Press Releases
November 25, 2003
Senator Conrad's Floor Statement on the Medicare Vote
Mr. President, I support the Medicare conference report that is before us.
This was not an easy decision, because the conference report is far from perfect. But I believe it is the right decision for three reasons.
First, most basically, the bill provides $400 billion to add a voluntary prescription drug benefit in Medicare. Prescription drugs are an integral part of modern medicine. Yet they are not covered by Medicare today. No other health insurance program in this country today fails to cover prescription drugs. It is long past time to add drug coverage to Medicare.
The bill before us creates a voluntary prescription drug benefit in the Medicare program starting in 2006. Here's how it would work. Those beneficiaries who choose to sign up for this benefit will pay a premium estimated to average $35/month starting in 2006. Beneficiaries would then have to meet a deductible of $250 in out-of-pocket spending on prescription drugs. Above $250, Medicare will pay 75% of the next $2000 in drug costs. Then, the benefit cuts off. Medicare will pay nothing until the beneficiary has paid an additional $2850 out-of-pocket. Beyond this gap in coverage, Medicare will then pay 95% of all additional drug costs.
Obviously, this is not a perfect drug benefit. It is not the drug benefit I would have designed. And it is going to fall short of many seniors' expectations. The simple reality is that one cannot produce a comprehensive drug benefit that looks like the private health insurance coverage most Americans are used to for just $400 billion.
But the $400 billion in drug benefits provided by the conference report will mean a significant improvement in health coverage for millions of seniors across the country. It will provide a meaningful – if imperfect – benefit to seniors who currently have no coverage. And it will offer more comprehensive coverage and catastrophic protection to seniors who currently rely on Medigap plans. This is a step forward. And if we do not pass the bill before us today, seniors could be forced to wait years before we get another opportunity to update the Medicare program. In my view, we need to take this opportunity to lock in a prescription drug benefit now. We can come back later to fill in the gaps in coverage and fix the other troubling provisions of this bill.
Second, the bill provides a very generous benefit for low income seniors – those with incomes below 150% of the federal poverty level, or about $13,470 for singles and $18,180 for couples. Seniors in this category – about 40% of the seniors in my state – will not face a gap in coverage. And they will get the vast majority of their drugs covered, with minimal out-of-pocket costs. In addition, they will get a $600 annual credit toward their drug costs in 2004 and 2005 before the main drug benefit takes effect. These low income seniors by definition are the ones who most need help paying prescription drug costs.
In particular, all seniors with incomes below the federal poverty level – about $8,980 in annual income for singles and $12,120 for couples – will pay no premium. They will pay no deductible. They will have no gap in coverage. And they will pay just $1 for generic prescriptions and $3 for brand-name drugs.
Those with incomes up to 135% of the poverty level and less than $6,000 in countable assets will also pay no premium. They will pay no deductible. They will have no gap in coverage. And they will pay only $2 for generic drugs and $5 for most brand-name medications.
Those seniors with incomes above these thresholds, but still below 150% of the poverty level, will pay a sliding scale premium based on income. They will pay a $50 deductible. And they will pay 15% coinsurance on all their medications, until their drug costs reach $3600. After that, they will pay only 5% coinsurance. Seniors who qualify for any of these low income benefits will get an extremely generous drug plan. In my view, this benefit alone is a very significant achievement.
Third, the bill includes a whole host of rural provider provisions that I authored or co-authored. Currently, rural areas face huge payment disparities. For example, Mercy Hospital in Devils Lake, North Dakota, gets paid just half as much as Our Lady of Mercy Hospital in New York City for treating exactly the same patient with exactly the same illness. Yet hospitals in North Dakota don't pay half as much for equipment as their urban counterparts. And rural hospitals have much smaller patient loads over which to spread their costs. As a result, rural hospitals are on the brink of financial failure. These hospitals are critical economic anchors in their communities. Other rural health care providers, from clinics to home health to ambulance services, face similar payment inequities. This bill will go a long way to eliminating some of the Medicare funding inequities that have hurt rural health care. It will help make sure rural Medicare beneficiaries continue to have adequate access to health care.
