House Ways and Means Committee Holds Hearing on Medicare Reform

The House of Representatives Committee on Ways and Means held a hearing today on reforming Medicare and adding prescription drug coverage. Republican members of the committee largely voiced their support for adding drug coverage in the context of overall Medicare reform. Most Democratic committee members talked about adding prescription drug coverage to the traditional program, which they said would be better equipped to handle a drug benefit than private plans.

Chairman Bill Thomas (R-CA) said, ?To simply take current Medicare and add prescription drugs is not a solution. We shouldn?t squander this opportunity to deliver prescription drugs for seniors while modernizing the program.? But Rep. Pete Stark (D-CA) asked, ?Will the allure of a prescription drug benefit be used as the tool to achieve a fundamental restructuring?I would call it dismantling?of the Medicare program?? Chairman Thomas said that the plan that eventually passes the House will be a Medicare plan and will be within the Medicare program. ?It is not privatization, it is a Medicare plan,? said Thomas.

Doug Holtz-Eakin, director of the Congressional Budget Office, testified that a large government subsidy for prescription drugs under Medicare would lead to fewer incentives for consumers to make wise spending decisions and to control utilization, which would ultimately lead to higher Medicare costs and higher prescription drug prices.

David Walker, comptroller general of the United States, said beneficiary cost-sharing is one way to control utilization and that there would be room for substantial cost-sharing while still providing access to needed prescription drugs and protection against financial ruin. But Rep. Jim McDermott (D-WA) asked if Walker was suggesting seniors should pay more than the 52% of their health care that they currently pay. Walker pointed out that while Medicare may pay for only 48% of seniors? health costs, the other 52% is covered by many sources, including employer wrap-around coverage, Medicaid, Medigap, and out-of-pocket payments.

Professor Mark Pauly of the University of Pennsylvania also testified that cost-sharing is important to utilization. He said lowering copayments for prescription drugs from $10 to $2 increases utilization by 65% in the non-elderly population, and that this would probably also be true for the elderly population.

Rep. Nancy Johnson (R-CT) said there is a way to control costs in Medicare while improving quality by using better disease management techniques for those with chronic illnesses. She said the 32% of seniors that have chronic illnesses use 78% of Medicare?s resources and that better care management for this population would save money and improve quality. She also discussed the cost savings that would occur in Medicare if prescription drugs were covered because of decreased health spending in other areas, such as hospitalizations. But Holtz-Eakin said this assumption cannot be made because there is not sufficient evidence that prescription drug spending saves money overall. [Clearly, some education is required here.]

Several people, including Rep. Stark and witness Uwe Reinhardt of Princeton University, brought up the recent study by Marilyn Moon of the Urban Institute that showed Medicare controlled enrollee spending growth over time better than private insurance. They argued that this shows reforming Medicare using private health plans would not save money over time. But Holtz-Eakin pointed out that the benefits in private plans are so much different from Medicare that a fair comparison cannot be made. ?It?s like comparing apples to oranges,? said Holtz-Eakin.

–Joe Moser
Galen Institute

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The House of Representatives Committee on Ways and Means held a hearing today on reforming Medicare and adding prescription drug coverage. Republican members of the committee largely voiced their support for adding drug coverage in the context of overall Medicare reform. Most Democratic committee members talked about adding prescription drug coverage to the traditional program, which they said would be better equipped to handle a drug benefit than private plans.

Chairman Bill Thomas (R-CA) said, ?To simply take current Medicare and add prescription drugs is not a solution. We shouldn?t squander this opportunity to deliver prescription drugs for seniors while modernizing the program.? But Rep. Pete Stark (D-CA) asked, ?Will the allure of a prescription drug benefit be used as the tool to achieve a fundamental restructuring?I would call it dismantling?of the Medicare program?? Chairman Thomas said that the plan that eventually passes the House will be a Medicare plan and will be within the Medicare program. ?It is not privatization, it is a Medicare plan,? said Thomas.

Doug Holtz-Eakin, director of the Congressional Budget Office, testified that a large government subsidy for prescription drugs under Medicare would lead to fewer incentives for consumers to make wise spending decisions and to control utilization, which would ultimately lead to higher Medicare costs and higher prescription drug prices.

David Walker, comptroller general of the United States, said beneficiary cost-sharing is one way to control utilization and that there would be room for substantial cost-sharing while still providing access to needed prescription drugs and protection against financial ruin. But Rep. Jim McDermott (D-WA) asked if Walker was suggesting seniors should pay more than the 52% of their health care that they currently pay. Walker pointed out that while Medicare may pay for only 48% of seniors? health costs, the other 52% is covered by many sources, including employer wrap-around coverage, Medicaid, Medigap, and out-of-pocket payments.

Professor Mark Pauly of the University of Pennsylvania also testified that cost-sharing is important to utilization. He said lowering copayments for prescription drugs from $10 to $2 increases utilization by 65% in the non-elderly population, and that this would probably also be true for the elderly population.

Rep. Nancy Johnson (R-CT) said there is a way to control costs in Medicare while improving quality by using better disease management techniques for those with chronic illnesses. She said the 32% of seniors that have chronic illnesses use 78% of Medicare?s resources and that better care management for this population would save money and improve quality. She also discussed the cost savings that would occur in Medicare if prescription drugs were covered because of decreased health spending in other areas, such as hospitalizations. But Holtz-Eakin said this assumption cannot be made because there is not sufficient evidence that prescription drug spending saves money overall. [Clearly, some education is required here.]

Several people, including Rep. Stark and witness Uwe Reinhardt of Princeton University, brought up the recent study by Marilyn Moon of the Urban Institute that showed Medicare controlled enrollee spending growth over time better than private insurance. They argued that this shows reforming Medicare using private health plans would not save money over time. But Holtz-Eakin pointed out that the benefits in private plans are so much different from Medicare that a fair comparison cannot be made. ?It?s like comparing apples to oranges,? said Holtz-Eakin.

–Joe Moser
Galen Institute

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About the author