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FORUM Medicare Drug Benefit May Unsettle Some Stomachs Photo by Graham Ramsay Politics can make strange bedfellows. The most recent passage of a prescription drug benefit for Medicare beneficiaries is a good example. The American Association of Retired Persons (AARP), the American Medical Association (AMA), the American Hospital Association, the pharmaceutical industry, business groups, and the insurance industry all favored the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. With a $400 billion price tag (later revised upward to $530 billion), the bill is the result of compromises and strategic moves typical of the sausage factory of policymaking. The Problem While a majority of Medicare beneficiaries had some form of drug coverage prior to the passage of the act, about one fourth had none. Furthermore, prescription drug use among this age group has outpaced that of other age groups; though Americans 65 and over make up only 13 percent of the population, they account for 34 percent of all prescriptions. Spending on drugs is highly skewed, with 11 percent of Medicare beneficiaries each having $5,000 or more in total drug expenses in 2003, accounting for almost half of total drug spending among the Medicare population. Above is an analysis by the Henry J. Kaiser Family Foundation of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. (Courtesy of the Henry J. Kaiser Family Foundation) Lack of coverage results in the filling of fewer prescriptions. A 2002 survey found that one third of elderly without drug coverage skipped doses. The health implications of missed doses and unfilled prescriptions, especially given the chronic nature of many ailments among the elderly, is cause for concern. The Benefit and the 'Donut' A prescription drug discount card program with subsidies for low-income seniors will partially tide beneficiaries over until 2006, when the voluntary drug benefit takes effect. Seniors will then make the choice to either stay in Medicare and choose a separate, stand-alone drug benefit plan from a private provider through Part D of Medicare or leave traditional Medicare and get all health services (including a drug benefit) from an HMO or a PPO. Seniors will choose a plan with a monthly premium, deductible, and cost-sharing structure. In 2006, the Congressional Budget Office estimates that the standard coverage benefit will cost beneficiaries $35 per month in premiums, or $420 for the year, but the exact amount will depend on plan bids and vary geographically. The deductible stands at $250. After spending the deductible, beneficiaries will pay 25 percent of the cost of drugs up to $2,250. Between $2,250 and $5,100 in costs, beneficiaries will have to pay 100 percent of the cost (this is the so-called "donut," or gap, in the diagram), after which cost-sharing is set at 5 percent. The program provides subsidies and reduced cost-sharing for low-income seniors. Pricing of Pharmaceuticals Backers of the plan were adamant about the private provision of the benefit, predicting that a government-administered program would result in inefficiency and price controls. Critics of the plan argued variously that it does not go far enough and its costs may far exceed current estimates. Joseph Newhouse believes that the demonstration projects included in the bill, which aim to test competition between local Medicare Advantage plans and traditional Medicare, set to begin in 2010, are unlikely to take place. --Erica Seiguer Joseph Newhouse, the John D. MacArthur professor of health policy and management at HSPH, has argued that several aspects of the pharmaceutical industry make pricing of drugs challenging: the high up-front costs of research and development, the monopolies granted through the patent system in order to induce R&D, and the riskiness of drug research and development. He also has argued that while price controls were excluded from the legislation, Medicare may be tempted to impose some form of price controls, especially in cases where a drug is the only treatment for an important condition. Newhouse believes that the demonstration projects included in the bill, which aim to test competition between local Medicare Advantage plans and traditional Medicare and are set to begin in 2010, are unlikely to take place. "There will be a 'not in my backyard philosophy,'" he said. The Politics of Policy At the time of the act's signing into law, only 26 percent of seniors approved of the benefit according to a USA Today/CNN/Gallup poll. The top concerns cited by those 65 and older were that the plan did not go far enough to help seniors with the cost of drugs, would benefit pharmaceutical companies too much, was too complicated to understand, would force seniors into HMOs, and ultimately would cost the government too much. Robert Blendon, professor of health policy and political analysis at HSPH, contends that failure to pass the bill would have been a blow to the Republican party. "I think for the Republican majority and the President, some bill was better than no bill.... The people who are satisfied--physicians, hospitals, the pharmaceutical industry--were extraordinarily protected. Basically, the Republican leadership was able to satisfy many interest groups and convince many members of Congress to support the bill." Though the bill has passed, Blendon believes the debate is far from over. Depending on the results of the 2004 election, the final implementation of the legislation, and its reliance on public versus private provision of benefits, will differ. "This is a really strong partisan issue," he said. --Erica Seiguer, a fifth-year MD-PhD student studying economics in Harvard's Doctoral Program in Health Policy The opinions expressed in this column are not necessarily those of Harvard Medical School, its affiliated institutions, or Harvard University. Websites of Interest Kaiser Family Foundation website on the Medicare Rx benefit AARP's Medicare and prescription drug website Medicare.gov