Building a Better Benefit

 

The country dodged a bullet when the Senate rejected the last compromise bill for a Medicare prescription drug benefit before heading home for the August recess.

The final bill was one of the worst the Senate considered — a plan that would have threatened health care and even Medicare’s very existence.

The Senate rejected four major Medicare prescription drug bills during nearly two-weeks of debate, primarily because members were unable to resolve the deep divide between the two parties over who should control the benefit – the government or the private sector.

These ideological differences have enormous consequences for whether seniors will be able to have access to the drugs they need and even whether Medicare will be there for the next generation of seniors.

The final proposal, sponsored by Sens. Bob Graham of Florida, a Democrat, and Gordon Smith of Oregon, a Republican, offered a comprehensive government-run prescription drug benefit for people with incomes under 200% of poverty ($17,720 a year for an individual and $23,880 for a couple).

The benefit would be run just like the rest of Medicare – with minimal co-payments for seniors but a mountain of regulation. In addition, the government would pay prescription costs above $3,300 a year for all beneficiaries, regardless of income.

This plan would inevitably have become a one-size-fits-all program as costs spiraled out of control, leading to price controls and restrictions on seniors’ access to the newest drugs.

Medicare already requires increasing amounts of taxpayer money to meet its obligations. Adding this $400 billion new entitlement without any reforms would put even more strain on a program that millions of baby boomers are counting on when they retire. Worse, it would accelerate its pace toward bankruptcy.

But this Senate bill was only a beginning. Sen. Ted Kennedy of Massachusetts said the Graham-Smith compromise was “an important down payment on the kind of program senior citizens need and deserve.”

Unfortunately for seniors, an earlier version of Sen. Graham’s bill signaled what kind of a program that down payment would buy.

He would have limited the number of drugs available to two per “therapeutic class.” That means the government would have picked two preferred drugs for ulcers, two for arthritis, two for hypertension, and so forth. Other drugs that millions of seniors want and need would not have been on the list.

Pharmaceutical companies would be reluctant to gamble the $800 million it costs them to develop a new drug for fear they wouldn’t get on the government’s list. This would shut down the pipeline for new drugs to cure cancer, diabetes, Alzheimer’s, and other killer diseases.

Most observers believe that the prescription drug issue is dead for this session of Congress. But if senators facing reelection this fall get enough heat when they are home for the August recess, they may pressure Majority Leader Tom Daschle to revive the issue.

If they start the debate again, they would be well advised to consider a plan that would build on what they learned during the debate.

For example, Democrats agreed, for the first time, that Medicare could target more help to lower-income seniors rather than giving something to everyone.

They could try a fresh new approach that provides assistance for lower-income seniors and good catastrophic coverage – that Democrats want – in a privately-managed benefit – which Republicans believe is essential.

One such idea is called the Prescription Drug Security (PDS) plan. It provides a cash subsidy to low- and moderate-income seniors to assist them in purchasing routine medications and provides insurance coverage for large drug expenses.

The benefit would be managed through private, competing prescription drug plans. All Medicare beneficiaries are eligible to participate and take advantage of competitively negotiated discounts on their prescription purchases as well as protection from catastrophic drug costs.

The PDS program could lay the foundation for reforms needed to insure the long-term viability of Medicare. It harnesses the competitive buying power of the free market and engages consumers (and their physicians) in making wise decisions about their drug spending and their health care.

The bottom line cost of the PDS plan is $302 billion over 10 years – less than most of the bills being considered by Congress.

The PDS plan provides an opportunity for Congress to create a benefit that combines generous subsidies for low- to moderate-income seniors with a program that provides discounts and private catastrophic coverage for all seniors in a competitive marketplace.

Whenever members come back to the bargaining table, this is an idea that could break the logjam.

Grace-Marie Turner is president of the Galen Institute in Alexandria, VA. Joseph R. Antos, Ph.D., is a resident scholar at the American Enterprise Institute in Washington, D.C.

