happens later, it usually is too
late and we end up with a veto or we end up with stalemate and
a lot of political finger-pointing, and I think we ought to
avoid that.
I see no other members--oh, Dr. Ganske is recognized for 5
minutes.
Mr. Ganske. I want to get back to the macro level here. I
appreciate your testimony.
It looks to me like today Medicare expansion of benefits is
even more difficult than it was in 1988, 1989, and here is why.
We have, I think, a very firm bipartisan commitment to protect
Social Security. That makes deficit spending for new programs
very difficult.
Second, how do you expand coverage for some when others
have no coverage at all, i.e., the uninsured, the totally
uninsured?
And, third, as Mr. Scanlon's first chart points out, we are
getting closer and closer to Medicare insolvency, and so what
should our priorities be? Should our first priority be to
protect the current program? Or should it be to expand the
current program and then push that insolvency date closer?
Now, the President's plan recommends spending roughly $170
billion over 10 years, I think, $168.5 billion or something
like that. Senator Breaux's plan talks about $70 billion.
Earlier today I talked about how much this surplus really could
be.
And now that I have got the CBO paper in front of me, you
know, if you look at the projections for spending just to keep
up with inflation, not counting emergency spending, then you
get about $830 billion in surplus over 10 years. So knock off
about another $200 billion for emergency spending, and then
knock off about another $100 billion for a bipartisan
commitment for increased spending on defense. I hear that all
the time from both sides of the aisle, from the President. So
you could knock off about, you know, another $300 billion just
for that. So now you are down to about $500 billion over 10
years.
Okay. What I am saying is this: I am terribly frustrated by
this process, because we don't know, A, how much a real
prescription benefit is going to cost, because we don't know
what new drugs are coming along, and the President's plan is
open-ended. You are talking about 50 percent of expenses but we
don't know what the expenses are. I mean, it could be a lot
more than what we are projecting.
And we don't know, because we don't have a budget at this
point in time, how much we are projecting for being able to
cover, say, the uninsured. If we did nothing more than make an
effort to get those who already qualify for Federal programs
into the programs, that is an additional significant cost, much
less an expansion.
And so, you know, I guess I would like your comments on
this. How can we justify this, proposing these programs,
without a context of a budget that we have agreed on in a
bipartisan fashion? Mr. Scanlon?
Mr. Scanlon. Dr. Ganske, I think in part we need to go and
look at that bigger picture again, and it is not just the issue
of this financing picture but it is the issue of the operation
of the Medicare program. Because I think that in both the
President's proposal and in the Breaux-Frist bill and in the
work of the commission, we were talking about not only
modernizing this program in terms of adding a drug benefit and
stop-loss coverage but also trying to make it more efficient,
and hope that we would get savings there that would both be
able to cover the cost of some of these benefits as well as to
make it more sustainable for the future.
Now, there is a big ``if'' there. I don't think that we
have the experience or the analysis yet to feel comfortable
that we are going to be able to do this, but I would agree with
everything that you said in terms of the dilemma we have in the
tradeoffs. There are significant needs besides drug coverage
for Medicare beneficiaries, such as the needs of the uninsured,
and what is done about those while one is thinking about drug
coverage is a major issue.
But I am afraid that what we can try to do is provide you
the information on the relative effects of different approaches
to this, but when it comes down to having to make a choice
between the two, I don't have any advice on that.
Mr. Ganske. Ms. Washington, let me just go back over these
three points that I made.
First, do you agree that there is a bipartisan commitment
to protect Social Security that makes deficit spending for new
programs very difficulty?
Mr. Greenwood. Please be brief when you respond, since the
gentleman's time has expired.
Ms. Washington. Dr. Ganske, I can't really comment on the
overall budget structure of the administration.
Mr. Ganske. The administration doesn't want to see deficit
spending.
Ms. Washington. That is correct.
Mr. Ganske. Okay. And the administration has a real
commitment to providing coverage to those who don't have any
insurance, right?
Ms. Washington. Right. That is correct. We have a
proposal----
Mr. Ganske. And the administration has a real commitment to
making sure that Medicare stays solvent?
Ms. Washington. Yes, sir.
Mr. Greenwood. The gentleman's time has expired.
Mr. Ganske. Mr. Chairman, I would ask for an additional
minute, unanimous consent.
Mr. Greenwood. A quick minute.
Mr. Ganske. Hey, there is only three of us. I am sorry. Mr.
Burr is down here.
Mr. Scanlon, we are talking about, you know, trying to do
basically a number of things in our budget. We are talking
about tax cuts, we are talking about an expansion of coverage
for the uninsured, we are talking about prescription drugs and
expansion of benefits in Medicare, and there are a number of
other priorities. Can you make a suggestion for me? How can we
even begin to look at what we should be fashioning for some
type of drug benefit for those who truly need it, without
knowing how much money we have to spend, how much money is
available?
Mr. Scanlon. I think we can begin by trying to help you in
terms of understanding what the implications of different
levels of resources going into this would be, and how those
resources, different levels of resources, could be targeted,
and some of the potential consequences of that targeting. But
beyond that I don't know how to guide you, because I do--I
mean, I understand your dilemma completely, which is that the
list of potential uses of both existing revenues and future
surpluses is quite long and clearly will go well beyond the
money that is available.
Mr. Ganske. Thank you.
Thank you, Mr. Chairman.
Mr. Greenwood. The gentleman, Mr. Strickland, is recognized
for 5 minutes for inquiry.
Mr. Strickland. Thank you. I would like to address this to
Ms. Washington.
You mentioned in your testimony that a Medicare benefit
needs to be universal to avoid adverse risk selection problems,
and the question I have is, what are the risk selection
problems that could occur in a drug benefit that is targeted
only toward certain beneficiaries such as low income seniors?
Ms. Washington. Well, risk selection happens when you are
targeting the benefit only to a certain group or you are making
it unaffordable for others to join the program. What happens
is, when you can't share the risk among the maximum amount of
beneficiaries possible, the cost keeps going up and the
relatively healthy people will find that it is not affordable
to them, and that cycle spirals out of control, so at a certain
point the benefit isn't really sustainable because no one can
afford it.
Mr. Strickland. And that gets to the second part of my
question, and that is the level of subsidy that would have to
be available to make benefits affordable to low income folks.
And looking at the President's plan, I guess the major concern
that I have about it is, is the benefit attractive enough to
attract sufficient numbers of voluntary participants to keep
this adverse selection process from occurring? And I assume the
administration has considered that, but it seems to me that the
benefit package is minimal at best, and there are seniors that
would find it inadequate and consequently find it not all that
appealing to voluntarily participate. Is that a concern?
Ms. Washington. Well, what we tried to do in designing the
benefit is to make it attractive enough so that most
beneficiaries would participate, and we set the subsidy level
at 50 percent in order to achieve that, but at the same time
trying to make it affordable for the program. We have a series
of protections for the lowest income beneficiaries, so that
people under 135 percent of poverty have their premiums and
cost-sharing covered, and then people between 135 and 150
percent of poverty receive assistance on a sliding scale.
The addition of the stop-loss protection that we talked
about earlier would really serve to make the benefit more
attractive to those people with the highest out-of-pocket
costs, and that was a concern that we had last year, that is
the reason why we added that.
Mr. Strickland. One of the groups that is opposed to the
administration's initiative has communicated with a number of
my constituents, and one of the things they charge is that it
will not be voluntary. They don't do that exactly. They are
very careful in the words they use and how they use those
words, but they make reference to the fact that the
administration has indicated that approximately 80 percent of
Medicare beneficiaries will choose to participate, and they
take that estimate as an indication that this program will not
be voluntary.
Can you tell me where you came up or how you came up with
the estimate that approximately 80 percent of Medicare-eligible
folks would choose to participate?
Ms. Washington. When we were designing the benefit, we
consulted with our actuaries about the size of the subsidy and
the generosity of the benefit package, and what, in their
opinion, would cause the benefit to be attractive so that
almost all beneficiaries would participate. That is how we
settled on the 50 percent subsidy.
Eighty percent of the beneficiaries are expected to
participate because we have subsidies for employers to continue
to offer their private coverage. So, we do think that, as a
result of the subsidies, employers would take the incentive and
continue to offer their private retiree coverage for those
people who have it.
Mr. Strickland. So the 80 percent estimate is not based
upon any coercion on the part of this program, but it is based
on the assumption--and I guess that assumption is arrived at
through some scientific methodology--that 80 percent would
choose to participate either because they have no coverage
currently, or the coverage they have is inadequate, or the
coverage they have is becoming so expensive they can't keep it,
or they are afraid their HMO will drop coverage, as many HMOs
are doing. Is that a fair assessment of the estimate?
Ms. Washington. Yes, that is correct, sir.
Mr. Strickland. Thank you.
No more questions, Mr. Chairman.
Mr. Greenwood. The gentleman, Mr. Burr, is recognized for 5
minutes for inquiry.
Mr. Burr. Thank you, Mr. Chairman. I apologize to the
witnesses for this schedule today.
Ms. Washington, let me see if I just understood you
correctly. Based upon the President's proposal in blueprint
form, it is estimated that 80 percent of seniors would choose
the drug option that the President has proposed?
Ms. Washington. That is correct.
Mr. Burr. Well, let me run you through a chart. Tell me if
I am wrong. Based upon the 2002 phase-in, the partial phase-in,
at $1,000 per beneficiary of drug spending, I see a value to
the individual who participated of $197.60, and an out-of-
pocket cost of $802.40. Who was it that looked at that and said
80 percent of the seniors would see value in that?
Ms. Washington. Well, there are a couple of reasons why we
would see value in the benefit. First of all, the figures you
are citing are the first year, and the benefit would----
Mr. Burr. Well, let me cite 2008. At $1,000, it has a
``value of the President's plan'' benefit, a negative $134, and
the out-of-pocket cost, $1,034 for the beneficiary. It actually
gets worse.
Ms. Washington. Well, if you look at the costs of drug
coverage for the average beneficiary and you project those
forward to when the benefit starts, we do predict that the
average beneficiary, while the benefit isn't free and we do
require a 50 percent subsidy and 50 percent premium and 50
percent co-pays, there would be value to the beneficiary from
the benefit, both in terms of coverage and in terms of----
Mr. Burr. Now, you are subsidizing some income level for
the premium costs, correct, under this plan?
Ms. Washington. For low income beneficiaries?
Mr. Burr. Yes, ma'am.
Ms. Washington. Right.
Mr. Burr. At what percentage of poverty would you subsidize
their premium costs?
Ms. Washington. Beneficiaries under 135 percent of poverty
would see full coverage for premiums and co-pays, and
beneficiaries from 135 to 150 percent of poverty would see
premium assistance based on a sliding scale.
Mr. Burr. Now, of the individuals that were in that 135 and
below, you are paying 100 percent of their premium?
Ms. Washington. That is right.
Mr. Burr. Then are they on a 50-50 share for every drug
they buy then, or are you paying 100 percent of their drugs.
Ms. Washington. We would also pick up the co-pay for those
beneficiaries.
Mr. Burr. You would also pick up the 50 percent co-pay.
Now, above the 135, they are partially responsible for their
premium, or you are going to subsidize their premium?
Ms. Washington. They are partially responsible for it. We
would partially subsidize their premium.
Mr. Burr. And how about the co-pay, the 50 percent?
Ms. Washington. No, they would----
Mr. Burr. They would pick up the 50 percent?
Ms. Washington. For that population, I think they would
pick up the co-pay.
Mr. Burr. Okay, so now you have picked up $302, and they
are going to pay 50 cents of every dollar that they spend. Now,
at what point does the partial subsidy of the premium stop,
what income, what poverty level?
Ms. Washington. That is at 150 percent of poverty.
Mr. Burr. So at 150 percent, the individual is responsible
for their premium and their co-pay?
Ms. Washington. Right.
Mr. Burr. Okay. Now, so these numbers would be accurate for
somebody at 150 percent of poverty or above, where of $1,000
worth of drug spending, the actual value of the plan is a
negative $134. Let me remind you what 150 percent of poverty
is. Mr. Waxman and I disagree. I have it at $11,727 on an
annual basis. We are going to tell those people, we are going
to offer them a product, that if they have $1,000 worth of drug
costs in a year, they are going to pay $1,100 bucks for, and
somebody has computed 80 percent of the seniors are going to
buy into this?
Ms. Washington. Well, you have to look at the quality of
the coverage that most beneficiaries have now. A third of the
beneficiaries have no----
Mr. Burr. Clearly, under this scenario, they could pay for
it and they would come out better.
Mr. Scanlon. Mr. Burr, if I could add, I think that we need
to really think about this as an insurance plan, and the issue
is that if I knew with certainty that I was going to have
$1,000 worth of coverage, then maybe I wouldn't buy this
insurance plan. But if I have a different situation, which is
that the only way I can get into this insurance plan which is
subsidized at 50 percent is to opt for coverage now, and to be
able to maintain that coverage for the future, and it is always
50 percent subsidized, I may do that.
The example I think that we need to look to is Part B,
where the participation rate is well above 90 percent, and it
is something where you have to opt into Part B when you first
become eligible for Medicare.
Mr. Burr. Or you----
Mr. Scanlon. You don't wait until you discover what your
health care costs are going to be.
Mr. Burr. Let me ask you, from a GAO perspective, if we
were to design a drug benefit that was open universally to all
seniors, and there was value at the high end, let's say for a
minute that the cost of the low end and the cost of the high
end were the same, have you eliminated the adverse selection
risk of the low end because you have got seniors to buy in on
the high end?
Mr. Scanlon. I think you have eliminated some of the
adverse selection risk. I think the two biggest things that
eliminate the adverse selection risk are the subsidy, which
makes this of value to more people, and the fact that if you
only have limited open enrollment periods, that people are
going to sign up not knowing what the future is going to hold--
--
Mr. Burr. So more mandatory than voluntary, is what you----
Mr. Scanlon. Well, not mandatory. It is voluntary, but you
are not----
Mr. Burr. But creating a penalty is a form of a mandatory
suggestion. Let me just ask you, because I know we are going to
run out----
Mr. Greenwood. The gentleman's time has expired.
