Urban Institute Panelists Discuss Medicare Proposal

The Urban Institute held a “First Tuesday” event yesterday entitled “Prescribing the Best Medicare Drug Prices.” The event happened to coincide with President Bush’s speech about his Medicare proposal, thus a large portion of the discussion centered on the details of the plan.

Leslie Norwalk of the Centers for Medicare and Medicaid Services (CMS) outlined the administration’s Medicare proposal. Norwalk said the proposal is a framework for Medicare reform and that the details would be left up to Congress. The framework gives seniors three options for Medicare coverage. Seniors can choose traditional Medicare, an “Enhanced Medicare” with choices of private health plans along the lines of the Federal Employees Health Benefits Program, or “Medicare Advantage,” which would be a new version of Medicare + Choice. Seniors would be offered prescription drug coverage regardless of which Medicare program they chose.

Norwalk said the new “Enhanced Medicare” option looks a lot like PPO coverage, and she was optimistic about the ability of future Medicare beneficiaries to be able to use and understand this coverage. “Future beneficiaries are accustomed to PPOs and can use them when they get to that point,” said Norwalk.

Marilyn Moon of the Urban Institute responded by asking, “Why would we want to put those in traditional Medicare in jeopardy by only offering updated Medicare to some?” According to Moon, the administration’s proposal would deny sicker and more vulnerable seniors needed protections because these are the people likely to remain in traditional Medicare. Moon also said the $400 billion the administration is putting on the table for the Medicare proposal is not enough. According to Moon, the catastrophic drug coverage alone would consume over half of the $400 billion. “Once you take out the catastrophic coverage and the amount for $600 subsidies for the low-income, there’s not much left for enhanced Medicare,” said Moon. But Norwalk argued that, “Four-hundred billion dollars over ten years is serious money.”

In response to a question about the cost-saving capability of the proposal, Moon said, “There is no evidence to suggest we should feel positive about the ability of private plans to hold down Medicare costs, at least in the short run.” Moon said that the rate of growth in Medicare has been lower than in the private sector. Norwalk replied that it is easy to hold down Medicare costs in a price-controlled system. However, our colleague Joe Antos of the American Enterprise Institute says a better response to Moon’s assertion is that Medicare is nothing like real insurance and that Medicare’s payment system results in restricted access to providers and new technologies and has a benefit structure that doesn’t meet the current needs of seniors.

Raulo Frear of Express Scripts, Inc., a pharmacy benefit manager (PBM), discussed the role PBMs might play in Medicare prescription drug coverage. He outlined the tools PBMs use to contain costs including formularies, tiered networks, negotiated discounts with pharmaceutical companies, electronic records, and pharmacy networks. Frear concluded, “The private sector is best positioned to offer the drug benefit.”

Mark Gibson of the Milbank Memorial Fund and formerly an Oregon policy advisor discussed the experience Oregon had with setting up a preferred drug list using studies of the efficacy of different drugs within the same therapeutic class. He said the Oregon cost-containment measure was successful because the studies were painstakingly open and conducted independently of price information.

–Joe Moser
Galen Institute

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The Urban Institute held a “First Tuesday” event yesterday entitled “Prescribing the Best Medicare Drug Prices.” The event happened to coincide with President Bush’s speech about his Medicare proposal, thus a large portion of the discussion centered on the details of the plan.

Leslie Norwalk of the Centers for Medicare and Medicaid Services (CMS) outlined the administration’s Medicare proposal. Norwalk said the proposal is a framework for Medicare reform and that the details would be left up to Congress. The framework gives seniors three options for Medicare coverage. Seniors can choose traditional Medicare, an “Enhanced Medicare” with choices of private health plans along the lines of the Federal Employees Health Benefits Program, or “Medicare Advantage,” which would be a new version of Medicare + Choice. Seniors would be offered prescription drug coverage regardless of which Medicare program they chose.

Norwalk said the new “Enhanced Medicare” option looks a lot like PPO coverage, and she was optimistic about the ability of future Medicare beneficiaries to be able to use and understand this coverage. “Future beneficiaries are accustomed to PPOs and can use them when they get to that point,” said Norwalk.

Marilyn Moon of the Urban Institute responded by asking, “Why would we want to put those in traditional Medicare in jeopardy by only offering updated Medicare to some?” According to Moon, the administration’s proposal would deny sicker and more vulnerable seniors needed protections because these are the people likely to remain in traditional Medicare. Moon also said the $400 billion the administration is putting on the table for the Medicare proposal is not enough. According to Moon, the catastrophic drug coverage alone would consume over half of the $400 billion. “Once you take out the catastrophic coverage and the amount for $600 subsidies for the low-income, there’s not much left for enhanced Medicare,” said Moon. But Norwalk argued that, “Four-hundred billion dollars over ten years is serious money.”

In response to a question about the cost-saving capability of the proposal, Moon said, “There is no evidence to suggest we should feel positive about the ability of private plans to hold down Medicare costs, at least in the short run.” Moon said that the rate of growth in Medicare has been lower than in the private sector. Norwalk replied that it is easy to hold down Medicare costs in a price-controlled system. However, our colleague Joe Antos of the American Enterprise Institute says a better response to Moon’s assertion is that Medicare is nothing like real insurance and that Medicare’s payment system results in restricted access to providers and new technologies and has a benefit structure that doesn’t meet the current needs of seniors.

Raulo Frear of Express Scripts, Inc., a pharmacy benefit manager (PBM), discussed the role PBMs might play in Medicare prescription drug coverage. He outlined the tools PBMs use to contain costs including formularies, tiered networks, negotiated discounts with pharmaceutical companies, electronic records, and pharmacy networks. Frear concluded, “The private sector is best positioned to offer the drug benefit.”

Mark Gibson of the Milbank Memorial Fund and formerly an Oregon policy advisor discussed the experience Oregon had with setting up a preferred drug list using studies of the efficacy of different drugs within the same therapeutic class. He said the Oregon cost-containment measure was successful because the studies were painstakingly open and conducted independently of price information.

–Joe Moser
Galen Institute

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About the author