NCPA Holds Briefing on Medicare Modernization

The National Center for Policy Analysis held a Capitol Hill briefing this morning on modernizing Medicare to include prescription drugs. Speakers included Tom Scully, administrator of the Center for Medicare and Medicaid Services, John McManus of the House Ways and Means Committee, Jeff Lemieux of the Progressive Policy Institute, and John Goodman of NCPA. Discussion centered on where the Medicare debate currently stands and what might happen in the coming days and months ahead.

Tom Scully explained the background of the formulation of President Bush?s Medicare framework. He said it is very important to the president that seniors have the option of remaining in traditional fee-for-service Medicare, with some level of prescription drug coverage, if they so choose. ?In the president?s framework, fee-for-service Medicare would be kept forever,? said Scully.

Scully said the Enhanced Medicare option of competing PPOs was modeled after what works best in the private sector to deliver prescription drug coverage. Seventy-one percent of the under 65 insured population has PPO coverage, which usually includes prescription drug coverage through a pharmacy benefit manager (PBM). Scully said that having prescription drug coverage integrated into the overall health plan would ensure that insurers bear the financial risk, not the government. He maintained that insurers should bear the full financial risk because it would give more of an incentive for insurers to negotiate better discounts with pharmaceutical companies than if the government bore a part or all of the risk. Scully said he would support a stand-along drug benefit only as a last resort and was skeptical of the willingness of the private sector to bear the financial risk in such a program. ?A stand-alone benefit that just insured drugs with the risk borne by the private sector does not exist anywhere,? said Scully.

But John McManus left the door open to the possibility of a stand-alone prescription drug benefit being the product of congressional action in the House, and the possibility of the financial risk of drug coverage being shared by the government and the private sector. In response to a question as to whether an integrated drug benefit would ultimately be the bill that passes the House, McManus said, ?We?re looking at the president?s framework seriously.? McManus also said that CMS? own actuaries have said that having the government and private sector sharing risk could work, and that last year?s House Medicare bill that had such a mechanism was estimated by the CMS actuaries to cover 95-100% of seniors.

According to McManus, Ways and Means Chairman Bill Thomas wants to get a Medicare prescription drug benefit done as soon as possible. McManus stressed that the key to success will be balancing the need for prescription drugs for seniors, protecting taxpayers, and correcting provider payments.

John Goodman said that just adding prescription drugs to the current program would compound the financial problems in the future. He said the $400 billion laid out in the congressional budget resolution is too much to spend on Medicare and prescription drugs. Instead, Goodman proposed simply combining seniors? expenditures on Medicare and Medigap coverage into one program that would provide the advantages of private health plans. This would cost less than $400 billion, according to Goodman.

Jeff Lemieux said that a stand-alone prescription drug benefit like the one passed last year by the House would not work. He argued that the net benefit received by seniors relative to the premium they pay would not be good, and that only those with really high prescription drug expenses would come out ahead. Instead, Lemieux argued for broader reforms to the Medicare program, along the lines of the FEHBP-style reforms in the president?s framework. But Lemieux also warned that moderate Democrats would not go along with giving more generous drug benefits to certain segments of the population. ?A level financial playing field is the way to go,? said Lemieux.

The plan developed by Lemieux and others at PPI, and introduced by Rep. Cal Dooley (D-CA) in the House, would attempt to level the playing field by basing the catastrophic trigger on total drug spending, not out-of-pocket drug expenditures; charging no premium; and targeting added assistance to the low-income. McManus countered that this plan would lead to significant cost-shifting from the private to public sector and does not provide true catastrophic coverage because of the large cost-sharing above the catastrophic level.

–Joe Moser
Galen Institute

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The National Center for Policy Analysis held a Capitol Hill briefing this morning on modernizing Medicare to include prescription drugs. Speakers included Tom Scully, administrator of the Center for Medicare and Medicaid Services, John McManus of the House Ways and Means Committee, Jeff Lemieux of the Progressive Policy Institute, and John Goodman of NCPA. Discussion centered on where the Medicare debate currently stands and what might happen in the coming days and months ahead.

Tom Scully explained the background of the formulation of President Bush?s Medicare framework. He said it is very important to the president that seniors have the option of remaining in traditional fee-for-service Medicare, with some level of prescription drug coverage, if they so choose. ?In the president?s framework, fee-for-service Medicare would be kept forever,? said Scully.

Scully said the Enhanced Medicare option of competing PPOs was modeled after what works best in the private sector to deliver prescription drug coverage. Seventy-one percent of the under 65 insured population has PPO coverage, which usually includes prescription drug coverage through a pharmacy benefit manager (PBM). Scully said that having prescription drug coverage integrated into the overall health plan would ensure that insurers bear the financial risk, not the government. He maintained that insurers should bear the full financial risk because it would give more of an incentive for insurers to negotiate better discounts with pharmaceutical companies than if the government bore a part or all of the risk. Scully said he would support a stand-along drug benefit only as a last resort and was skeptical of the willingness of the private sector to bear the financial risk in such a program. ?A stand-alone benefit that just insured drugs with the risk borne by the private sector does not exist anywhere,? said Scully.

But John McManus left the door open to the possibility of a stand-alone prescription drug benefit being the product of congressional action in the House, and the possibility of the financial risk of drug coverage being shared by the government and the private sector. In response to a question as to whether an integrated drug benefit would ultimately be the bill that passes the House, McManus said, ?We?re looking at the president?s framework seriously.? McManus also said that CMS? own actuaries have said that having the government and private sector sharing risk could work, and that last year?s House Medicare bill that had such a mechanism was estimated by the CMS actuaries to cover 95-100% of seniors.

According to McManus, Ways and Means Chairman Bill Thomas wants to get a Medicare prescription drug benefit done as soon as possible. McManus stressed that the key to success will be balancing the need for prescription drugs for seniors, protecting taxpayers, and correcting provider payments.

John Goodman said that just adding prescription drugs to the current program would compound the financial problems in the future. He said the $400 billion laid out in the congressional budget resolution is too much to spend on Medicare and prescription drugs. Instead, Goodman proposed simply combining seniors? expenditures on Medicare and Medigap coverage into one program that would provide the advantages of private health plans. This would cost less than $400 billion, according to Goodman.

Jeff Lemieux said that a stand-alone prescription drug benefit like the one passed last year by the House would not work. He argued that the net benefit received by seniors relative to the premium they pay would not be good, and that only those with really high prescription drug expenses would come out ahead. Instead, Lemieux argued for broader reforms to the Medicare program, along the lines of the FEHBP-style reforms in the president?s framework. But Lemieux also warned that moderate Democrats would not go along with giving more generous drug benefits to certain segments of the population. ?A level financial playing field is the way to go,? said Lemieux.

The plan developed by Lemieux and others at PPI, and introduced by Rep. Cal Dooley (D-CA) in the House, would attempt to level the playing field by basing the catastrophic trigger on total drug spending, not out-of-pocket drug expenditures; charging no premium; and targeting added assistance to the low-income. McManus countered that this plan would lead to significant cost-shifting from the private to public sector and does not provide true catastrophic coverage because of the large cost-sharing above the catastrophic level.

–Joe Moser
Galen Institute

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About the author