Mr. Burr. A last question, if I could. Could both of you
just comment on your impression of the commission's report,
which was premium support as it relates to Medicare, and in
that they had a drug benefit, but would you just comment on
whether HCFA is supportive and thinks that that model would
work, and whether GAO has looked at it and whether they think
that model would work.
Ms. Washington?
Ms. Washington. When the commission reported out its plan,
the President expressed some serious concerns about the model.
We have proposed our own plan, that includes injecting
competition into the program and adding a prescription drug
benefit, that we think would provide the right incentives to
choose lower cost plans without increasing fee-for-service
premiums for people who would like to stay in that program.
Mr. Burr. But that is not the President's drug plan here.
Ms. Washington. No. The President's drug plan is included
as part of his comprehensive reform proposal.
Mr. Burr. This proposal that is on the table now.
Ms. Washington. The one we are talking about today.
Mr. Burr. Dr. Scanlon?
Mr. Scanlon. Mr. Burr, we are in the process of looking at
both the premium support model and the President's plan, and
the Comptroller General, David Walker, is going to be
testifying on the 24th about the analysis that we have done, so
I would defer until that date.
Mr. Burr. I will wait anxiously for that.
Mr. Greenwood. The gentleman's time has expired.
We thank the panel for your forbearance and for your
excellent testimony.
We are going to call up the third panel, call up Ms. Lisa
Alecxih, vice president of The Lewin Group; Dr. Bruce Vladeck,
senior vice president of policy, Mount Sinai NYU Health; Mr.
Don Moran, president, The Moran Company; Ms. Carol McCall,
executive vice president, Managed Care and Clinical
Informatics; and Dr. Don Young, chief operating officer.
For the benefit of the next panel and the members and the
audience, I understand that Dr. Vladeck has a time constraint.
We would ask, without objection, that Dr. Vladeck have the
opportunity to provide his testimony, and then we will break
for the vote and come back for the testimony of the others.
STATEMENTS OF BRUCE C. VLADECK, DIRECTOR, INSTITUTE FOR
MEDICARE PRACTICE, MOUNT SINAI SCHOOL OF MEDICINE, AND SENIOR
VICE PRESIDENT FOR POLICY, MOUNT SINAI NYU HEALTH; LISA MARIE
B. ALECXIH, VICE PRESIDENT, THE LEWIN GROUP; DONALD W. MORAN,
PRESIDENT, THE MORAN COMPANY; CAROL J. McCALL, EXECUTIVE VICE
PRESIDENT, MANAGED CARE, ALLSCRIPTS; AND DONALD YOUNG, CHIEF
OPERATING OFFICER AND MEDICAL DIRECTOR, HEALTH INSURANCE
ASSOCIATION OF AMERICA
Mr. Vladeck. Thank you very much, Mr. Chairman. I said in
my written statement a number of very sincere things about my
appreciation for the courtesy and kindness this committee
always showed me, and once again I am grateful for it. When I
appeared before you more regularly, I made a number of
commitments to my family about I would no longer be missing
important events, and that has created my schedule problem
today, and I appreciate your indulgence.
Consistent with that, I will summarize very, very briefly
my testimony by making one general observation and then just
five points that I think are germane to some of the discussion
today.
The general observation I would make is actually triggered
in my mind by a comment that is part of Mr. Scanlon's written
testimony, to the effect that over the last 5 years the 5-year
projections of the Congressional Budget Office of GDP have been
off by an average of 2.5 percent. I think some of the rhetoric
that we got used to 5 years ago about the long term prospects
of Medicare and the Medicare Trust Fund is simply no longer
accurate. We haven't caught up with what the economy has done
in the last three or 4 years, in the models used not only by
CBO but by the administration estimators as well, and I think
some of the talk about impending bankruptcy and so forth of the
Trust Fund is simply no longer accurate.
That is probably a discussion for another day, however, and
specific to a drug benefit, let me just make five points very
quickly.
The first point, Mr. Greenwood, I believe the technical
economic term is ``price discrimination against retail
customers,'' but your point is general. It is not targeted at
seniors. Nonetheless, if you look at who pays what for
prescription drugs in the United States, then the half of
seniors who today are paying retail prices for prescription
drugs are not only paying more than their fellow Americans who
participate in plans, but they are in effect subsidizing more
affluent people all over the world who are paying lower drug
prices with the same availability, in Western Europe, for
example, and that obviously has to be part of the solution to
the drug issue that emerges from this process.
Second, if you look at what has happened to Medicare+Choice
since the enactment of the Balanced Budget Act, I am
increasingly convinced that it would be of enormous benefit to
the continued growth of enrollment in captitated plans in the
Medicare program to have a universal benefit that was available
to everyone in the fee-for-service program. What we are
finding, what the GAO and HCFA have reported is that HMOs, both
because they believe it is necessary to managed care and
because it is necessary to compete in the market, continue to
offer drug benefits even though they have had to scale them
back very dramatically, but that the cost increases they have
experienced because of pharmaceuticals have had an adverse
effect on their profitability and have contributed
significantly to their departure from the program over the last
several years.
If you had the same benefit structure in both fee-for-
service and managed care, which was by the way not recommended
by the nonreport of the Bipartisan Commission, then in fact the
plans could compete on efficiency and customer service and
quality and not be at risk for needing to attract beneficiaries
by offering a benefit that the plans themselves can no longer
afford to provide.
Third, I know it is very popular in this city, I have been
guilty of it myself, to talk about the virtues of targeting
from an analytic point of view: Let's get the money where it is
most needed, let's just make a benefit available to those who
most need it.
There has been a lot of discussion already today, I won't
repeat, about problems of adverse selection in drug insurance
plans, but I would also suggest to you that we have a lot of
experience with efforts to target benefits to subsets of the
Medicare population or to other folks, with which this
committee is very familiar. As of today, barely half of the
folks who are eligible for the QMB and SLMB program are
enrolled in them.
The problem with targeting is that it is very difficult to
make it work, and it often fails to work. The difference in
participating rates between, say, the QMB and SLMB program, or
in Medicaid enrollment levels when it was tied automatically to
an entitlement for cash assistance, as opposed to say
enrollment levels in the CHIP program, suggests that you can
expend a lot of money on administrative overhead and still
reach only a fraction of the people you are ostensibly
targeting; and that it is very difficult in a means-tested
program to get to all the potential eligibles without enormous,
enormous expenditures.
So the problem with targeting is that it is great if you
hit your target, but we mostly don't, and that is--we have a
lot of experience in that regard, and it raises real questions,
particularly with a drug benefit.
I do think the analogy with Part B, though, is highly
relevant on the issue of folks who currently have coverage that
might be superior to that as part of any plan that was adopted.
As Part B now exists, people have a one-time election when they
first become eligible. If they have an employer-provided
benefit, the election is postponed until the date at which they
lose the employer-provided coverage. If they elect after the
initial enrollment period, they can still get the benefit, but
they have to pay an actuarially determined penalty that
reflects their potential risk effect on the actuarial pool from
their delayed enrollment. It is a process that has been working
very effectively for 30-some-odd years, and there is no reason
why it couldn't be adopted again.
The last thing I will say is that we had a lot of
experience, as the chairman knows, on the Bipartisan Commission
on the whole issue of just what a defined benefit is, and the
world in which every employer and every PBM and every HMO has
their own formulary and their own generic substitution policies
and so forth. I think none of us want to be in the position
where Medicare offers one set of benefits in one part of the
country and another set of benefits in another part of the
country.
And, therefore, while I think it is very valuable to use
the expertise of the private sector and private insurance plans
in administering a drug benefit, I think important coverage
issues which have to do with whether someone can get the same
benefit in San Diego that they get in Maine can't be left to a
highly decentralized process. I am not suggesting the executive
branch should make those decisions unilaterally. There are a
lot of mechanisms to get the wisdom and participation of the
industry and the scientific community and consumers. But the
notion that you would permit too much flexibility in just what
the benefit meant from one part of the country to another, I
think would be very dangerous and politically very risky over
time.
I see my red light is already on. I know you have been very
indulgent already. I thank you for the opportunity.
[The prepared statement of Bruce C. Vladeck follows:]
Prepared Statement of Bruce C. Vladeck, Director, Institute for
Medicare Practice, Professor of Health Policy and Geriatrics, Mount
Sinai School of Medicine
Mr. Chairman, Mr. Dingell, Mr. Waxman, members of the Committee,
it's a great personal as well as professional privilege to have the
opportunity to appear before you today. In the two and a half years
since I left the government, there's not very much that I've missed,
but I was always treated with great courtesy and interest by members of
this Committee of both parties, and so I'm pleased to have the
opportunity to appear before you again. Professionally, it's especially
nice to be able to discuss Medicare reform in an environment in which
we can appropriately focus on reforming the program by improving its
benefit structure and its services to its beneficiaries, rather than
having to focus most of our energies on reducing expenditures. I must
emphasize for the record, in addition, that I am appearing before you
today as a private citizen, and that the views I will be expressing are
my own, and not necessarily those of Mount Sinai NYU Health, the Mount
Sinai School of Medicine, or any other organization.
The combined effects of the Balanced Budget Act of 1997, on which
we worked so hard together, improved program administration, and--
perhaps most importantly--the continued performance of the nation's
economy at a level far above the expectations of any of the official
forecasters have dramatically altered Medicare's short and long-term
financial prospects. At the moment, it appears that program
expenditures are growing less rapidly than program revenues, and the
projected date of insolvency of the Hospital Insurance Trust Fund,
which has already been extended fourteen years since the BBA was
enacted, will undoubtedly be estimated to occur still further in the
future when this year's Report of the Trustees is released. Moreover,
the federal government's budget surplus is so large that we now have
the opportunity to infuse literally tens of billions of dollars into
the Trust Funds, as a significant down payment on the resources we will
need to provide benefits as us baby boomers reach eligibility age over
the next thirty years. Still lagging behind these changes, however, is
the conventional wisdom about Medicare's long-run prospects: the last
several years should have made it clear that the doom and gloom
projections of the 1980s and early 1990s were grounded in shortsighted
and ultimately inaccurate conceptions of the prospects for the American
economy. Medicare today is in better financial health than it has been
in some time, so we must concentrate on improving the health of its
beneficiaries.
Whatever one's view about the long-term economic prospects may be,
it is clear that, in the short run, the most important agenda for
Medicare reform is the program's archaic and inadequate benefit
structure. I applaud this Committee for turning its attention to the
most visible aspect of that inadequacy: the absence of coverage for
outpatient prescription drugs within the basic Medicare benefit
package. I hope that your deliberations today will be part of a process
that produces enactment of a comprehensive prescription drug benefit
before this year is out. In my remarks, I would like to make a few
general observations about the problems in affording prescription drugs
for Medicare beneficiaries, then identify four components that I think
are essential in any new prescription benefit. I will conclude with
some general observations about containing program costs.
The Need for a Prescription Drug Benefit
I will not belabor what everyone already knows. Prescription drugs
are an increasingly important part of modern medical practice, with
recently-introduced pharmaceuticals holding the prospect for
significant improvements in health and reductions in mortality,
especially for the elderly. In conjunction with the increased
importance of prescription drugs have come rapid increases in both
their prices and utilization. Increasing numbers of Medicare
beneficiaries are experiencing difficulty in affording the drugs their
doctors prescribe for them; the response to affordability problems of
forgoing prescriptions, or taking less than recommended doses, is
increasingly reported, as are instances in which elderly patients are
hospitalized or receive other, expensive treatments for problems caused
by their inability to afford prescriptions. As a proportion of total
income, Medicare beneficiaries now spend almost as much on out-of-
pocket prescription drugs as the average non-elderly family spends on
all out-of-pocket medical expenses. But I would like to emphasize three
aspects of this problem that generally receive somewhat less attention.
First, the way in which the prescription drug market has evolved
means that roughly 20 million Medicare beneficiaries (those without any
prescription drug coverage, those with coverage through individual
Medigap policies, and some of those with employer-provided policies)
are essentially the only large group of insured Americans paying retail
list prices for their prescriptions. As other purchasers, such as
private insurers or hospital group purchasing organizations, seek ever-
larger discounts from manufacturers or wholesalers, increased costs are
passed on to that part of the population most dependent on prescription
drugs, and least able to afford them. Given the price differentials in
prescription drugs between the United States and other industrialized
countries, that means, in effect, that those 20 million Medicare
beneficiaries are subsidizing prescription costs for younger and more
affluent people throughout the Western world. Any Medicare drug benefit
that fails to remedy this unfairness will be inadequate and excessively
expensive.
Second, prescription drug coverage offered on a voluntary basis is
especially vulnerable to adverse risk selection. The results are
apparent both in the market for those Medigap plans that cover
prescriptions and in the experience of state-financed prescription
plans for low-income Medicare beneficiaries. While all older people are
at risk for high prescription costs, a significant fraction of Medicare
beneficiaries with the greatest need for prescription drugs require
expensive maintenance doses for chronic conditions. As the prices of
drugs and insurance both increase, insurance premiums are thus a good
buy for only a diminishing fraction of beneficiaries with the highest
costs, thus further driving up premiums in a classic insurance-
selection ``death spiral.''
Third, and perhaps least obviously, I personally believe that
guaranteed prescription drug benefits for all Medicare beneficiaries
may be essential to the long-run prospects of Medicare+Choice plans.
Since the enactment of the Balanced Budget Act, most managed care plans
participating in Medicare have apparently concluded that offering some
kind of prescription benefit is essential both to their ability to
attract enrollees and to their ability to effectively manage their
care. Yet simultaneously, increases in prescription drug costs are
having a significantly adverse effect on the profitability of plans,
causing many of them to reduce or discontinue their participation in
Medicare. Inclusion of a prescription drug benefit in the basic
Medicare benefit package would permit us to determine payment for fee-
for-service and Medicare+Choice on the same basis, move forward with
more sophisticated risk adjustment, and make relative efficiency and
customer satisfaction the basis for competition between plans and
``traditional'' Medicare. At the same time, in response to the
pressures of rapidly-rising drug costs, Medicare+Choice plans have
adopted a bewildering variety of formulary restrictions, benefit caps,
and other techniques to try to manage their pharmaceutical costs, most
of which are perfectly reasonable in themselves, but which
significantly complicate the process of choice for beneficiaries.