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The country dodged a bullet when the Senate rejected the last compromise bill for a Medicare prescription drug benefit before heading home for the August recess.

The final bill was one of the worst the Senate considered — a plan that would have threatened health care and even Medicare’s very existence.

The Senate rejected four major Medicare prescription drug bills during nearly two-weeks of debate, primarily because members were unable to resolve the deep divide between the two parties over who should control the benefit – the government or the private sector.

These ideological differences have enormous consequences for whether seniors will be able to have access to the drugs they need and even whether Medicare will be there for the next generation of seniors.

The final proposal, sponsored by Sens. Bob Graham of Florida, a Democrat, and Gordon Smith of Oregon, a Republican, offered a comprehensive government-run prescription drug benefit for people with incomes under 200% of poverty ($17,720 a year for an individual and $23,880 for a couple).

The benefit would be run just like the rest of Medicare – with minimal co-payments for seniors but a mountain of regulation. In addition, the government would pay prescription costs above $3,300 a year for all beneficiaries, regardless of income.

This plan would inevitably have become a one-size-fits-all program as costs spiraled out of control, leading to price controls and restrictions on seniors’ access to the newest drugs.

Medicare already requires increasing amounts of taxpayer money to meet its obligations. Adding this $400 billion new entitlement without any reforms would put even more strain on a program that millions of baby boomers are counting on when they retire. Worse, it would accelerate its pace toward bankruptcy.

But this Senate bill was only a beginning. Sen. Ted Kennedy of Massachusetts said the Graham-Smith compromise was “an important down payment on the kind of program senior citizens need and deserve.”

Unfortunately for seniors, an earlier version of Sen. Graham’s bill signaled what kind of a program that down payment would buy.

He would have limited the number of drugs available to two per “therapeutic class.” That means the government would have picked two preferred drugs for ulcers, two for arthritis, two for hypertension, and so forth. Other drugs that millions of seniors want and need would not have been on the list.

Pharmaceutical companies would be reluctant to gamble the $800 million it costs them to develop a new drug for fear they wouldn’t get on the government’s list. This would shut down the pipeline for new drugs to cure cancer, diabetes, Alzheimer’s, and other killer diseases.

Most observers believe that the prescription drug issue is dead for this session of Congress. But if senators facing reelection this fall get enough heat when they are home for the August recess, they may pressure Majority Leader Tom Daschle to revive the issue.

If they start the debate again, they would be well advised to consider a plan that would build on what they learned during the debate.

For example, Democrats agreed, for the first time, that Medicare could target more help to lower-income seniors rather than giving something to everyone.

They could try a fresh new approach that provides assistance for lower-income seniors and good catastrophic coverage – that Democrats want – in a privately-managed benefit – which Republicans believe is essential.

One such idea is called the Prescription Drug Security (PDS) plan. It provides a cash subsidy to low- and moderate-income seniors to assist them in purchasing routine medications and provides insurance coverage for large drug expenses.

The benefit would be managed through private, competing prescription drug plans. All Medicare beneficiaries are eligible to participate and take advantage of competitively negotiated discounts on their prescription purchases as well as protection from catastrophic drug costs.

The PDS program could lay the foundation for reforms needed to insure the long-term viability of Medicare. It harnesses the competitive buying power of the free market and engages consumers (and their physicians) in making wise decisions about their drug spending and their health care.

The bottom line cost of the PDS plan is $302 billion over 10 years – less than most of the bills being considered by Congress.

The PDS plan provides an opportunity for Congress to create a benefit that combines generous subsidies for low- to moderate-income seniors with a program that provides discounts and private catastrophic coverage for all seniors in a competitive marketplace.

Whenever members come back to the bargaining table, this is an idea that could break the logjam.

Grace-Marie Turner is president of the Galen Institute in Alexandria, VA. Joseph R. Antos, Ph.D., is a resident scholar at the American Enterprise Institute in Washington, D.C.

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