Specifically, this bill will close the gap in standardized payment rates, which will ensure rural hospitals' base payments are equal to those of urban providers. The legislation also takes important steps to address inequities in the wage index system, which is intended to account for labor costs. And it provides a new, low-volume adjustment payments for facilities serving the smallest communities in the state. In addition, the Medicare bill includes important provisions to improve the Critical Access Hospital program. Today, about 28 hospitals in my state have this designation. This bill will place them on sounder financial footing.
Along with the provisions to assist North Dakota hospitals, the Medicare bill will also address payment inequities experienced by our physicians and will ensure they do not face payment cuts in the coming years. There are also new adjustments for home health care providers and ambulance services. I hope these provisions will make a real difference in their ability to continue providing quality care across our state. In total, this part of the bill is a very significant victory for rural America.
For these three reasons, I have concluded that we should pass this bill. But we should not oversell it either. As I noted at the outset, this bill is – in many respects – very disappointing. Quite simply, it could and should have been a much better bill.
Democrats in the last Congress put together a prescription drug bill that I was proud to sponsor. It provided a good drug benefit to all seniors. It did not have any gaps in coverage, where seniors would continue to pay monthly premiums but get no assistance from Medicare with their drug benefits. And it did not rely on creating a whole new type of insurance plan to meet the drug needs of seniors. Instead, it used the delivery mechanism that the private sector uses to provide drug coverage. It was a bill that would have provided much more comprehensive prescription drug coverage to seniors at a reasonable price. Compared to what we have before us today, it was simple and easily understandable for seniors. It did not have a complex scheme of differing copayments, coverage gaps, and premiums. But that bill was blocked by Republicans.
This year, the leadership on the other side appears to have put ideology and special interests ahead of the interests of seniors in crafting many of the details of this drug bill. As a result, seniors will be facing an untested delivery model that may not provide the advertised benefits at the advertised prices. The simple fact is that there is no such thing as a private, drug-only insurance plan in the commercial insurance market anywhere in this country. They just do not exist. By contrast, we have a proven, successful delivery model in the traditional Medicare program. It works just fine in providing medical and hospital coverage to seniors today. Yet, in drafting this bill, the authors insisted that the plan rely on untested private, drug-only insurance plans. However, it is possible that no such plans will materialize. Or they may be highly unstable – entering a region one year, just to turn around and leave the next year if they are not making a profit.
In my view, it is a serious mistake to set up a system that could force seniors to change drug plans every year. Under this approach, each year seniors could face a different premium, different coinsurance charges, and different lists of covered drugs. I think seniors will be very surprised to learn that they will not have the same benefit from year to year. During consideration of the Senate version of this bill, I fought to correct this plan. My amendment would have allowed seniors to stay in a government-sponsored back-up plan if they liked it. But that effort was rejected by those who insist – in a triumph of hope over experience – that private drug-only plans will work even though they do not exist today.
And in the conference, the fall-back option was further scaled back to make it even less likely that seniors can choose a stable, government sponsored back-up. The Senate bill required that seniors be given the option of enrolling in the so-called fall-back plan if they did not have at least two private drug-only plans to choose from. But the conference report will not give seniors the fall back option if there is just one private drug only plan available, so long as there is also a managed care Preferred Provider Organization plan in the region. I fear that this will give seniors an unpalatable choice if they want access to drug benefits. Either they will have to join a PPO that restricts their access to health care providers of their choice, or they will have to join the one private drug-only plan even if it charges excessive premiums.
And that brings me to another area that I think will be a surprise to seniors: the variation in premiums. The authors of this bill like to talk about how the premiums will be $35 a month. But what they don't tell seniors is that $35 a month is just an estimate. Individual drug plans will have premiums that can vary substantially. If the drug plan's projected cost for delivering the benefit is only slightly higher than the national average – a real concern in many areas – the premium would be substantially higher than $35 a month. I think seniors will be very surprised to learn that their premiums may actually be as much as $45 or $50 a month instead of the $35 that has been advertised. And these differences will be compounded because monthly premiums will increase each year in line with the increase in prescription drug costs.