Adoption of a standard Medicare pharmaceutical benefit would
significantly simplify the choice process.
Essential Components of a Medicare Prescription Benefit
<bullet> 1. UNIVERSALITY: First, any Medicare prescription drug
benefit should be universal--that is, it should, at a minimum, be
available to all beneficiaries in conjunction with their initial
Medicare enrollment, and for all current beneficiaries when the new
benefit first becomes available. There are at least three reasons for
this. The problem of adverse selection in any more limited drug-only
insurance program has already been noted. The way to prevent or combat
it is to combine universal availability of the benefit, enrollment
procedures that are easy but available only under specified conditions,
and subsidy levels adequate to insure that the benefit is a good deal
even for those beneficiaries who do not anticipate high drug
utilization. Further, as members of this Committee well know, our
experience with the Qualified Medicare Beneficiary and Supplemental
Low-Income Medicare Beneficiary programs demonstrate that efforts to
enroll Medicare beneficiaries on an ad hoc basis for needed additional
benefits are likely to be cumbersome and ineffective--and likely to
fail to reach a large fraction of those most in need. Policy wonks love
to expound on the virtues of ``targeting'' benefits to some subset of
the population with particular needs. That's a fine idea in theory, but
actual programs too often misfire. And we always run the risk of
spending as much money on administration and outreach as we save by
delimiting the pool of eligibles. Most fundamentally, the universality
of Medicare as a social insurance program is one of its greatest
operational as well as political strengths. Beneficiaries know that
they have contributed to the program throughout their working lives,
and continue to contribute in retirement. To deny an additional benefit
to a contributor who fails by some slim margin to meet some arbitrary
cutoff or eligibility standard is neither fair nor practical.
I know that many participants in the policy process have expressed
concern that a universal Medicare drug benefit might actually prove to
be an inferior or more expensive alternative for many of the 30% or so
of current beneficiaries who have prescription drug coverage through an
employment-related retirement benefit, and I see no reason why
beneficiaries shouldn't be permitted to opt out of a new drug benefit,
just as they all have the option of declining Part B coverage. Indeed,
it makes sense to extend the Part B analogy still further:
beneficiaries should have an initial election period to accept or
decline prescription coverage; if they decline because they are covered
by an employment-related plan, they should be permitted a new election
period should that plan be discontinued; otherwise, delayed election
should result in an actuarially-increased premium.
<bullet> 2. ADEQUACY: It would be a tragedy for this or any other
Congress to struggle to enact a prescription drug benefit for Medicare
beneficiaries that turned out to be inadequate to beneficiaries' needs.
It's essential that any prescription benefit be designed and
administered in a fiscally prudent way, but it's also essential that
the benefit be worthy of its name. That means that it must provide at
least some assistance for the great majority of beneficiaries with
prescription expenses of as little as several hundred dollars a year--
since such ``little'' amounts, if unexpected and unbudgeted, can have
large impacts for people scraping by on fixed incomes--while providing
more comprehensive protection against catastrophic expenses. In fact,
for Medicare beneficiaries the problem of affording prescription drugs
is really three problems in one. To borrow from medical terminology,
there are beneficiaries with sudden, acute drug expenses, beneficiaries
with significant chronic expenses, and beneficiaries confronted with
total financial disaster as a result of prescription drug expenses. A
new drug benefit must address all three types of problems.
<bullet> 3. UNIFORMITY: One of the cardinal principles of Medicare
is that it provides the same benefits everywhere throughout this
diverse and heterogeneous country. One of the lessons many of us
learned in the deliberations of the National Bipartisan Commission on
the Future of Medicare is just how complex maintaining and insuring a
defined benefit can be. This problem is especially important in the
context of a prescription drug benefit, since in response to cost
pressures, insurers, employers, and health plans have developed an
extraordinary array of techniques for limiting formularies, encouraging
or requiring certain substitution practices, or delaying coverage for
newly-introduced products. But to permit too much variation or
decentralization in this kind of decision-making for a Medicare drug
benefit would create the very real risk of situations in which
beneficiaries living in different parts of the country with identical
medical conditions and identical physician decisions about optimal care
would receive significantly different benefits. Medicare beneficiaries
who need transplants are eligible for them under the same conditions
and limitations whether they're in Seattle or Miami. They should be
able to get the same drugs, when prescribed by their doctors.
Precisely because administration of a drug benefit is complex and
affected by rapidly changing scientific and market conditions, the
Congress probably would not want to legislate the details of a drug
benefit with the degree of specificity necessary for administration.
Rules for generic substitution for brand-name drugs should probably
vary from one drug category to another, for example, and vary over time
as well, as products enter and leave the market. It's probably
desirable, therefore, to construct some kind of broadly-based of
advisory structure or process to assist the Congress and the Executive
Branch in making such decisions. This would permit an effective
combination of broad-based participation by stakeholders in
programmatic policy with efficient implementation of those policies.
But there must be such a process--open, participatory, and explicit--if
beneficiaries in different parts of the country are to be treated
equitably.
<bullet> 4. ADMINISTRABILITY: Providing an adequate Medicare drug
benefit in a fiscally prudent manner is a significant challenge in
itself; it would be unwise to exacerbate that difficulty by imposing a
separate, complex, administrative structure on a single benefit. Given
the economies of scale available from existing electronic billing and
remittance technologies for pharmaceuticals, and the demonstrated
quality advantages of utilizing automated prospective utilization
review software, it should be possible to maintain the level of
exceedingly low administrative costs that now prevails for other
Medicare fee-for-service benefits by building on existing private-
sector capabilities for benefits administration. At the same time,
however, it would be wasteful and foolish to create new enrollment,
premium collection, or beneficiary communications processes when the
current ones work so unobtrusively and so inexpensively.
Containing Costs of a Prescription Drug Benefit in Medicare
Even at this relatively prosperous juncture in the nation's and
Medicare's economic history, it is obviously essential to take every
possible step to ensure that a Medicare prescription drug benefit is
implemented as economically as possible. Prescription drugs are
expensive; that's why a drug benefit is needed in the first place, and
a new benefit will be expensive. But it's critical that it not be any
more expensive than is absolutely necessary.
There are essentially three dimensions to a strategy of controlling
the cost of a prescription benefit. The first is to require some degree
of beneficiary cost-sharing for first-dollar expenditures, as all the
legislative proposals now before the Congress do. The second, as
discussed above, is to employ the most effective available utilization
management techniques on a uniform and equitable basis. But as I
mentioned at the outset of this statement, it is also necessary to
recognize that the pricing of prescription drugs for most Americans is
already determined not by some reproducible, abstract, formula, but
through a continuing process of multidimensional marketplace
relationships. Some method must be found to arrive at prices in a
Medicare drug benefit that are equitable to taxpayers, beneficiaries,
retailers, and manufacturers alike.
The most economical approach, from the perspective of taxpayers and
beneficiaries, would be to simply let the federal government negotiate
prices directly with manufacturers, but I understand the uneasiness
with which many analysts and commentators, not to mention the
pharmaceutical industry itself, views this option. There have thus
emerged all sorts of proposals to delegate the price-negotiation
process to private intermediaries of one sort or another, through
contracting with pharmacy benefits management firms or other entities
with experience in negotiation of pharmaceutical prices. To the extent
that such negotiations are indeed on pricing, within the context of
nationally-uniform policies on coverage, substitution, and formularies,
if any, I suspect that's a reasonable approach, although I would be
apprehensive about any sort of fixed-price arrangement that provided
the intermediaries with too great a financial incentive to maximize
profitability at the expense of beneficiary coverage or convenience.
To make such a system work, over time, would require the
availability of cost, price, and use data to both Congress and the
Executive Branch that should be easy for private firms already in the
business to provide, but that is not now generally available within the
pharmaceutical industry. The old Progressive maxim that sunlight is the
best disinfectant when the expenditure of public funds is involved
should apply here with particular relevance, and should be central to
any administrative arrangements the Congress adopts.
Conclusions
In summary, I would urge the Congress to move expeditiously to
enact a prescription drug benefit for Medicare beneficiaries that is
universal, adequate in coverage, uniform throughout the United States,
and simple to administer. Doing so will be expensive, but there are
ways to insure that costs are minimized aggressively, and failing to
act will make certain that thousands of this nation's most vulnerable
seniors are unable to obtain the medications they need to maintain or
restore their health--or forced to obtain them by foregoing other,
essential expenditures. This problem will only get worse over time. The
sooner the Congress acts, the sooner all Medicare beneficiaries will be
relieved of the anxiety of being unable to afford medications they know
can benefit them.
It has been, again, an honor and a privilege to have the
opportunity to appear before you today. I'd be happy to try to respond
to any questions you might have.
Thank you very much.
Mr. Greenwood. Thank you, Dr. Vladeck. I must ask the
indulgence of the rest of the panel, and they have been waiting
all day. We have just 5 minutes left in this vote. I am
informed that there will 10 minutes of debate followed by
another vote, so we will be at least 20 minutes and perhaps 25
minutes until we return.
Dr. Vladeck, we would love to ask you questions, but if
your schedule doesn't permit that, we will understand.
Mr. Waxman. Mr. Chairman, may we leave the record open and
ask him some questions in writing?
Mr. Vladeck. If you have written questions and would like
me to respond to them, I will do so right away.
Mr. Greenwood. Certainly. Without objection. So this
hearing will recess until 2:20.
[Brief recess.]
Mr. Bilirakis. Okay. I think we all have been introduced,
have we not? Ms. Alecxih, is that correct?
Ms. Alecxih. That is right.
Mr. Bilirakis. Vice President of The Lewin Group. Please
proceed. Your opening statement, your written statements, of
course, are made a part of the record.
STATEMENT OF LISA MARIE B. ALECXIH
Ms. Alecxih. Basically, I was asked to discuss issues of
fact, primarily in terms of coverage, prescription drug
coverage among Medicare beneficiaries, and I guess the key
points to be made are that nearly 70 percent of Medicare
beneficiaries have some prescription drug coverage. It was
mentioned earlier that there is some portion of those that
don't have the entire period of the year, but a fairly large
proportion, most of those with coverage obtained it from
employer-sponsored plans, and nearly equal percentages get it
from Medicaid, Medicare HMOs, Medigap, and some similar
percentage switch what their source of coverage is during the
year.
Those with Medicare HMO coverage and employer-sponsored
coverage are most likely to have prescription drug coverage. I
said groups of those with Medicare HMO coverage, about 94
percent of them have prescription drug coverage, and those with
employer-sponsored coverage, about 89 percent of those have it.
And those with Medigap are least likely to have coverage, about
42 percent.
These are all data based on the Medicare Beneficiary Search
or Survey, which is a nationally representative survey of
Medicare beneficiaries. That 42 percent for Medigap enrollees
is probably high. Country-wide, the National Association of
Insurance Commissioners data, where it does report
policyholders by the type of policy, say standardized Medigap
plans, and that is only 15 to 20 percent of those have by that
measure an H,I, or a J plan for prescription drugs they chose.
So it is not clear whether Medicare is accurate or not.
The level of prescription drug benefits that is provided by
these different sources of coverage varies. Medicaid and
employer-sponsored tend to have the most generous benefits with
low co-pays, and on the employer-sponsored side there are low
deductibles, either an out-of-pocket limit or a lifetime limit,
where Medigap has a fairly high co-pay requirement with a $250
deductible in their co-pay and plan limits of $1.250 or $3,000.
Each of them limit access to that coverage in some way.
Employer-sponsored, obviously you have to have worked for an
employer that offers this retiree coverage. That is generally
larger employers. Medicaid, you have to be low income; Medigap,
beyond the 6-month enrollment period when you become Part B
eligible, there are almost always health status questions that
you have to pass in order to be able to gain that coverage. And
Medicare HMO, you are trading off freedom of choice among
providers, and there is some geographic variation in the types
and the level of benefit that is offered.
Among the 31 percent of Medicare beneficiaries without
prescription drug coverage, if you look at the sheer numbers,
most of them are younger and have higher incomes. But if you
look at the proportion within a group, the oldest old are least
likely to have prescription drug coverage, and those actually
in the middle and moderate income groups are the least likely
to have prescription drug coverage.
And if you look at the trend in prescription drug coverage
over the 1992 to 1996 period, it has increased pretty
dramatically based on the MCBS data. It has gone from 54
percent to 69 percent, but it is unclear whether or not this
will continue into the future or actually decline, because of
payment changes to Medicare HMOs and whether or not those plans
will be able to continue to offer drug benefits. We do know
that they have limited the level of drug benefits between 1999
and 2000, but not really in terms of the percent of plans
offering benefits. It is about the same. And also the role of
employer-sponsored coverage in the future, particularly for
future retirees. Current retirees look pretty safe. It is the
ones who in a decade it is not clear what that source will--
what role that will play among the Medicare beneficiaries.
[The prepared statement of Lisa Marie B. Alecxih follows:]
Prepared Statement of Lisa Maria B. Alecxih, Vice President, The Lewin
Group
I am going to discuss what we currently know about coverage and
spending for outpatient prescription drugs among Medicare
beneficiaries. Most of the data presented are from the 1996 Medicare
Current Beneficiary Survey (MCBS). This survey provides the most
comprehensive information about the characteristics and health care use
and spending among a representative sample of Medicare beneficiaries.
In addition to the MCBS: some of the Medicare HMO data were obtained
from the HCFA-sponsored medicare.gov website which includes Medicare
Compare, a database of relevant benefit coverage and levels for each
Medicare HMO; some of the employer-sponsored health plan data were
obtained from the 1997 Bureau of Labor Statistics (BLS) Employee
Benefits Survey for Medium and Large Establishments found at bls.gov;
and some of the private, individually purchased Medicare Supplemental
insurance information (Medigap) were based on tabulations of National
Association for Insurance Commissioners (NAIC) experience reporting
forms for 1998.
