Seniors Will Demand Supplemental Coverage

The Heritage Foundation held a briefing today in the Rayburn House Office Building to discuss the policy flaws in the Medicare bills. The speakers were Ed Haislmaier, visiting research fellow at Heritage, and Walt Francis, an independent economist and policy analyst. Bob Moffit, director of the Center for Health Policy Studies at The Heritage Foundation moderated.

Ed Haislmaier said the design of the stand-alone prescription drug benefit in the House and Senate bills will pose political problems for Members of Congress when seniors see they cannot purchase coverage to fill in gaps. ?Seniors will have no way to buy coverage to close the doughnut hole, no way to plug the holes with supplemental coverage,? said Haislmaier. ?Seniors will want to do this.? He likened the process of trying to create an insurance program for those who are sick while also providing something for everyone to trying to ?square a circle.? ?The doughnut hole is totally a creation of trying to square the circle,? said Haislmaier. He said he believes few plans will provide the stand-alone drug coverage.

Concerning potential employer reactions to a new Medicare drug benefit along the lines of the House and Senate bills, Haislmaier said three scenarios are possible. Employers would either 1) maintain the status quo and most likely eventually drop drug coverage altogether, 2) scale back their plan?s benefits to the new Medicare standard plan design, or 3) drop current coverage and replace it with wrap-around coverage that pays the initial deductible and cost-sharing for their retirees. Of these scenarios, Haislmaier believes the third is most likely. The problem is that since private insurance payments (including employer wrap-around benefits) do not count toward the retiree?s out-of-pocket spending requirement in either the House or Senate bills, a senior with high drug costs would still have to pay the respective out-of-pocket requirements ($3,500 in the House bill and $3,700 in the Senate bill) before Medicare catastrophic coverage would kick in. This has the effect of increasing the burden on those retirees with higher drug costs.

Walt Francis supported allowing seniors to stay in the private health plans they had before age 65. ?When you turn 65, nothing changes,? said Francis. Under his proposal, traditional Medicare with a real prescription drug benefit would still be an option for those seniors who wanted to switch or for those without access to private plans. ?Its so radical and simple,? said Francis. He stressed that it is important not to put the Medicare regulations on the private plans. Francis cited the ability to continuously improve and update benefits, find the desired level of cost-sharing, and disease management programs as areas where private plans function better than Medicare.

Francis also made the case that the limit of three competing plans in each region in the House and Senate bills do not encourage stability in the program. ?A plan can come along and undercut another plan by a buck and all the enrollees would have to switch to another plan,? said Francis. He also said the arbitrary regions that the House and Senate bills create will hurt rural areas because some people will not have access to certain plans that their similarly-situated neighbors will have. Francis encouraged a less rigid geographic design.

–Joe Moser
Galen Institute

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The Heritage Foundation held a briefing today in the Rayburn House Office Building to discuss the policy flaws in the Medicare bills. The speakers were Ed Haislmaier, visiting research fellow at Heritage, and Walt Francis, an independent economist and policy analyst. Bob Moffit, director of the Center for Health Policy Studies at The Heritage Foundation moderated.

Ed Haislmaier said the design of the stand-alone prescription drug benefit in the House and Senate bills will pose political problems for Members of Congress when seniors see they cannot purchase coverage to fill in gaps. ?Seniors will have no way to buy coverage to close the doughnut hole, no way to plug the holes with supplemental coverage,? said Haislmaier. ?Seniors will want to do this.? He likened the process of trying to create an insurance program for those who are sick while also providing something for everyone to trying to ?square a circle.? ?The doughnut hole is totally a creation of trying to square the circle,? said Haislmaier. He said he believes few plans will provide the stand-alone drug coverage.

Concerning potential employer reactions to a new Medicare drug benefit along the lines of the House and Senate bills, Haislmaier said three scenarios are possible. Employers would either 1) maintain the status quo and most likely eventually drop drug coverage altogether, 2) scale back their plan?s benefits to the new Medicare standard plan design, or 3) drop current coverage and replace it with wrap-around coverage that pays the initial deductible and cost-sharing for their retirees. Of these scenarios, Haislmaier believes the third is most likely. The problem is that since private insurance payments (including employer wrap-around benefits) do not count toward the retiree?s out-of-pocket spending requirement in either the House or Senate bills, a senior with high drug costs would still have to pay the respective out-of-pocket requirements ($3,500 in the House bill and $3,700 in the Senate bill) before Medicare catastrophic coverage would kick in. This has the effect of increasing the burden on those retirees with higher drug costs.

Walt Francis supported allowing seniors to stay in the private health plans they had before age 65. ?When you turn 65, nothing changes,? said Francis. Under his proposal, traditional Medicare with a real prescription drug benefit would still be an option for those seniors who wanted to switch or for those without access to private plans. ?Its so radical and simple,? said Francis. He stressed that it is important not to put the Medicare regulations on the private plans. Francis cited the ability to continuously improve and update benefits, find the desired level of cost-sharing, and disease management programs as areas where private plans function better than Medicare.

Francis also made the case that the limit of three competing plans in each region in the House and Senate bills do not encourage stability in the program. ?A plan can come along and undercut another plan by a buck and all the enrollees would have to switch to another plan,? said Francis. He also said the arbitrary regions that the House and Senate bills create will hurt rural areas because some people will not have access to certain plans that their similarly-situated neighbors will have. Francis encouraged a less rigid geographic design.

–Joe Moser
Galen Institute

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About the author