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Washington Beat




Washington Beat

By Michael Pretzer, Washington Editor

Will an abundance of ideas kill prescription drug legislation?

Occasionally, a concept gathers so much momentum in Washington that it can't be stopped. Legislation becomes inevitable.

Prescription drug coverage for Medicare beneficiaries is developing into that kind of idea. A couple of years ago, the thought that Medicare would pay for drugs was nothing but a gleam in the eyes of a few ultraliberal Democrats. Now, the concept is claimed by nearly every legislator. Even the eyes of staid GOP leaders have that telltale glint.

In his eighth and final State of the Union address, President Clinton renewed his 1999 call for a Medicare drug benefit. His plan would (1) provide drug coverage to all Medicare beneficiaries, (2) pay half of a beneficiary's prescription costs up to $2,000 (that is, it would pay a maximum of $1,000), and (3) have no de-ductible. Phase-in would begin in 2003. In 2009, upon completion of the phase-in, the plan would pay half of a senior's drug costs up to $5,000 (or $2,500 max). The program would be run by pharmaceutical benefit managers in the private sector. Low-income Americans would have all or part of their premium for the drug benefit waived.

While the president waits for his proposal to be considered on Capitol Hill, House Republicans are scouting around for a better version of the same idea. In late January, House Speaker J. Dennis Hastert, R-IL, appointed a task force to develop a GOP proposal. Nobody knows yet what the group will come up with, but one option it's expected to consider would have seniors buy drug coverage from private insurers, similar to the way they now buy Medigap insurance.

Nearly every lawmaker wants in on the action, but some prefer their own legislation to Clinton's. Sen. John Breaux, D-LA, and Rep. Bill Thomas, R-CA, think drug coverage ought to be tied to broad Medicare reform, for example. Breaux just happens to be sponsoring—and Thomas is drafting—legislation that would dramatically restructure Medicare.

Rep. Pete Stark, D-CA, sees a link between drug coverage and a reduction in medical errors, another grave concern in Washington these days. "If we could enact a prescription drug benefit in Medicare, we would need a system that keeps track of medications for billing purposes," explains Stark. "That same system would warn us when people are taking too many pills, when multiple prescriptions could cause adverse reactions, and when patients are failing to take needed medicines." And as it happens, Stark is sponsoring drug coverage legislation that creates a system to review prescriptions.

Reps. Tom Allen, D-ME, and Sherrod Brown, D-OH, see the establishment of a drug benefit as an opportunity to press for lower prescription prices. And just by coincidence, their Prescription Drug Fairness for Seniors Act of 1999 would consolidate the purchase of prescription drugs so seniors could get them more cheaply.

Many observers are betting that prescription drug coverage is the one horse that crosses the legislative finish line this year. Several factors are in its favor. Drug prices are going up while drug benefits from Medicare HMOs are dropping, and Congress is being pressed to do something. Opposition to drug benefit legislation from the powerful Pharmaceutical Research and Manufacturers of America has begun to soften. And passage of a drug benefit bill right before an election would surely make senior citizens favorably disposed to those who supported the measure.

Yet with so many politicians trying to push the drug benefits concept down different legislative paths, it could spin around and miss the finish line altogether.

Government in Action
Some things about Medicare just don't add up

  • The federal government annually wastes more than $19.1 billion in improper payments, according to a report issued in January by the House Committee on the Budget. Medicare, which the General Accounting Office has for 10 years designated as a "high-risk" program (meaning likely to waste money), accounts for the lion's share. In 1998, for instance, Medicare blew more than $12.5 billion.

  • Because of quirks in the formula used to determine capitation rates, Medicare will overpay managed care organizations in Medicare+Choice by $34.3 billion over the next decade, according to a recent audit by the Department of Health and Human Services' Office of Inspector General.

  • About 90 percent of the Medicare+Choice plans will receive a 2 percent raise for 2001, according to HCFA. Some others will get 3.3 percent.

  • During the past two years, about 200 managed care plans have either scaled back their Medicare operation or dropped out of the program. Many of the plans that remain are preparing to increase premiums and raise prescription drug copays. Why these changes? Medicare doesn't pay the plans enough, according to the American Association of Health Plans.