Exhibit 1 shows that approximately 69 percent of the 37.3 million
Medicare beneficiaries in 1996 had prescription drug coverage at some
point during the year.
Because Medicare generally does not cover outpatient prescription
drugs, Medicare beneficiaries that most of those with coverage obtain
it from a former employer. Medigap, Medicaid and Medicare HMOs
accounted for between 12 and 15 percent each of those with prescription
who did have coverage obtained it from a variety of private and public
sources. Exhibit 2 indicates drug coverage. Individuals who changed
their primary supplemental insurance choice at some point during the
year (switched sources) also constituted 12 percent of those with
prescription drug coverage. A small percentage (two percent) reported
relying on other public sources, such as the Veterans Administration
and state-sponsored programs.
Within supplemental insurance group, those enrolled in Medicare
HMOs had the highest percentage with prescription drug coverage,
followed by employer-sponsored (see Exhibit 3). Not all individuals
with Medicaid coverage had drug coverage because many receive
assistance with Medicare Part B premiums and copayments through the
Medicaid Buy-In programs (QMB, SLMB and QI), but do not qualify for the
full range of benefits offered by a state. Those purchasing Medigap
coverage were the least likely to have prescription drug coverage. The
estimate of the percent of Medigap purchasers with prescription drug
coverage may be overstated. Data from the National Association of
Insurance Commissioners indicate that between 15 and 20 percent of
those with Medigap standardized plans purchase those with drug coverage
(H, I, and J).
The level of prescription drug benefits varies among the sources of
coverage:
<bullet> Employer--Slightly over one-half of employer-sponsored plans
in medium and large establishments have their prescription drug
benefits subject to the major medical limits of the plan.
According to BLS data, in 1997, the average deductible was
$268, the average annual out-of-pocket expense limit was
$1,578, and the average lifetime maximum was $1.1 million.
Among plans that had specific copayments for prescription
drugs, these were generally $10 or less.
<bullet> Medigap--Among the ten standardized plans, H, I and J offer
prescription drug coverage with a $250 deductible, 50 percent
coinsurance, and plan limits of $1,250 or $3,000.
<bullet> Medicare HMO (Medicare+Choice)--Most Medicare+Choice plans
have plan limits of $2,000 or less and copayments that vary for
generic and brand drugs, but are generally $10 to $25. Although
most plans have limits, more beneficiaries actually enroll in
plans with no limits or more generous limits than $2,000.
<bullet> Medicaid--Medicare beneficiaries who qualify for full Medicaid
benefits generally have unlimited coverage for prescription
drugs. Some states use formularies, while others require
nominal copayments.
Each of the primary existing sources of prescription drug coverage
limit access to coverage, either through employment requirements,
underwriting or eligibility criteria.
<bullet> Employer--Individuals must have worked for a generally large
employer that provides retiree coverage in order to have access
to this coverage source.
<bullet> Medigap--After the six month initial open enrollment period
for Part B, insurers check health status prior to issuing
policies (underwrite), which means those most in need of
prescription drug coverage would not be able to obtain it. In
addition, the premiums for these policies can be expensive.
<bullet> Medicare HMO--Individuals choosing to enroll in Medicare HMOs
trade-off choice of providers for extra benefits. Also, due to
Medicare payment policies, there availability of prescription
drug coverage without an extra premium and level of benefits
vary geographically.
<bullet> Medicaid--This program is restricted to low income
beneficiaries.
Among those without prescription drug coverage, these individuals
tend to be younger and have higher income (see Exhibit 4 and 5). The
younger elderly constitute a large percentage because they make up the
largest group of Medicare beneficiaries. However, the oldest old
actually have a higher rate of individuals without prescription drug
coverage (see Exhibit 6). The same is true among the income groups,
where more individual without coverage have higher income levels, but
the rate of those without coverage is highest among those with lower
incomes.
Medicare beneficiaries who do not have prescription drug coverage
spend less on average for their total prescription drug bill, but pay
more out-of-pocket (see Exhibit 7). These individuals spend less
primarily because they lack coverage.
Between 1992 and 1996, the percentage of Medicare beneficiaries
with prescription drug coverage increased from 54 percent to 69 percent
(see Exhibit 8). Much of the increase was the result of increased
enrollment in Medicare HMOs. Part of the increase appears to be due to
increasing rates of coverage within the primary sources of coverage,
which may be the result of individuals seeking out coverage in response
to rising prescription drug costs.
In the future, coverage rates may be less likely to increase
because: 1) Medicare HMOs may need to respond to further payment
restrictions that may limit their ability to offer zero premium drug
coverage and limit their appeal to beneficiaries; and 2) employers are
cutting back on health benefits for future retirees.
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Mr. Bilirakis. Let's see. Mr. Moran? I skipped over to you.
I have you all listed in my notes in a different order.
STATEMENT OF DONALD W. MORAN
Mr. Moran. Thank you, Mr. Chairman. It is a pleasure to
have an opportunity to appear before you all today. Mr. Ganske,
a pleasure, as well.
My assignment today, as I understand it, is to concentrate
on some of the technical design issues involved in building a
Medicare drug benefit, with a particular attempt to address the
question of whether or not it is technically feasible and
affordable to put stop-loss coverage in as part of the package.
And so I just wanted to briefly set the stage for that,
summarize 5 or 6 points that I think we have learned about that
in looking at it in some depth over the last year or so, and
then be available with the rest of the panel to answer whatever
questions you have.
The stop-loss issue arises because of the intersection
between two forces that you have had ably described before you
this morning. On the one hand there is a growing concern about
the cost of prescription drug benefits, which means that even
those who have them are beginning to see an increasing
application of coverage limits placed on those policies.
At the same time we have also seen, I think less fully
discussed this morning, some sharp uptake which soon become a
tidal wave of very high cost new therapeutic products coming
onto the market. In the past we have considered a high drug
cost to be products that had an annual cost in the range of
$1,000 or $2,000. We are about to enter an era where $5,000,
$10,000, $15,000 and $20,000 products that offer major new
therapeutic advantages at a substantial price tag will be
rolling into the system, and one of the things that you engage
in the stop-loss debate is the extent to which even people of
middle and upper incomes will have the coverage adequate to
cover those kind of expenditures.
So it is in that context, Mr. Chairman, that there has been
natural concern from a number of quarters. As a result, in our
work over the last year and a half we have made a concentrated
effort to look into the technical design issues, and I think we
can summarize very succinctly what we think the major issues
are.
First, the cost of putting stop-loss into a benefit package
ranges from pennies a day to large quantities of money,
depending on exactly where you set it. I think it is fair to
say that if you were to concentrate a stop-loss benefit focused
on the very highest cost drugs and the upper end of the
distribution, it might be surprisingly affordable, and that in
fact the total number of Medicare beneficiaries who today
probably have expenditures in excess of $5,000 or $10,000, say,
would add up to a de minimis pile of money from the perspective
of the Trust Funds as a whole.
Conversely, if you bring that down well into the--
distribution of actual drug expenditures say down to the level
of $1,000, then obviously a stop-loss benefit gets very
expensive quite quickly and gets progressively more expensive
over time. So part of the art of this is understanding what
your policy objective is, which target population you really
want to go after, and then fashioning a benefit that does that.
Second, I think it is important to say that the cost of a
stop-loss benefit is highly sensitive to the quality of the
front end coverage that people have. By front end coverage I
mean the basic coverage that people have for after dollar
deductible and whatever co-payments to cover the first $1,000
or $2,000 of pharmaceutical expenditures. It is fair to say
that the better that coverage is, the less quickly people will
reach whatever stop-loss limit is in application, and the less
they will be spending in excess of that. So the more you marry
stop-loss coverage with high quality front end coverage, the
more affordable it is likely to be.
A third point which I think is a corollary of that, Mr.
Chairman, is that you have to be very careful in your
evaluation of proposals that call for just catastrophic-only
types of benefits. The reason is, depending on where you might
set the stop-loss limit on such a benefit, that such a benefit
would have the potential to induce people to drop their
existing coverage in favor of that limit. And so you have to be
very careful to make sure that either you marry a stop-loss
provision to a front end coverage package, or else place the
catastrophic threshold high enough so it is not an inducement
for people to drop.
Fourth, and I think this is echoed in a couple of the
things a variety of people said throughout the day today,
integrating administration of a stop-loss benefit with whatever
the front end benefit is is very important. To have a situation
where beneficiaries would have to be saving up receipts in
shoeboxes on one hand, to trundle across town to plunk down to
prove eligibility for another benefit, strikes most people in
the industry as sort of antediluvian at this point. What you
really want is integrated benefits administration from front to
back, with stop-loss coverage provided by whoever the front end
insurer is.
Fifth, and this has been referenced a number of times by
folks during the course of the day today, is that in a
voluntary market obviously the character of participation is
going to matter in terms of whether not you have significant
selection effects, though I would say that, again, if you were
targeting a stop-loss benefit higher up into the cost
distribution, you would have much less of a selection problem.
Finally, seeing my red light and being ready to summarize,
I think I will hit my sixth point, just to say that I think the
one thing we all understand about a drug benefit that would
focus the benefit on a high cost case or the highest cost
cases, it will subject whatever drug expenditures make up that
pot of money to substantial scrutiny, and it is going to be
very important to understanding that if you go in the direction
of a stop-loss benefit, to have a policy that satisfies your
policy objectives, to make sure that you can fit that in some
way that all parties will consider to be meaningful and real.
Thank you very much.
[The prepared statement of Donald W. Moran follows:]
Prepared Statement of Donald W. Moran, President, The Moran Company
Mr. Chairman: I am Donald W. Moran, President of The Moran Company,
a multi-disciplinary health care research and consulting firm based in
Fairfax, Virginia. While my firm provides services to businesses and
associations with an interest in the matters that are the subject of
your hearings, my purpose in appearing before the Subcommittee today is
not to advocate any particular position on the question of whether and
how a prescription drug benefit might be added to the Medicare program.
Rather, I have been requested to address some of the important program
design questions with which this Subcommittee must wrestle in order to
arrive at a workable design. I will focus particularly on the issue of
whether so-called ``stop loss'' coverage represents a feasible and
affordable option in any drug benefit design the Subcommittee might
consider.
The issue of stop loss coverage arises in this debate because of
the increasingly high cost of many important pharmaceutical and
biologic therapies that are now emerging as a result of rapid
innovation in the industry. While these products represent important
improvements to the health care system's ability to treat--and even
cure--disease, the intensive research and development costs of
producing them means that they come to market at substantial price
tags.
It is important to understand that the cost to patients is not
simply the result of the high unit prices some of these products bear.
Since the benefit of many of these products flows from their ability to
help physician and their patients manage chronic disease over a
sustained period of time, an equally important determinant of the cost
to patients is the cumulative cost of maintaining patients on these
therapies. Annual maintenance costs in the thousands of dollars--or
even tens of thousands of dollars--are becoming increasingly common.
This trend raises natural questions about Medicare beneficiaries'
ability to access these drugs at an affordable cost.
As pharmaceutical therapy becomes an increasingly important part of
the health care system, we can expect a continued rise in the cost of
providing benefits for prescription drugs relative to the cost of other
health benefits. Although we can expect offsetting benefits from this
shift in therapeutic emphasis down the road, the immediate impact is a
sharp rise in the trend rate of growth for pharmaceutical expenditures
under health benefits programs that cover drugs. Companies that provide
drug benefits to both the working aged population and the elderly are
responding to this rising trend in various. One increasingly common
response, which this Subcommittee has undoubtedly observed in its
oversight of the Medicare + Choice program, is a growing trend toward
annual benefit limits on coverage for prescription drugs.
Annual benefits limit, viewed from the vantage point of the health
benefits market, have some desirable features. Since the great majority
of health plan beneficiaries have annual expenditures less than the
limits, imposing these caps allows insurers to provide essentially full
benefits to the great majority of beneficiaries, at a price far lower
than would be possible if the cost of the small number of highest cost
users were included. The imposition of caps also partially isolates the
insurance pool from the upward trend in drug costs. Imposing caps,
however, has the unfortunate side effect of exposing a limited number
of the highest prescription drug users to the full cost of the
medications they need.
Given these realities, the question arises whether a Medicare
prescription benefit should provide ``stop loss'' protection for
beneficiaries. As the term is commonly used, ``stop loss'' refers to a
benefit design under which the beneficiary's out-of-pocket exposure for
covered benefits is capped at a pre-specified level, after which the
benefits program provides full benefits with no further coinsurance.
This benefit design is, of course, the mirror image of an annual
benefit limitation.
Because of the skewed character of the distribution of drug
benefits risk, the cost of providing such a benefit is acutely
sensitive to where the ``stop loss limit'' is set relative to that
underlying distribution--both initially, and over time. Using the most
recent Medicare Current Beneficiary Survey data available from HCFA--
which is our only comprehensive source of information about drug
spending and coverage among Medicare beneficiaries--my colleagues and I
have conducted a detailed exploration of the fiscal and design
implications of providing stop loss coverage for Medicare beneficiaries
under various proposals now pending before the Congress. While we would
be pleased to share our detailed findings on various points with the
Committee at some later time, let me summarize the key lessons we have
learned from this analysis:
First, the cost of providing stop loss coverage directed at the
highest-cost patients is surprisingly affordable. A policy directed at
covering the limited number of Medicare beneficiaries whose annual
spending on drugs exceeds, say, $10,000, would amount to less than $50
million today, nationwide. As we come down the consumption scale toward
lower levels, however, the costs begin to add up. By the time we get
down to the level of, say, $1,000, the current cost of providing stop
loss coverage could rise to over $10 billion annually.
