A Dozen Plusses and Minuses of the Medicare Conference Agreement

The Medicare compromise agreement contains huge spending decisions that include serious flaws as well as important new initiatives. Here are some key plusses and minuses:


+ On the plus side is the temporary subsidy on the drug discount card that gives lower-income seniors up to $600 on their cards in 2004 and 2005. This is a defined contribution that gives seniors an incentive to get the best value for the dollar and sets down a good marker for future programs.


+ Prescription drug discount cards will be available to all Medicare beneficiaries starting in 2004, giving seniors access to privately negotiated drug discounts that the Department of Health and Human Services estimates will provide savings of between 15% and 25% on prescription drugs.


+ Health Savings Accounts are an important plus, creating a new option for working Americans to purchase health insurance, to control spending decisions, and to begin saving for their future health care needs.


– The legislation creates a new drug benefit that will be offered to all Medicare beneficiaries, a benefit that already is being criticized as inadequate. The shape of the drug benefit will become an instant political issue. Congress could have created a more generous benefit at the beginning by targeting the money available primarily to lower-income seniors without coverage. This would automatically have reduced the likelihood that it would displace the private coverage that many seniors now have. But politics dictated providing something for everyone, and a doughnut hole in the benefit is the result. The question still remains how seniors will react to this oddly-shaped drug plan.


While the conference agreement does contain more subsidies for lower-income seniors, the benefit could have had been better structured to incorporate incentives for seniors to spend wisely on their drug purchases.


– There is a big question about whether enough free-standing private drug plans will come forward to offer the outpatient prescription drug benefit. Prescription drug expenditures are more predictable than most other health costs, and seniors will make their own calculations about whether or not they think that the drug benefit will be worth the price of the premium. Insurance companies may be fearful of getting into the market to offer the benefit because of concerns about adverse selection. If too few of them participate, government “fallback” plans will trigger. That will lead to government-set prices, as in the rest of Medicare. The fallback plan would morph into a government-run drug benefit, complete with price controls and government-devised formularies. This is a serious concern.


– The agreement falls short of overall reform to the Medicare program. The original goal of the leadership was to turn Medicare into a modern program with proper incentives for market competition and consumer choice. A great deal of time was spent hammering out details of the legislation. Clearly, more time needed to be spent convincing the American people about the essential need to transform this program to be more in tune with modern health care. Now, the modernization package has been reduced to six demonstration projects to start in 2010. Careful planning will be required to avoid the MSA experience that showed how difficult it is to make a limited, restricted demo into a true test of genuine market competition. Many who fought hard for reform of the program would have liked to see more, but it is clear that demonstration projects are all that negotiators could win and still have a bill.


+ One plus is the new set of incentives for private PPOs and HMOs to participate in the new-and-improved version of Medicare+Choice, called Medicare Advantage. These Medicare Advantage plans now may enter and re-enter markets where they have been driven out by excessive regulations and low payments rates. This would provide more options for seniors in the near term to select from among competing health plans that are offering full health services with an integrated prescription drug benefit. There will also be new incentives for plans that bid below the benchmark to provide rebates or additional savings to seniors. The key to success will be stable payment rates and a lighter hand with government regulation.


+ A plus is that the agreement would allow integrated health plans to count as one of the two Prescription Drug Plans offered in a region to avoid triggering the government fallback.


– Negotiators failed to undo the restrictions on private contracting and balance billing. The agreement calls for income-relating the Part B premiums, forcing seniors with incomes of more than $80,000 a year to pay a larger share of their premiums than the current 25% maximum. It would have been wise to get something back for this, and a good choice would have been a trade-off that gives seniors freedom to purchase the services they want without Medicare restrictions.


+ The bill does begin the process of increasing the Part B deductible above today?s unrealistically low $100 deductible.


+ The grown-ups appear to have prevailed in the discussions over drug importation, allowing imports from Canada only with the certification that the imports would be safe.


– Few can deny that we are mortgaging the future of our children to pass this bill to meet today’s political imperative, putting trillions of dollars in unfunded liabilities on the backs of future generations.


The bill offers much less than market-friendly analysts had hoped. But it is the best deal the leadership is going to be able to put together in this Congress. The negatives are expensive and serious, but there are positives that can begin to transition the program and the health sector into a system that puts doctors and patients back at the center.



Based upon the Summary of Medicare Conference Agreement released Sunday, November 16, 2003.