But the thing about this bill that might be the biggest surprise for seniors will be the coverage gap, sometimes called the doughnut hole. The authors of the bill understandably don't want to advertise this gap in coverage. Many seniors probably don't even know that it exists. But when they hit this gap in coverage, they are going to be mighty surprised. The will discover that Medicare isn't covering one penny of their drug costs even though their monthly Part D premium keeps coming out of their Social Security checks. And they're going to be doubly surprised when they find out that the gap isn't a little more than $1000 wide, but is closer to $3000.
The authors of the bill like to talk about a coverage gap from $2250 in drug costs to $3600 in drug costs. But when you read the fine print, you learn that the real gap is from $2250 to $5100. That's because the $2250 counts all drug costs, by both Medicare and the beneficiary. But the $3600 counts only spending by the beneficiary. When total spending hits $2250, the beneficiary has paid $750 – the $250 deductible and 25% coinsurance on the amount from $250 to $2250. So Medicare won't pay another dime until the beneficiary has paid an additional $2850 out-of-pocket.
Now, some who are watching might ask, who in their right mind would design a drug benefit that starts, then stops, then starts again, the way this one does? Why does the benefit have this gap in coverage? The answer is simple: money. It would cost tens of billion of dollars to close this gap. The folks on the other side of the aisle made tax cuts for the wealthy a higher priority than a prescription drug benefit for middle income seniors. As a result, they didn't have enough money left over to provide a drug benefit without this gap in coverage. By most estimates, about one third of all seniors will reach a point at some time during the year when Medicare just stops paying any part of their drug bills. They will keep paying premiums, but Medicare will not pay another dime until and unless they reach the catastrophic spending threshold.
Finally, Mr. President, I am concerned about the effect of this contorted benefit structure on retiree drug coverage. Millions of seniors currently have retiree health coverage that provides more generous prescription drug coverage than this bill will provide. When the Senate passed its bill last June, the Congressional Budget Office estimated that one third of those with retiree drug coverage would lose that coverage because spending by an employer plan does not count toward reaching the catastrophic coverage threshold. In other words, if you have employer coverage, no drug spending by your employer plan counts toward the $3600 you have to spend out of your own pocket before the catastrophic coverage kicks in. This provision creates a clear incentive for employers to cut back or drop coverage so that a beneficiary will more quickly reach the catastrophic coverage threshold and Medicare – not the employer – will pay the remaining costs.
When this bill passed the Senate, I said it was not a Cadillac drug plan. It wasn't even a Chevy drug plan. Instead, it was a bare bones plan. Well, Mr. President, to stretch that analogy, in conference, some of the bones got fractured, leaving the plan even weaker. And some of those bones were replaced with untested artificial substitutes that may not work the way they have been advertised.
And, the conferees did not just widen the coverage gap and decrease the stability of the fallback drug plans that will be important in many rural and other areas of the country. They also loaded down those weak old bones with a new, heavy load: This bill now is carrying a number of provisions that, in my view, will harm the Medicare program and our health care system.
For example, the bill requires demonstration projects to privatize the Medicare program, taking the first steps in turning it from a defined benefit entitlement to a voucher program. I am pleased that this demonstration has been limited to just six areas. And I am hopeful that even these few demonstrations may not get off the ground. But I nonetheless strongly oppose this effort. This policy will allow private plans to cherry-pick younger, healthier beneficiaries, leaving older, sicker beneficiaries to face higher premiums in the traditional Medicare program. This is terrible health policy, and I hope we will succeed in reversing it in the future.