Second, the cost of stop loss coverage is highly sensitive to the
quality of the ``front end'' coverage Medicare beneficiaries have. By
``front end'' coverage, I mean their present private drug coverage,
through either a retiree benefits program or Medigap. This conclusion
is a logical one, since the better that front end coverage is, the
longer it takes for a beneficiary to exceed whatever out-of-pocket
spending cap is provided by the stop loss coverage--and the less
spending there is to cover once they reach it.
Third, for the reason just cited, the Subcommittee should be
careful in its evaluation of proposals for ``catastrophic only'' drug
benefits proposals. While benefits plans structured in this way may
seem attractive for other policy reasons, they may have the effect of
encouraging beneficiaries to drop their existing private coverage,
converting the stop loss benefit into a high deductible unlimited
coverage policy that would start paying benefits much faster than it
would if their private coverage had been maintained.
Fourth, there are some important advantages to integrating
administration of a ``stop loss'' benefit with whatever ``front end''
coverage beneficiaries elect. Unitary administration would sharply
reduce the administrative hassle of keeping track of spending by the
beneficiary, and would ensure continuity of application of whatever
benefits management techniques were employed by the primary insurer.
Fifth, the cost of a stop loss benefit to the beneficiary in a
voluntary market for private coverage will depend on the extent of
participation, since a voluntary market may experience some degree of
adverse selection. If low users were to disproportionately opt out of
the system, the per beneficiary cost of providing stop loss would rise.
It may be useful to note in passing, however, that the total cost of
providing stop loss coverage through a private voluntary market would
not be increased by adverse selection.
Sixth, and finally, it is important to point out that a stop loss
benefit, by its very nature, will invite scrutiny of the cost of the
high end pharmaceutical products that would comprise the bulk of the
spending under such a benefit program. Those concerned, as I am, about
the motive toward price controls embedded in any Government-financed
drug benefit program will want to evaluate this issue carefully. It
would, I believe, be very important to craft a program with a
regulatory and financing structure that insulated decision-making about
product coverage and pricing from political control.
Mr. Chairman, thank you for the opportunity to appear before the
Subcommittee this morning to share the results of our work in this
area. I would welcome the opportunity to answer whatever questions you
or your members may have.
Mr. Bilirakis. Thank you, sir.
Ms. McCall?
STATEMENT OF CAROL J. McCALL
Ms. McCall. Good afternoon. I would like to thank the
chairman and the other remaining members of the subcommittee
for bearing with us. I am very thankful for the opportunity to
be here.
My name is Carol McCall, and I am very recently the new
executive vice president of managed care for Allscripts, but
prior to this role, which again is very recent, as recently as
last Friday I was vice president of pharmacy management for
Humana, which is a managed care organization that provides
pharmacy coverage for approximately 450,000 seniors through a
Medicare+Choice program.
I am a fellow of the Society of Actuaries and a member of
the American Academy of Actuaries, and I also serve as a member
of the Academy's Medicare Reform Task Force that is studying a
number of issues involving proposed changes to Medicare. Among
these changes under study by the Academy are the issues
associated with adding a prescription drug benefit to the
current Medicare coverage. I would like to note that although I
am a member of the American Academy of Actuaries' Medicare
Reform Task Force, I am testifying today in my private capacity
and not on behalf of the Academy, whose analysis will discuss
these issues in more depth.
I would like to outline some of the issues that should be
considered when designing a prescription drug benefit provided
through insurance mechanisms. However, I would like to first
emphasize one very important factor, which is that prescription
drug coverage should not be added to Medicare in the absence of
overall reform to the financing structure of the Medicare
program.
As you are aware, the trustees of the Medicare Trust Funds
have indicated that expenditures from the HI Trust Fund,
Medicare Part A, are expected to equal income into the fund as
early as 2006, and costs are projected to exceed income after
that point. In fact, if income earned from interest on the
assets in the Trust Fund is excluded, the fund currently pays
out more in claims than it receives from payroll taxes and
premiums paid by beneficiaries.
The Medicare Part B fund, which is financed primarily by
general tax revenues, faces increasing financial pressure due
to rising health care costs and a growing population of
beneficiaries over the next decade. So adding a prescription
drug benefit to either of these programs right now will only
exacerbate the financial problems confronting Medicare, without
the consideration of more broad reform.
Specifically to the drug benefit itself, there are certain
considerations that should be kept in mind when designing a
prescription drug benefit, and there are two broad categories
that I am going to touch on briefly and then we can, if there
are any questions, we can talk about those: First, the category
of benefit design in particular; and then, second, overall
program design and issues.
First, with respect to benefit design, is what drugs will
be covered, and is it intended that all drugs will be covered
by a plan or only those prescriptions most utilized by seniors?
Will so-called lifestyle drugs be covered? And who will
determine which prescriptions are included or excluded from
coverage? To what extent will experimental treatments be
provided? Each of these issues can have a major impact on the
cost of the benefit.
And second is how will the benefit be managed? Most plans
offering a drug benefit use some sort of utilization and cost
containment mechanisms, and these mechanisms are designed to
make sure the drugs prescribed are appropriate for the
particular medical condition of the patient. One consideration
in providing a drug benefit through Medicare is the extent to
which utilization management will be allowed both in the
Medicare fee-for-service and in Medicare+Choice health plans on
an ongoing basis.
Third, the question of how will beneficiary cost-sharing be
structured. A very important part of a health benefit design is
how much and the manner in which participants are asked to pay
a portion of out-of-pocket costs. If seniors pay for a portion
of the cost, they are more likely to compare competing drug
therapies, including any generic prescription drug options that
are available. In addition, designing benefits where costs are
shared, say through coinsurance, can impact the pricing
strategies of pharmaceutical companies to the advantage of
seniors.
Fourth in benefit design is to consider what extent drug
formularies will be permitted. Formularies are one mechanism
that PBMs, insurance companies and managed care plans use to
contain the cost of prescription drugs. There are a number of
different ways in which formularies can be used, but all of
them involve creating a list of preferred medicines whose costs
are less than their therapeutic equivalents. The question is,
will this mechanism for containing cost be allowed? And, if so,
what is the method for choosing which drugs are going to be on
a formulary? And can different plans have different
formularies?
For overall program design, it is important to consider to
what extent will private health plans be involved in the
program. As we have just heard, currently prescription drug
coverage is available for seniors through employers who offer
retiree coverage, to those who enroll in one of the Medicare
supplement plans offering such benefits, and for those members
of a Medicare+Choice health plan that provides drug benefits.
You will need to consider the impact of the Medicare drug
benefit on these programs.
For example, will Medicare+Choice health plans be required
to offer a benefit, for it is now an option. If a drug benefit
is offered through Medicare, how will the Medicare supplement
insurance plans currently providing drug benefits be treated?
Will pharmacy benefit management companies, or PBMs, be used by
Medicare to help administer a drug benefit for the
beneficiaries? And what would be the role of PBM companies in
this process? Would they serve only as administrators, or would
they take some of the risk for their role they play in
containing costs?
It is important that we understand these dynamics and the
answers to these questions, as it will impact overall program
cost and quality.
Finally, in closing, I would like to return to something I
said at the start, which is, if Medicare is the vehicle chosen
to provide prescription drug coverage for seniors, then
Congress must act on the overall financial issues facing the
Medicare program. It may be necessary to cut benefits, raise
premiums, or increase contributions from the Federal budget in
order to maintain the solvency of the Medicare Trust Funds.
Adding an additional and potentially costly benefit to Medicare
will place a further strain on the Medicare program. Congress
should not let this opportunity pass without a serious
discussion on how to deal with the long range financial
solvency of Medicare.
Thank you.
[The prepared statement of Carol J. McCall follows:]
Prepared Statement of Carol J. McCall, Executive Vice President,
Managed Care, Allscripts
Good morning Chairman Bilirakis and members of the Subcommittee. My
name is Carol McCall and I am the Executive Vice President, Managed
Care for Allscripts. Prior to this role, I served as Vice President,
Pharmacy Management for Humana, Inc., a managed care organization that
provides pharmacy coverage for approximately 450,000 seniors through
the Medicare+Choice program. I am a fellow of the Society of Actuaries
and a member of the American Academy of Actuaries. I also serve as a
member of the Academy's Medicare Reform Task Force that is studying a
number of issues involving proposed changes to Medicare. Among these
changes under study is adding a prescription drug benefit to the
current Medicare coverage. I appreciate the opportunity to appear
before you today to testify regarding ways to provide seniors with
coverage for prescription drugs. I would like to note that although I
am a member of the American Academy of Actuaries' Medicare Reform Task
Force, I am testifying today in my private capacity and not on behalf
of the Academy.
Prescription drug costs represent a significant part of health care
expenses, and those costs have been rapidly rising over the past few
years. The cost of prescription drugs can have a major impact on
seniors, many of whom are on fixed incomes. Since Medicare is the
primary source of health insurance coverage for seniors (almost 98
percent of the population in this country age 65 years or older is
covered by Medicare), one possible approach to this issue is to expand
the current Medicare coverage to include some level of payment for
prescription drugs.
I would like to outline some of the issues that should be
considered when designing a prescription drug benefit provided through
an insurance mechanism. However, I would first like to emphasize one
very important factor--prescription drug coverage should not be added
to Medicare in the absence of overall reform to the financing structure
of the Medicare program. As you are aware, the Trustees of the Medicare
trust funds have indicated that expenditures from the Federal Hospital
Insurance (HI) Trust Fund (Medicare Part A) are expected to equal
income into the fund as early as 2006, and costs are projected to
exceed income after that point. In fact, if income earned from interest
on the assets in the HI trust fund is excluded, the fund currently pays
out more in claims that it receives from payroll taxes and premiums
paid by beneficiaries. The Supplementary Medical Insurance Trust Fund
(Medicare Part B), which is financed primarily by general tax revenues,
faces increasing financial pressure due to rising health care costs and
a growing population of beneficiaries over the next decade. Adding a
prescription drug benefit to either of these programs will only
exacerbate the financial problems confronting Medicare.
There are a number of health insurance plans today that provide
prescription drug coverage for their members. There are practical
considerations that should be kept in mind when designing a
prescription drug benefit:
<bullet> Is providing a prescription drug benefit through Medicare the
best option?--Many of the current proposals start with the
assumption that the drug benefit will be delivered to seniors
through Medicare. Is this the most cost-effective way to help
seniors meet their medical needs? Do other options exist--such
as tax credits or using private insurance--that would work?
<bullet> How will a Medicare prescription drug benefit impact other
existing programs?--It is also important to evaluate the impact
of a Medicare prescription drug benefit on other payers for
medical care for seniors. Currently, three Medicare Supplement
insurance plans pay for drug coverage. In addition, some
employers offer retiree health benefits that include
prescription drug coverage and there are a limited number of
Medicare+Choice health plans with a prescription drug benefit.
You need to consider how a Medicare drug benefit will impact
those programs.
<bullet> What drugs will be covered?--Is it intended that all drugs
will be covered by the plan or only those prescriptions most
utilized by seniors? Will so-called ``life style'' drugs be
covered, and who gets to determine which prescriptions are
included or excluded from coverage? To what extent will
experimental treatments be provided? Each of these issues can
have a major impact on the cost of the benefit.
<bullet> How will the benefit be managed? Most plans offering a drug
benefit try to impose some form of utilization controls. These
utilization management strategies are designed to make sure the
drugs prescribed are appropriate for the particular medical
condition of the patient. One consideration in providing a drug
benefit through Medicare is the extent to which utilization
management will be allowed both in the Medicare fee-for-service
(FFS) program and in Medicare+Choice health plans.
<bullet> To what extent will private health plans be involved in the
program?--Currently, prescription drug coverage is available
for seniors who enroll in one of the Medicare Supplement plans
offering such benefits and for those members of a
Medicare+Choice health plan that provides drug benefits. Will
Medicare+Choice health plans be required to offer the benefit
(it is now an option)? If a drug benefit is offered through
Medicare, how will the three Medicare Supplement insurance
plans currently providing drug benefits be treated? Will
pharmacy benefit management companies (PBMs) be used by
Medicare FFS to help administer the prescription drug benefit
for their beneficiaries? What would be the role of pharmacy
benefit management companies in this process? Would they serve
as the administrators of the program or will they take some of
the risk for their role they play in containing costs?
<bullet> Will any of the cost of providing the prescription drug
coverage be subsidized?--There is some concern that Medicare
beneficiaries below a certain level of income will not be able
to afford a prescription drug benefit that is supported by
premium payments and/or co-payments and deductibles. What will
be the level of government subsidy for those enrollees and who
will qualify for that support? How will Medicaid eligible
seniors be covered?
<bullet> How will co-payments or deductibles be structured?--If you
have to pay for something, you will generally take more notice
of how much it costs. One important part of a health benefits
design is how much participants are required to pay ``out-of-
pocket.'' If seniors pay for a portion of the cost, they may be
more likely to compare competing drug therapies, including any
generic prescription drug options.
<bullet> To what extent will drug formularies be permitted?--
Formularies are one mechanism that PBMs, insurance companies
and managed care plans use to contain the cost of prescription
drugs. There are a number of different ways in which
formularies can be used, but all of them involve creating a
list of preferred medicines whose costs are less than their
therapeutic equivalents. Will this mechanism for containing
costs be allowed? If so, what will be the methods for choosing
which drugs are on a formulary? Can different options and plans
for providing coverage have different formularies?
I would like to return to something I said at the start of my
testimony regarding this issue. If Medicare is the vehicle chosen to
provide prescription drug coverage for seniors, then Congress must act
on the overall financial issues facing the Medicare program. It may be
necessary to cut benefits, raise premiums or increase the contributions
from the federal budget in order to maintain the solvency of the
Medicare trust funds. Adding an additional (and potentially costly)
benefit to Medicare will place a further strain on the Medicare
program. Congress should not let this opportunity pass without a
serious discussion on how to deal with the long-range financial
solvency of Medicare.
Mr. Bilirakis. Thank you very much, Ms. McCall.
Dr. Young?