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The Medicare compromise agreement contains huge spending decisions that include serious flaws as well as important new initiatives. Here are some key plusses and minuses:


+ On the plus side is the temporary subsidy on the drug discount card that gives lower-income seniors up to $600 on their cards in 2004 and 2005. This is a defined contribution that gives seniors an incentive to get the best value for the dollar and sets down a good marker for future programs.


+ Prescription drug discount cards will be available to all Medicare beneficiaries starting in 2004, giving seniors access to privately negotiated drug discounts that the Department of Health and Human Services estimates will provide savings of between 15% and 25% on prescription drugs.


+ Health Savings Accounts are an important plus, creating a new option for working Americans to purchase health insurance, to control spending decisions, and to begin saving for their future health care needs.


– The legislation creates a new drug benefit that will be offered to all Medicare beneficiaries, a benefit that already is being criticized as inadequate. The shape of the drug benefit will become an instant political issue. Congress could have created a more generous benefit at the beginning by targeting the money available primarily to lower-income seniors without coverage. This would automatically have reduced the likelihood that it would displace the private coverage that many seniors now have. But politics dictated providing something for everyone, and a doughnut hole in the benefit is the result. The question still remains how seniors will react to this oddly-shaped drug plan.


While the conference agreement does contain more subsidies for lower-income seniors, the benefit could have had been better structured to incorporate incentives for seniors to spend wisely on their drug purchases.


– There is a big question about whether enough free-standing private drug plans will come forward to offer the outpatient prescription drug benefit. Prescription drug expenditures are more predictable than most other health costs, and seniors will make their own calculations about whether or not they think that the drug benefit will be worth the price of the premium. Insurance companies may be fearful of getting into the market to offer the benefit because of concerns about adverse selection. If too few of them participate, government “fallback” plans will trigger. That will lead to government-set prices, as in the rest of Medicare. The fallback plan would morph into a government-run drug benefit, complete with price controls and government-devised formularies. This is a serious concern.


– The agreement falls short of overall reform to the Medicare program. The original goal of the leadership was to turn Medicare into a modern program with proper incentives for market competition and consumer choice. A great deal of time was spent hammering out details of the legislation. Clearly, more time needed to be spent convincing the American people about the essential need to transform this program to be more in tune with modern health care. Now, the modernization package has been reduced to six demonstration projects to start in 2010. Careful planning will be required to avoid the MSA experience that showed how difficult it is to make a limited, restricted demo into a true test of genuine market competition. Many who fought hard for reform of the program would have liked to see more, but it is clear that demonstration projects are all that negotiators could win and still have a bill.


+ One plus is the new set of incentives for private PPOs and HMOs to participate in the new-and-improved version of Medicare+Choice, called Medicare Advantage. These Medicare Advantage plans now may enter and re-enter markets where they have been driven out by excessive regulations and low payments rates. This would provide more options for seniors in the near term to select from among competing health plans that are offering full health services with an integrated prescription drug benefit. There will also be new incentives for plans that bid below the benchmark to provide rebates or additional savings to seniors. The key to success will be stable payment rates and a lighter hand with government regulation.


+ A plus is that the agreement would allow integrated health plans to count as one of the two Prescription Drug Plans offered in a region to avoid triggering the government fallback.


– Negotiators failed to undo the restrictions on private contracting and balance billing. The agreement calls for income-relating the Part B premiums, forcing seniors with incomes of more than $80,000 a year to pay a larger share of their premiums than the current 25% maximum. It would have been wise to get something back for this, and a good choice would have been a trade-off that gives seniors freedom to purchase the services they want without Medicare restrictions.


+ The bill does begin the process of increasing the Part B deductible above today?s unrealistically low $100 deductible.


+ The grown-ups appear to have prevailed in the discussions over drug importation, allowing imports from Canada only with the certification that the imports would be safe.


– Few can deny that we are mortgaging the future of our children to pass this bill to meet today’s political imperative, putting trillions of dollars in unfunded liabilities on the backs of future generations.


The bill offers much less than market-friendly analysts had hoped. But it is the best deal the leadership is going to be able to put together in this Congress. The negatives are expensive and serious, but there are positives that can begin to transition the program and the health sector into a system that puts doctors and patients back at the center.



Based upon the Summary of Medicare Conference Agreement released Sunday, November 16, 2003.

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About the author