The bill also contain a $10.5 billion "stabilization fund" that allows the Secretary of HHS to make additional payments to managed care plans. This slush fund will just add to the substantial overpayment of managed care plans that already exists in the Medicare plan. To me, it makes no sense to talk about managed care saving money for Medicare when it costs Medicare more to move people into managed care. Why should we pay managed care billions and billions of dollars more than we would pay in traditional Medicare to provide the same benefit? That money could have been put to far better use in other ways, either by improving the drug benefit or by devoting money to chronic care disease management in traditional Medicare.
The fact is that about 5 percent of Medicare beneficiaries account for roughly 50% of total Medicare spending. These beneficiaries often have a number of conditions, but they don't get coordinated care because they see different doctors for different problems. This can result in adverse drug interactions, the failure to treat underlying causes rather than symptoms, and higher spending than necessary. Yet Medicare does nothing today to coordinate care in the traditional Medicare program that serves nearly 90% of all beneficiaries. Spending a little money up front in this bill could produce significant cost savings over time for the Medicare program. I hope we will be able to find money to expand the chronic care demonstrations in the bill.
The bill also expands health savings accounts that are both bad tax policy and bad health policy. These accounts will allow both untaxed contributions and untaxed withdrawals, a terrible precedent. If it is copied for other tax-preferred savings accounts, this policy could have devastating consequences for the future of our tax base. Moreover, like the privatization voucher program, health savings accounts fragment the health insurance market, undermining the fundamental principle of spreading risk that allows insurance markets to work. Health savings accounts will pull wealthier, healthier workers out of the insurance pool, giving upper income taxpayers significant tax savings. Those who remain in traditional insurance plans – average workers who would gain little in tax benefits from the HSAs and those with significant medical costs – will then face higher premiums. This is the first step toward creating a two-tiered health system in this country. I oppose this policy. The money spent on these tax giveaways could have been far better spent to help ensure that existing retiree health coverage is not eroded.
Finally, the bill fails completely to impose any restraint on the costs of prescription drugs. One of the chief complaints I hear from North Dakota seniors is that drugs cost far too much. I had hoped that Medicare – which has been more successful in holding down health care cost increases than the private sector – could use its enormous market clout to negotiate lower costs for prescription drugs. Unfortunately, the bill does not do that. In fact, the bill contains language the specifically prohibits Medicare from using its market clout to negotiate with pharmaceutical companies.
In addition, the conference failed to include a strong provision on drug reimportation that was passed by the House of Representatives. As a result, Americans will not be able to access lower cost medications from other countries. And reimportation will not serve as a brake on rising drug costs in this country. As a result, the Congressional Budget Office tells us the bill will accelerate increases in the costs of prescription drugs.
Mr. President, these are serious flaws. I wish many of the provisions were far, far better. And I wish other provisions had never been included. But at the end of the day, we are faced with the question: Is this bill, with all its flaws, better than doing nothing?
For me, the answer is yes. For millions of seniors who do not have access to any kind of prescription drug coverage at any price, this will give them a new option to have a portion of their drug costs covered. Millions of low income seniors will be significantly better off, with a new generous drug benefit that they do not now have. And rural health care facilities that are now on the brink of closure because they are underpaid for their services will get a new life from the rural Medicare reimbursement provisions in the bill.
But even with these significant victories, if I thought this bill fundamentally threatened the existing Medicare program, I could not support it. I know that there are some who sincerely believe that the privatization demonstrations will fundamentally undermine the program. Although I share their view that these demonstrations are bad policy – perhaps even terrible policy – I do not believe that six demonstration projects affecting less than 5% of all Medicare beneficiaries will destroy Medicare.
So, Mr. President, although this bill is far from perfect, I have concluded that we should pass it. On balance, this bill is a step in the right direction. We do not know when we will have another, better bill that can pass the Congress and be signed into law. In my view, it would not be fair to those seniors – including tens of thousand of North Dakota seniors – who have no access to drug coverage of any kind at any price to deny them this first step in the uncertain hope that we might be able to do better at some point in the future. Rather, we must take the $400 billion opportunity that is on the table today and start providing prescription drug coverage to America's seniors. And then we can and we will go to work to improve the prescription drug benefit provided by this bill.