STATEMENT OF DONALD YOUNG
Mr. Young. Thank you, Mr. Chairman. The Health Insurance
Association of America shares the concerns of many of you in
Congress, calling for measures to help seniors better afford
prescription drugs. We stand ready to work with Members of
Congress of both parties and with the administration to help
make senior prescription drug coverage a reality for all of our
Nation's seniors.
We believe something can and should be done in the near
term to help seniors, but short-term solutions should not
disrupt current private coverage that seniors depend upon or
impede more fundamental Medicare restructuring and reform in
the future. Some of the proposals that have been offered would
do much more harm than good.
Proposals that seek to provide coverage through stand-
alone, drug-only insurance policies simply would not work in
practice. Their proponents have ignored the realities of the
insurance market and based their supporting analyses on
unrealistic assumptions. Designing a theoretical drug coverage
model does not guarantee that private insurers will develop
that product or that beneficiaries would purchase it.
Some of the problems include high market entry costs;
difficulty in pricing premiums for a volatile and continuing,
ever cost escalating benefit; adverse selection, since drug use
is frequently predictable; and significant regulatory hurdles
at the Federal and State levels.
I want to stress also that high deductible products are not
a solution. The experience is clear that this is not an
approach that is popular with seniors. Since these are not
likely to be accepted by seniors, they are not likely to be
offered by insurers.
Similarly, attempting to assure coverage by mandating that
private Medigap plans provide enhanced coverage for
pharmaceuticals would result in unsustainable premium increases
and reduced coverage. Our analysis indicates that Medigap
premiums would jump by anywhere from 50 to 100 percent as a
result of this type of mandate. Remember, Medigap drug coverage
plans are available now, but only 13 percent of those choosing
Medigap enroll in such plans, largely due to their added
expense.
In conclusion, any new policy proposal must be carefully
examined to ensure that unintended consequences do not erode
the private coverage options that beneficiaries rely on today
to meet their health care needs. Survey after survey shows that
beneficiaries are overwhelmingly satisfied with their Medigap
coverage. As you consider options to help seniors with ever-
escalating drug costs, don't destroy the product they rely on
for peace of mind and financial protection. There are other
workable solutions.
Thank you.
[The prepared statement of Donald Young follows:]
Prepared Statement of Donald Young, Chief Operating Officer and Medical
Director, Health Insurance Association of America
introduction
Mr. Chairman, distinguished members of the Subcommittee, I am Dr.
Donald Young, Chief Operating Officer and Medical Director of the
Health Insurance Association of America (HIAA). Prior to joining HIAA,
I served for 14 years as Executive Director of the Prospective Payment
Assessment Commission (PROPAC) where I was responsible for research,
analysis, and the development of recommendations to the Congress and
the Secretary of Health and Human Services on a wide range of Medicare
policies. I also have served as Deputy Director of the Policy Bureau at
the Health Care Financing Administration and as Medical Director for
the American Lung Association. I began my career as a practicing
physician in California.
I am very pleased to be here today to speak with you about how best
to increase access to affordable prescription drugs for our nation's
seniors.
seniors should have expanded access to needed pharmaceuticals
As we all know, pharmaceuticals have become a critical component of
modern medicine. Prescription drugs play a crucial role in improving
the lives and health of many patients, and new research breakthroughs
in the coming years are likely to bring even greater improvements. With
older Americans becoming an ever-increasing percentage of the overall
United States population, the need for more medicines for this sector
of the population is becoming equally urgent. There is continuing
emphasis on new pharmaceuticals to treat diseases typically associated
with aging. Over 600 new medicines to treat or prevent heart disease,
stroke, cancer, and other debilitating diseases are currently under
development. Medicines that already are available have played a central
role in helping to cut death rates for chronic and acute conditions,
allowing patients to lead longer, healthier lives. For example, over
the past three decades, the death rate from atherosclerosis has
declined 74 percent and deaths from ischemic heart disease have
declined 62 percent, both due to the advent of beta blockers and ACE
inhibitors. During this same period, death rates resulting from
emphysema dropped 57 percent due to new treatments involving anti-
inflammatories and bronchodilators.
These advances have not come without their price. Rapid cost
increases are putting prescription drugs out of reach for many of our
nation's seniors. Because of both increased utilization and cost,
prescription drug spending has outpaced all other major categories of
health spending over the past few years. For example, while hospital
and physician services expenditures increased between 3 percent and 5
percent annually from 1995 through 1999, prescription drug expenditures
have increased at triple the rate, averaging between 10 and 14 percent.
According to projections by the Health Care Financing Administration,
prescription drug spending will grow at nearly 10 percent a year until
2008, almost double the rate of spending on hospital and physician
services.
About two-thirds of seniors have some type of insurance coverage
for pharmaceuticals--either through employer-sponsored retiree health
plans, private Medicare+Choice plans, Medicaid or, in limited
instances, individual Medicare Supplemental (Medigap) policies. But
this coverage may be limited, and it is likely to decline over time as
cost pressures mount for employers, insurers, and individual consumers.
For example, recent surveys indicate that employers are contemplating
several changes for their retiree health care plans over the next
several years, including increasing premiums and cost-sharing (81
percent of respondents to a 1999 Hewitt Associates survey sponsored by
the Kaiser Family Foundation) and cutting back on prescription drug
coverage (40 percent).
Also, unrealistically low government payments to Medicare+Choice
plans is having the effect of reducing drug coverage for many seniors
enrolled in these plans.
Increases in per capita payments on behalf of beneficiaries
enrolled in Medicare+Choice plans from 1997 to 2003 are projected to be
less than half of the expected increases during the same period for
those individuals in the Medicare fee-for-service program. In fact, the
President's Fiscal Year 2000 budget included projected five-year
medical cost increases of 27 percent for the original Medicare fee-for-
service program and 50 percent increases for the Federal Employee
Health Benefit Program, while Medicare+Choice payment increases during
the same period will be held to less than 10 percent in many counties.
In addition, most seniors live on fixed incomes and their
purchasing power will continue to erode over time as drug expenditures
increase more rapidly than their real income. In terms of current
dollars, seniors' income has increased very little over the past ten
years. From 1989 to 1998, the median income of households with a family
head 65 years of age or older increased from $20,719 to $21, 589. This
represents an increase in real income of less than 5 percent over the
entire decade.
HIAA shares the concerns of many public voices today calling for
measures to help seniors better afford prescription drugs. We stand
ready to work with members of Congress from both parties, and with the
Administration, to help make prescription drug coverage a reality for
all of our nation's seniors.
While we all know that seniors need help, some of the proposals
under consideration would fall short of the goal. In addition, the
possible effects of any new policy proposal must be carefully examined
to ensure that unintended consequences do not erode the private
coverage options that beneficiaries rely on today to meet their health
care needs. In fact, we are extremely troubled that some of the
proposals before Congress would do just that.
Some of the proposals we have examined that rely on ``stand-alone''
drug-only insurance policies simply would not work in practice; their
proponents have, quite simply, promoted a fiction by ignoring the
realities of the insurance market and basing their supporting analyses
on unrealistic assumptions. Others have proposed to assure seniors drug
coverage by mandating that private health plans--either Medigap or
Medicare+Choice, or both--provide enhanced coverage for
pharmaceuticals. While this option has the virtue of being virtually
cost-free from a federal budgetary standpoint, it would be far from
inexpensive for seniors who, according to our estimates, would
experience premium increases for Medigap products of between 50 and 100
percent. It also would result in many seniors dropping the supplemental
coverage they depend upon, creating a whole new set of political
problems.
My concern about these two policy options can be summed up in two
statements:
<bullet> First, designing a theoretical drug coverage model through
legislative language does not guarantee that private insurers
will develop that product in the market.
<bullet> Second, if coverage that consumers cannot afford is mandated,
the result will be unsustainable premium increases, limited
choice, and reduced coverage.
It is simply not good policy (or politics) for Congress, as well
intentioned as it may be, to enact legislation that will result in
seniors not being able to purchase today's extremely popular and very
successful Medigap coverage.
hiaa has developed a solution to help all seniors
Before I elaborate on these concerns, let me first make clear that
HIAA believes strongly that the status quo is unacceptable. Last year,
HIAA's Board of Directors approved a three-pronged proposal developed
by our member companies that would help all seniors. The HIAA program
would: (1) help lower-income seniors through drug assistance programs;
(2) provide a tax credit to help offset out-of-pocket drug costs for
all other seniors; and (3) ensure fair payments to private
Medicare+Choice plans that are struggling to provide prescription drug
coverage for seniors despite unrealistically low government payments
that will not keep pace with medical inflation and the projected
increases in drug costs. I will not discuss the details of HIAA's
proposal today. We have shared our plan with all members of Congress
and we would be happy to discuss it with you in more detail at any
time, or to respond to questions about it following my formal
testimony. Let me just say that the HIAA proposal represents an
immediate and workable step that will provide meaningful relief for all
seniors, while avoiding the disruption and confusion for beneficiaries
that surely would result were Congress to make changes in seniors'
private benefit options before addressing needed changes in the
underlying Medicare program.
My testimony today will focus primarily on the reasons why we
believe that relying entirely on private insurance models as a way to
provide drug coverage to seniors is unsound--particularly without
significantly restructuring Medicare. First, I will outline HIAA's
concerns with stand-alone ``drug-only'' insurance plans for seniors. I
will then elaborate on why we so strongly oppose drug coverage mandates
on private insurance products.
why a ``drug-only'' benefit is an empty promise for seniors
Some have proposed that most seniors' drug coverage needs could be
met by authorizing the creation of several new private insurance
coverage options. Theoretically, these ``drug-only'' policies would be
offered either as stand-alone policies, or sold in conjunction with
existing Medigap coverage.
Developing a legislative prototype based on a set of theoretical
constructs does not guarantee that the market will respond by creating
a private insurance product. Creating a new form of insurance is not
easy. As with any new product, start-up efforts are costly and time-
consuming. Adding to the difficulty is that such insurance policies
would have to meet existing (and possibly new) state and federal
requirements before they could be sold. Thus, before making its entry
into the marketplace, a ``drug-only'' policy would have to clear a
multitude of economic and regulatory hurdles. Our members have told us
that it is unlikely to do so.
Economic Barriers and Adverse Selection Problems
Insurance carriers attempting to bring this type of product to
market would face many barriers, including the costs of development,
marketing, and administration. Premiums for the policy would have to
reflect these costs. Adding to these administrative expenses is the
inherent difficulty of developing a sustainable premium structure for a
benefit that is so widely used and for which costs are rising so
dramatically.
Volatility in pharmaceutical cost trends also will make a stand-
alone ``drug-only'' policy difficult to price. While there has been
relative stability in the rate of increase of hospital and physician
costs during the past two decades, pharmaceutical costs have been more
difficult to predict. In March 1999, for example, HCFA estimated that
prescription drug expenditures would reach $171 billion by 2007. Just
six months later, in September, HCFA was forced to revise these
projections and now predicts that prescription drug spending will reach
$223 billion by 2007, a 30 percent increase over the previous estimate.
Since the Administration first offered its Medicare drug benefit
proposal just last year, it has had to revise cost estimates for the
program upward by more than 30 percent due largely to greater-than-
expected increases in the costs of prescription drugs.
For many reasons, ``drug-only'' policies would be very expensive to
administer. Adding to the economic liabilities of these policies,
therefore, are the expense margin limitations insurance carriers must
meet under OBRA ``90, which are likely to be too small to support
separate administration of drug benefits.
The most difficult factor driving up premiums, however, will be
``adverse selection.'' Adverse selection occurs because those who
expect to receive the most in benefits from the policy will purchase it
immediately, while those who expect to have few claims will forgo
purchasing it. When people with low drug costs choose not to enroll in
coverage while those with high costs do enroll, insurance carriers are
forced to charge higher premiums to all policyholders. The more
opportunities there are for enrollment, the greater the risk of adverse
selection.
Adverse selection would be a very real problem for this type of
product. Projections indicate that one-third of seniors (even if all
had coverage for outpatient prescription drugs) will have drug costs
under $250 in the year 2000, with the average cost estimated at $68.
These seniors are unlikely to purchase any type of private drug
coverage, given that the additional premium for such a policy would be
at least 10 times higher than their average annual drug costs. Of the
two-thirds who might buy the coverage, many would be doing little more
than dollar trading. Some may actually end up much worse off: a person
with $500 of drug expenses could have premium, deductible, and
coinsurance costs equal to over 200 percent of the actual costs of
drugs. Consequently, many seniors are not likely to purchase the
product, resulting in further premium increases for those that do.
Limiting the sale of these policies to the first six months of
Medicare eligibility would help in theory only, given legislators'
demonstrated proclivity to expand on ``guaranteed issue.'' The Clinton
Administration's Medicare drug coverage proposal seeks to avoid adverse
selection by limiting enrollment in a government-provided drug coverage
plan to the first six months when beneficiaries initially become
eligible for Medicare. While this type of rule theoretically helps, the
concept seldom works in practice because legislators and regulators
expand guaranteed issue opportunities over time in response to
political pressure. For example, the ``first time'' guaranteed issue
rule originally in place for Medigap policies has been greatly expanded
over time--both through new federal rules in the Balanced Budget Act of
1997 (BBA) and through state law expansions.
Regulatory Hurdles
Even if such insurance policies were economically feasible, they
would face significant regulatory barriers. The National Association of
Insurance Commissioners (NAIC) would likely have to develop standards
for the new policies; state regulators would have to approve the
products before they could be sold, as well as scrutinize their initial
rates and any proposed rate increases. Even relatively straightforward
product changes based on proven design formulas can take several years
to progress from the design stage through the regulatory approval
process and, finally, to market.
Because insurers would be required to renew coverage for all
policyholders (as they are required to do with Medigap products),
policies could not be cancelled if new alternatives were authorized by
subsequent legislation or regulations. This would exacerbate adverse
selection problems for these plans, since people with the greatest drug
needs would retain them while others may seek out less costly
alternatives. It also would dampen interest in offering the product in
the first place, as insurers would be locked into offering these
policies once they were issued.