The Uninsured
This scheme may help, but at great expense

Republicans and Democrats won't agree on much this year. But both parties seem to have reached a consensus on one thing: Manipulating the income tax code would be a nifty way to help the needy get health care. A bevy of Republicans and Democrats in Congress want to give poor people a tax credit for buying health insurance. President Clinton wants to give a tax credit to workers who purchase COBRA health insurance. On the campaign trail, presidential contender Al Gore has promised tax breaks of one kind or another to extend health care to people with low income, and George W. Bush may consider them as well.

Unfortunately, tax deductions and credits won't do much to reduce the ranks of the uninsured. Americans already have a host of tax benefits available. An employer's contribution to a worker's health insurance premium doesn't count as taxable income, for example. An employee's contribution to his own insurance premium is tax-exempt under certain circumstances. An employee can avoid paying some income tax by socking money for medical expenses into a flexible spending account. A person can deduct medical expenses that exceed 7.5 percent of his adjusted gross income. And a self-employed person can deduct a large portion of the cost of his insurance premium.

In total, Americans get about $125.6 billion worth of federal tax subsidies annually, reports the National Coalition on Health Care. Still, despite these tax breaks, some 44 million people remain uninsured. "In fact," says the coalition, "68.7 percent of federal health benefits tax subsidies . . . are going to families with incomes of $50,000 or more, even though this group accounts for only 36 percent of the population."

A tax deduction, which reduces taxable income, and a tax credit, which cuts the amount of tax owed, seem absurd if their purpose is to assist poor people. Forty-five percent of the uninsured don't make enough money to owe any income tax, and 90 percent of those who do earn enough are in the 15 percent tax bracket, according to the Kaiser Family Foundation. Isn't less than zero zero? Try buying a health insurance policy with that kind of money.

Now, the refundable credit has come into vogue. In some cases, it's similar to a voucher. If a person qualifies for a refundable credit but owes no income tax, the government writes him a check.

A good idea? In 1999, several members of Congress introduced bills with refundable tax credits for the uninsured. This year, Sens. John Breaux (D-LA), Bill Frist (R-TN), and Jim Jeffords (R-VT), are expected to propose the most generous refundable tax credit yet. Their Health Coverage, Access, Relief, and Equity (CARE) Act offers a credit of as much as $1,000 to an individual with annual income of $31,000 or less, and as much as $2,000 for a family with annual income of $51,000 or less. The CARE Act would be "an important first step toward solving the problem of the nation's uninsured and removing some of the inequities of the current tax structure," say the senators.

Breaux figures 27 million Americans—about 21.5 million of whom are now uninsured—will be eligible for the credit. But how many of those uninsured would be enticed by the CARE Act to actually purchase health insurance? Far too few, it seems.

Jeffords estimates that about 3.5 million would buy insurance. Kaiser, which recently compared the effects of several different tax deductions and credits, is a shade more optimistic. It estimates that credits similar to those in the CARE Act would affect about 4 million uninsured people. But Kaiser estimates that credits in the $1,000 to $2,000 range would cost the government about $13.3 billion a year—a staggering price to decrease the number of uninsured from 44 million to 40 million.

Post Mortem
Whatever happened to PSOs?

Three years ago, Congress gave doctors and hospitals the opportunity to create a new form of Medicare managed care. Provider-sponsored organizations were to be an enticing alternative to the usual Medicare HMO. Organized medicine, which lobbied Congress to pass the PSO legislation, had high hopes for them. So did the Congressional Budget Office, which predicted that 600,000 Medicare beneficiaries would be enrolled in PSOs by 1999. And so did the Health Care Financing Administration, which predicted that 50 PSOs would be in full swing before the turn of the century.

Things haven't worked out as expected, however. The enthusiasm of hospitals and physicians for the PSO concept was probably overestimated to begin with. But even the most optimistic of them surely would have grown discouraged once they studied the plight of the financial-risk-assuming organizations already doing business with Medicare. During the past two years, droves of HMOs have left the program, claiming that Medicare has become a money-losing proposition.

In any case, HCFA's estimate of 50 PSOs was off by 49. The nation's one and only PSO is Albuquerque's St. Joseph MedicarePlus, which celebrates its first anniversary this month. It has fewer than 5,000 enrollees.

The PSO concept was "an idea whose time sort of came and went," concludes Robert A. Berenson, director of HCFA's Center for Health Plans and Providers.


Michael Pretzer. Washington Beat. Medical Economics 2000;6:51.

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