Guaranteed renewability also would exacerbate pricing problems for
these ``drug-only'' products. While many in Congress have said that
they oppose government price controls for pharmaceuticals, private
insurers offering ``drug-only'' coverage are sure to face premium price
restrictions on their products at the state level (all states have
adopted either rate bands, modified community rating, or full community
rating for Medigap as well as medical insurance coverage options
available to non-seniors). Even when proposed premium increases are
consistent with state law parameters, state regulators are likely to be
resistant to the magnitude of increase it would likely take to sustain
a ``drug-only'' insurance policy as drug prices grow over time.
If the NAIC did standardize these policies, as some have proposed,
it could impose unworkable limitations on insurers. If insurance
carriers were prevented from adjusting co-payments and deductibles as
drug costs continue to skyrocket, effective cost management would not
be possible without significant premium increases over time. On the
other hand, allowing needed flexibility would destroy the
standardization of Medigap that Congress and the NAIC have worked so
hard to achieve during the past decade.
High-Deductible Options Introduce Additional Practical Limitations
Various suggestions have been made to render these policies
economically viable. One suggestion that flies in the face of
historical reality is to design the policies with very high
deductibles--a feature that has never been popular with seniors.
Comprehensive high-deductible Medicare+Choice medical savings account
plans authorized under the Balanced Budget Act of 1997 (BBA) are not
available because no company believes it can develop sufficient market
size to make it worth the effort. It is also notable that no carrier
has attempted to develop or market the two higher deductible Medigap
policies authorized under the BBA, largely out of the knowledge that
this product would not be attractive to a large enough block of seniors
to make it viable. The $1,500 deductible in those BBA Medigap policies
is considerably lower than some of the deductible levels proposed by
advocates of the new drug-only policies.
In short, a ``drug-only'' policy is an empty promise: it sounds
good but it cannot succeed in the real world.
a medigap drug mandate also is a bad idea
Another bad idea is mandating drug coverage for Medicare
supplemental insurance. (More than 20 million Medicare beneficiaries
have such coverage, with 9 million policies purchased individually and
11 million through the group market.)
HIAA is strongly opposed to proposals that would require Medicare
supplemental insurance or Medicare+Choice plans to cover the costs of
outpatient prescription drugs without the addition of prescription drug
coverage as a Medicare covered benefit. The growing cost of
pharmaceuticals would force plans with mandated drug coverage to raise
premiums or enrollee cost-sharing or reduce other benefits, all of
which would be counterproductive as seniors dropped their supplemental
or Medicare+Choice coverage. Mandated drug coverage also could lead to
overly-restrictive government restrictions on private plans, such as
prohibitions on the use of formularies or mandating certain levels of
coinsurance.
Today's Medigap marketplace is convenient and flexible, offering
many choices to seniors. Of the 10 standard Medigap policies (A through
J) sold, three (H, I, and J) provide varying levels of coverage for
outpatient prescription drugs. Only a relatively small number of
seniors (about four million) are willing to pay the additional
premiums.
Several studies show that adding a drug benefit to Medigap plans
that currently do not include such coverage would increase premiums
dramatically. Seniors who today have chosen to purchase Medigap
policies that do not provide a drug benefit would end up paying $600
more a year (assuming a $250 deductible for the policy), according to
HIAA estimates.
And if Congress were to require more comprehensive drug coverage,
those premiums could double. According to a May 1999 study by HIAA and
the Blue Cross Blue Shield Association, requiring that all Medigap
plans include coverage for outpatient prescription drugs would raise
Medigap premiums by roughly $1,200 per year, an increase of over 100
percent.
Premium increases of 50 to 100 percent would result in many seniors
dropping their Medigap coverage, leaving them without protection
against the high out-of-pocket costs of the hospital and physician
services not covered by Medicare. Moreover, increases of this magnitude
would discourage employers (who are also purchasers of supplemental
coverage) from offering such a benefit at all.
It is doubtful, then, that requiring all Medigap policies to
include a drug benefit would be popular with seniors--who would
experience diminished choice of policies, higher prices, and in some
cases, loss of coverage.
conclusion
The plight of seniors who are struggling to make ends meet and are
finding it difficult to pay for medicine is very real. But the
immediacy of the problem should not lead to short-term fixes that would
do much more harm than good. We believe Congress should step back and
examine a broad range of proposals--such as financial support for low-
income seniors, tax credits, and fair payments to Medicare+Choice
plans, most of which offer drug benefits. We believe there are workable
solutions that can meet the needs of our seniors without undermining
the coverage they currently rely upon. HIAA stands ready to work with
the members of this Subcommittee, and all in Congress and the
Administration, to ensure that all seniors to have access to affordable
prescription drugs.
Mr. Bilirakis. Thank you, Dr. Young.
Ms. Alecxih, you heard the comments by Dr. Young, his most
recent comments regarding Medigap insurance. Do you agree with
them?
Ms. Alecxih. In terms of ``don't mess with Medigap''?
Mr. Bilirakis. In terms of the numbers of seniors or
beneficiaries who have Medigap and the reasons why they don't
carry the drug----
Ms. Alecxih. I don't think there is any direct evidence of
reasons why they don't carry it. I do know after the 6-month
open enrollment period, that there are only like two companies
in the Blue Cross-Blue Shield selected States that don't use
health status as a screen for whether or not you can gain that
coverage at a future time, you know, after your open
enrollment. So I don't know if it is just a choice based on
premium or if it might also be not being able to gain access
because they are underwritten out.
Mr. Bilirakis. All right. Now, Dr. Young mentioned, of
course, the expense involved to seniors in terms of a Medigap
policy which would include drug coverage. Notwithstanding that,
if all Medigap insurance policies included drug coverage or if
all seniors who have Medigap were to use the Medigap policies
that include drug coverage, how many more, in terms of
percentage, seniors now not covered by prescription drug
coverage would be covered, would you say?
Ms. Alecxih. Well, I think you have an issue----
Mr. Bilirakis. How much does that close that gap, in other
words, of 20, 30 percent, whatever it is?
Ms. Alecxih. About 15--well, about 30 percent of people who
have supplemental coverage get it from Medigap, and probably
about 20 percent of those then have drug coverage, and that
is--you said 13 percent.
Mr. Bilirakis. We get 13 percent.
Ms. Alecxih. You get 13 percent. MCBS gets 42 percent. So
pick a number in the middle for now. So if you say 20 percent
of 30 percent, you have got somewhere in the neighborhood of 6
percent, but that is assuming all of them keep the coverage.
Mr. Bilirakis. So if all of them, if all of the Medigap
policy holders had policies, Medigap policies that offer
prescription drug insurance, you would raise that 69 to 70
percent figure of seniors who have prescription drug coverage
by, what, 6 percent, another 6 percent? Is that what we are
saying?
Ms. Alecxih. Probably, yes, 76, 77, assuming that everybody
who has Medigap continues to have a Medigap policy and that you
haven't priced them out of the market.
Mr. Bilirakis. Yes. Right, right.
Dr. Young, in your written statement you indicated, and I
am just quoting from that written statement, that stand-along,
drug-only insurance policies simply would not work in practice,
and that their proponents have promoted a fiction by ignoring
the realities of the insurance market, and of course you
expanded upon this here orally a moment ago. But expand upon
that, will you? Explain your reasoning, why you feel that that
is the case.
Mr. Young. If you move to an added benefit, drug benefit,
you are going to increase the cost, and the people that look at
that and say, ``Does that cost more than what my drugs cost out
of pocket?'' and a substantial share are going to say yes. Why
should I buy that? That is more costly to me than my drugs are
costly.
Mr. Bilirakis. Then what you are saying is that
prescription drug only coverage would not work?
Mr. Young. That is correct. That is absolutely correct.
Mr. Bilirakis. Are we saying that the insurance companies
would not offer those policies, they would not be available, or
they would be available but be too expensive to be used?
Mr. Young. It is entirely possible that there would be a
small number of companies that would offer them, and it is
possible that there would be a small number of beneficiaries
that would buy them, but the only people that would buy them
are in the high income category group, so that it is not a
solution that has any practical value across the great majority
of the Medicare population.
Mr. Bilirakis. Disagreements? Ms. McCall? Or agreements,
whatever? Do you have any feeling on that.
Ms. McCall. To add to a couple of comments, I think some
things to consider, there was a lot of good discussion this
morning about the ultimate goal that we want to achieve and how
quickly we could do things and how perhaps it may need to be
phased. But if the ultimate goal is to integrate a coverage or
a set of coverages for hospital, physician and ultimately
pharmacy coverage, that moving toward a stand-alone perhaps is
not a step in that direction, No. 1; and would that in fact be
a universal access type program?
Point No. 2, there may be some unintended consequences.
When you have a more integrated approach with pharmacy and
medical, there are medical directors who will tell you that it
is very, very important to pay for particular drugs that could
be very high in cost, and yet what you gain, you gain for not
only quality of care but for cost somewhere else in the care
equation. So how companies offering drug-only coverage would
approach utilization management, it would be fundamentally
different in some respects, and you would have to be careful
with that.
Mr. Bilirakis. Well, my time is up. Mr. Moran, if you have
something real quick.
Mr. Moran. I just wanted to comment briefly, perhaps, while
agreeing with everyone that comprehensive coverage is obviously
a superior vehicle to deliver these drug benefits, for all the
reasons we have just described, I have a slightly different
view, though I reach some of the same places that Don does on
the individual coverage. Perhaps we could come back to that in
another question, if that is timely from your perspective.
Mr. Bilirakis. Ms. Alecxih, do you have anything to add to
that?
Ms. Alecxih. No, thank you.
Mr. Bilirakis. Thank you. Mr. Waxman?
Mr. Waxman. Well, that is an interesting point that you
have all seemed to concur in, that stand-alone policies for
drugs only doesn't appear to be a viable way for us to go to
cover people. Does anybody disagree with that, on this panel?
Mr. Moran?
Mr. Moran. Yes, Mr. Waxman. While not completely
disagreeing with it, from the standpoint that clearly I join my
colleagues in suggesting that comprehensive coverage is
superior as a mechanism for delivering a drug benefit, for all
the reasons we have described, if comprehensive reform is not
in the offing, and the question is not whether or not you are
going to go forward with an interim benefit but what form of
interim benefit you are going to go forward with, then the
analytical framework might shift a little bit and you might get
a slightly different answer from some of us than the one you
have gotten up until now.
Mr. Moran. Well, give me an example of a benefit that would
be limited so that it might induce insurers to want to cover
prescription drugs?
Mr. Moran. Let me offer you, without trying to speak for
Don and his industry, a couple of insights. One is that in a
purely voluntary market where no one received any degree of
financial support for participation, you would have more
concern about that than you would in a market where, as many
people are discussing in a variety of proposals, a substantial
number of people, without regard to their drug health risk, who
are going to be offered a fairly substantial degree of
subsidies to participate. To the extent that is in fact the
case, you could have a viable private market wrapped around
that degree of participation without too heavy concerns about
the kind of selection effects that people are worried about.
I think a second area of concern is that if there are
expedients that could dampen the risk faced by insurers through
a variety of mechanisms, public or private, that might also
have a mitigating effect.
And, at the end of the day, I think you have to understand
that the context of some of the insurance industry's concern is
not just what Washington will do but how a freestanding drug
benefit would play out vis-a-vis the existing State regulatory
structures, because, as you recall, Medigap policies are now
price regulated in virtually every State in the country at the
individual market level. And if I were an insurer valuating a
private market, I might be very concerned that I could go into
a Federal scheme that seemed to be well balanced and
reasonable, and then get stuck with totally unrealistic price
regulation at the State level going forward.
So there is a lot of work to do to get to a workable
policy, and I don't mean to pretend that it is simple, but I am
not--I am trying to maybe offer you an existing proof that it
is perhaps not impossible.
Mr. Waxman. It sounds like, and I want to hear Dr. Young's
view, but it sounds like you are saying if it is heavily
subsidized, maybe someone will offer it, if you relieved them
of regulatory responsibility at the State level and limited the
benefit.
Mr. Young. Thank you, sir. That is a very good summary.
Mr. Moran. I would probably go, having been invited to talk
to you about the wonders of stop-loss, I would probably have to
advocate that in this context, as well. I think you could offer
a benefit in the private market context focused on the highest
market cost drugs without worry about severe selection effect.
Mr. Waxman. How would you get any kind of cost containment
under this kind of a scheme? Any of you have any ideas of that?
Mr. Young. In terms of the current Medigap market, while
there is not a lot of people in it, there is the ability to get
price discounts. The Medigap carriers that do write this and
the people that do buy it are pointed toward places where they
can buy, mail order houses, other sites, so they get some price
discounts. They don't have the care management piece but they
do have the pricing discounts.
Mr. Waxman. Is that our most efficient way to get the price
discounts and to integrate a prescription drug benefit with the
other health care needs? Ms. McCall, you spoke to that point a
bit.
Ms. McCall. I apologize. Is which way the most efficient
way?
Mr. Waxman. Well, if you get a Medigap policy that covers
prescriptions, which is heavily subsidized but has a limited
prescription benefit, now it is going to pay for some drugs,
and I asked whether there can be cost containment. In Dr.
Young's view, he thinks that there could be cost containment
because they are a larger purchaser, but are we really going to
get the benefit of the maximum cost containment that we could
get in a reasonable fashion, and integrate the benefit with
other health care services?
Ms. McCall. It would be more difficult in that type of
design. I will go back to what my colleagues stated in
discussions about stop-loss. You can have very high stop-loss,
but you have to look at what----
Mr. Waxman. I wasn't talking about stop-loss. I was just
talking about the benefit itself.
Ms. McCall. Correct.
Mr. Waxman. Because the fact of the matter is, of all the
demographic groups, seniors are charged the highest for
prescription drugs, and this is true because so many seniors
don't benefit from being a large purchaser with the ability to
get discounts on drugs. So I don't think the experience has
been, Dr. Young has argued there is some contrary evidence, but
I don't think it has been true that under the Medigap plans you
get a large amount of discounted drugs. I think most of the
time you purchase drugs at retail prices and the Medigap policy
pays for it. Do you think the Medigap approach is going to be a
way to get leverage?
Ms. McCall. I believe that we can get cost containment
through lower prices through that mechanism. I have much less
experience with Medigap. However, the limited Medigap business
that Humana had, we were able to obtain the on-line
adjudication and the discounts for the enrollees that we did
have in our Medigap policies, so I believe that those
mechanisms could be used to obtain the type of cost containment
you are talking about.
Mr. Moran. I guess if I might, Mr. Waxman, just supplement
that slightly, it really depends, to be direct about answering
your question, on what your standard of efficiency is. If your
standard of efficiency is the lowest unit prices for a
particular class of drugs, then it really depends on the
benefit design. I mean, the challenges, most of the benefit
designs we have seen brought forward in this debate are really
not insurance; they are just a form of installment financing
for whatever purchases people were going to make anyway.
Mr. Waxman. There is not much cost containment in that.
Mr. Moran. No. Well, certainly heavy front end dollar
benefit structures capped at $500 or $1,000 or something like
that have actuary values very close to $500 or $1,000. I mean,
people are basically buying a sure way of paying for that
throughout the year. If that is your policy, then you can argue
whether price controls are more efficient than competing
private markets, that kind of stuff, but that doesn't give you
a lot of policy traction.
If, on the other hand, your policy is insurance, then
trying to create a market that stimulates an environment where
people can get coverage, and I think a private market could
actually be a fairly efficient way of bringing about fairly
higher end catastrophic--well, I guess we weren't supposed to
say the ``c'' word, were we, Mr. Chairman?
Mr. Waxman. If catastrophic coverage were the goal.
Mr. Moran. If that were the primary essence of where you
were going, then a private market could be very efficient at
bringing you that.
Mr. Waxman. I see my time is up.
Mr. Bilirakis. Dr. Ganske?
Mr. Ganske. Well, Mr. Chairman, I just have to keep going
back to lessons that Congress should have learned from 1988 on
this. Mr. Burr had a series of questions for the previous
panel, and I think this panel was in the room at the time, and
it was basically along the lines that under the
administration's plan, for instance, which still costs about
$170 billion, a sizable percentage of the beneficiaries would
end up paying more rather than less in their current situation,
because maybe they don't need that much in terms of a pharmacy
benefit.
This in fact is what happened in 1988. That wasn't a
voluntary program. That was across the board. And so if you
look at the surveys from that time, you found that the senior
citizens were about evenly split. About 50 percent thought that
that catastrophic plan was good, and about 50 percent were
vehemently against it because it raised their premiums, and
they also had some means testing in there, the same thing that,
you know, the administration is proposing.
And it goes back to what Mr. Rostenkowski said was, tongue
in cheek, a mistake that they made when Congress designed that
program at that time. He said we adopted a principle
universally accepted in the private insurance industry: People
pay premiums today for benefits they may receive tomorrow. But
the fact is, if you have a voluntary program and if somebody
looks at it and says, ``You know, I don't need that much right
now. I don't think I'll get into paying more premiums right
now. I'll just wait until I get a little sicker and I need
higher premiums,'' then you have distorted that risk pool
significantly.
So it looks to me like, you know, the administration is
trying to get around the problem that they had in 1988 by
saying, ``Well, now we are just going to be voluntary,'' but
then they come up with this 80 percent participation that I
just can't see with the way the numbers are. And it gets us
back to, well, if you put enough Federal dollars into this
benefit so that the seniors have to pay almost nothing for
this, and you are now just talking about a $10 premium
increase, well, then, yes, then you may be able to get enough
participation, and of course the seniors would love that. But
that is why the Clinton administration didn't design it that
way, because they have already, under the way they have done
it, come up with about a $170 billion plan.
Now, is my analysis correct?
Mr. Young. Your analysis, from the point of view of drug-
only Medigap, is exactly on the mark. That is our point
exactly. That is why a drug-only insurance, private insurance
solution is not a solution at all. It is not going to work. You
are right on the mark.
Mr. Moran. At the risk of sounding like a broken record, I
guess I would say that the critique there is not so much the
label you put on it but the fact that once again the policy you
are characterizing is one that is very heavily oriented, with
very heavy front end benefits, with very low caps. In an
environment where you are doing that, all you are doing is
taking money out of people's pockets and then handing it back
to them in some different fashion than what they collected it,
and of course you can find a whole variety of circumstances
under which some people get more, some people get less, in
often seemingly random fashion, without making any sense of it.
Mr. Ganske. Correct me if I am wrong. We have got several
actuaries on this panel, and everyone is well versed in what is
going on, but it looks to me like, you know, we have seen some
significant HMO premium increases, not in Medicare but across
the board. Isn't a large percentage of that related to the
significantly escalating pharmacy benefit cost?
Mr. Young. Absolutely. Drug, pharmacy costs are by far the
fastest growing component, 16 percent and in some cases even
more a year, and becoming a substantial part of the overall
funding.
Mr. Ganske. And, Mr. Moran, I think you alluded to the fact
that we have got some drugs coming on line here that could be
hugely expensive. I mean, we are talking about gene therapies.
We are talking about, I believe that we will see in my lifetime
a type of protein breakdown inhibitor that could affect the
ends of the chromosomes, which would be an anti-aging type of
medication. Now, you know, a drug company will have the patent
for that. I think that that is going to be very, very
expensive. That could bump you right into that catastrophic
limit, even if it is very high, if you start out with something
at $6,000, $7,000. Is that not right?
Mr. Moran. I think the point I was trying to make earlier
is that it depends on what your policy concern is. If your
policy concern is in fact about making certain that all
Medicare beneficiaries have access to the highest cost products
as they become available on the market, to the extent they are
therapeutically indicated, then you have to go in the direction
of a stop-loss type of policy because no other type of policy
is going to get you there.
Indeed, perhaps the analogy that might resonate is that,
let's suppose that within 3 years we announced that some
biotechnology company had discovered a cure for Type I diabetes
that constituted a 6-months course of a biological that cost
$75,000 a year to manufacture. How long would this subcommittee
be able to avoid hearings on that subject, and what would you
do with it, if it came about?
Mr. Ganske. There you go.
Mr. Moran. You would either have a stop-loss policy already
in place as a policy response to that eventuality, or you would
be authorizing that program in the coming months, in the same
way that you have authorized programs for the treatment of end
stage renal disease and other areas where there were
definitive, kind of ``nail it'' treatments brought forward,
regardless of the price.
So, I mean, to me that is the challenge in all of these
issues, is on the one hand we can say that we are dealing with
this from the context of the existing structure of drug benefit
programs and we know what to do, but the policy challenge is
right over the horizon looking at us.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Ganske. Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Barrett?
Mr. Barrett. Thank you, Mr. Chairman. I apologize for not
being here for the testimony, so my questions might not
particularly be on the mark or might seem naive, but the first
comment and question I have is, one of the parts of the debate
that we hear, one of the points we hear with regard to trying
to control the cost of prescription drugs is, whether it is
with a market type of approach, or some would argue that it is
price controls, is it would inhibit innovation, it would
inhibit any type of explorations.
Do you find that the current laws with regard to Medicare,
because Medicare obviously covers virtually everything except
prescription drugs, have they in any way inhibited research or
innovation in other areas of health care? And just go down the
line, just to get your opinion on that.
Mr. Young. That would be a very difficult question to
answer definitively, as that is a cause and an effect. I don't
have any information that says that there is evidence that you
have impeded innovation. I think you can argue in a number of
cases that Medicare's payment policies have in fact provided
fuel that has fostered some innovation, by putting more money
in the health care system overall, but I am not sure how anyone
would ever draw the conclusion with any degree of certainty
that you are asking.
Ms. Alecxih. I think the set-asides within Medicare and the
hospital PPS payment system for teaching hospitals, in and of
itself, encourages innovation because that is where a lot of
that stuff is going to occur on the medical procedure side. And
so I don't--that is all I would have to offer on that point.
Mr. Moran. I mean, in the intermediate and the longer term
it is possible to take all kinds of different views about this.
I guess my thinking on this is colored heavily by the fact that
if you look out across the existing landscape, a lot of the
really cutting edge stuff is being done now by smaller biotech
companies rather than by large pharma companies, and virtually
all of those are that the point--they are in a premarketing
stage. They basically have no revenues, and they are 100
percent dependent on venture capital in order to finance the
next 6 to 9 months of operation.
And I guess a concern I have is at some point, if you were
to come forward with a serious prospect that there might be
some active price intervention from Congress' standpoint, the
venture capital would dry up for a large chunk of that, and if
venture capital dries up for a large chunk of it, they don't
make it through the year.
Mr. Barrett. But have you seen any evidence of venture
capital drying up for any other segment of the health care
industry?
Mr. Moran. I think you would have a difficult time
financing any subacute fields this month, frankly. Yes, venture
capital dries up in every area of health care where it turns
out not to be a good idea on a retrospective basis. And so, I
mean, that is the challenge in all of this.
Mr. Barrett. Ms. McCall?
Ms. McCall. I guess to add onto what Mr. Moran has just
said, I have had the opportunity to negotiate with a number of
manufacturers and have had to pay a lot of attention to
formulary design, and I understand the challenges that pharma
faces in terms of--not that I always like them, but I
understand the challenges they face in terms of how long they
have for a drug to be on market.
Mr. Barrett. That is no my question.
Ms. McCall. I understand.
Mr. Barrett. My question is other areas of health care. I
understand the argument that it is tabu, that we should never,
ever mention any type of government intervention with----
Ms. McCall. Sure. I do believe----
Mr. Barrett. [continuing] with prescriptions, but it blows
my mind when I see the commercials that say do you want
government involved in your health care, and I am thinking the
only part--talking to seniors, the only part that government is
not involved in is prescription drugs, and everybody is happy
with everything but that. So I am wondering what evidence there
is that somehow government has screwed up innovation in other
areas of health care because government is involved.
Ms. McCall. The only evidence that I would see, and I don't
think it is screwed up, is again in the subacute area where the
issue is one of financing. Are we trying to actually finance
something below the cost that it takes to deliver something?
Once you reach that point and everybody recognizes it, there
will not be an injection of capital into those areas.
But I also believe that what is happening in the drug
development area is so unlike what is happening in other areas
of technological development, that it is at least different in
degree, if not different in kind, in the types of development
taking place.
Mr. Barrett. Have any of you looked at the Tom Allen bill?
I know that it is something that--and I was frankly a little
disappointed when I looked at the committee memorandum and the
different models for reform. It listed--I didn't see any
mention at all of the Tom Allen bill, and I am just interested
in your comments on that bill.
Mr. Moran. The superficial policy is what it is. It states
an intention to try to go toward what amounts to a unitary
pricing structure or a voluntary--I mean, the challenge,
whether or not you believe that as a matter of policy is a
matter of taste, in my judgment. The question really is as to
the administrative workability of it, and I guess my experience
in these kind of things is, you won't know until you try it,
and once you have tried it, you will find it is a lot more
complex than you think it is.
Mr. Young. The information that was presented by Mr.
Greenwood I think showed price versus other factors driving up
costs, and that price was a component but there were multiple
other factors that were driving up drug spending costs,
including utilization, mix of services, and things that were
used. And so I think you have to be careful if you are focusing
only on price, No. 1. And, No. 2, we have had a number of
experiments in this country on price controls, and they
generally have not worked well.
Mr. Barrett. I am sorry. Do you believe that the Allen bill
is price controls, I guess was my question.
Mr. Young. Okay. Then we get into a matter of semantics. I
don't know what kinds of words you want to use, but you are
interfering with an exchange or you are intruding into an
economic exchange, whether you want to talk about it as price
controls or how you do it.
And we do know, as one of the witnesses mentioned earlier,
that the Medicaid system, whether you call that price controls,
led to a change in the market. There is an action and a
reaction to it. So I think you need to be very careful when you
start getting involved in market transactions and rules and
regulations.
Mr. Barrett. One final question, just as a follow-up to
that. I am of the belief that under the current system, that
older people pay more because disproportionately they are not
covered by health care plans. And Ms. McCall made reference
earlier to unintended consequences. I guess my first question
is, do you agree with my factual assertion that older people by
and large are paying more? And, second, is that an intended
consequence or an unintended consequence?
Mr. Bilirakis. Brief responses, please.
Mr. Young. It is a consequence of younger people tending to
have insurance, and they buy insurance through the workplace
and they are in some form of pharmacy benefit management, drug
pricing. So they are getting a discount, and the seniors, the
evidence seems to be overall, are paying more than those who
are getting a discount through a large group.
Mr. Barrett. So, is that an intended consequence or an
unintended consequence of the current system?
Mr. Young. No, I think that is an unintended consequence. I
think the consequence was to give those who are negotiating in
plans, and the plans moved forward, to get the discounts.
Mr. Barrett. Okay. And I would yield back. My only, if I
may----
Mr. Bilirakis. You are well past your 5 minutes.
Mr. Barrett. The fear of moving into these new systems is
that there is unintended consequences. My point is, under the
current system, as you have said, Dr. Young, there is an
unintended consequence that I think hurts older people. And I
would yield back the balance of my time.
Mr. Young. If I could just add to it, there is a residual,
and maybe we are getting into semantics about an unintended
consequence or a residual effect. The fact that the seniors are
playing may be a residual effect and not an unintended
consequence.
Mr. Bilirakis. Dr. Ganske, did you have anything further,
another minute or 2? You are more than welcome.
Mr. Ganske. No, thank you.
Mr. Bilirakis. I have shocked you, haven't I?
Well, you have waited for so very long, and we certainly
appreciate it. By now, some of you have done this before and
you know what it is like being on that third panel, which is
always a terrible panel to be on. But we appreciate it so much.
Now, there may be and quite often are questions from the
members of the subcommittee staffs to you in writing, and I
know you don't mind receiving those and responding to them, if
you would. If there isn't anything further to come before this
subcommittee, we will go ahead and adjourn and release you, and
thank you again.
[Whereupon, at 3:19 p.m., the subcommittee was adjourned.]