The Conservative Principles Inherent in the Medicare Reform Legislation

(This article was written from information gleaned from a variety of sources, including the White House, the Senate GOP Policy Committee, the Sen. Majority Leader's website, the Amer. Assoc. of Health Plans., and from the author's experience in the health care industry.)

There has been much murmuring among conservatives over President Bush’s domestic policies, stemming mainly from spending initiatives. “Spending like a drunken sailor” is pretty much the way it’s been characterized.

Central to the discontent has been the passage by Congress, at the urging of the President, of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Virtually all of the attention, and ire, of grassroots conservatives has been directed at the price tag of the bill – an estimated $395-500 billion over the next ten years. Yet hardly any attention has been given to the overall provisions of the bill, many of which are consistent with conservative principles, and which indeed were supported by many conservatives in Congress. Because many the provisions of the bill reflect conservative principles, it is very likely that the estimated price tag of the bill is overstated since a major goal of the reform legislation is to reduce the overall future costs of Medicare, and health care in general, as the provisions of the bill take hold.

While the prescription drug benefit for the fee-for-service side of Medicare has received virtually all the popular attention, other provisions of the reform legislation include:

-- enhancing the ability of Americans to pay for their own health needs through expanding the availability of Health Savings Accounts (HSAs);
-- new accounting measures which will enhance accuracy in monitoring the solvency of the overall Medicare program;
-- expanding lower-cost choices in medical coverage for senior Americans rather than placing all into the traditional (and more expensive) fee-for-service side of Medicare;
-- reducing the rising cost of prescription drugs across the board; and
-- cost-containment provisions including income thresholds for Medicare Part B premiums starting in 2007 (the higher the income of an individual or a couple, the less the federal subsidy, and the higher the premium paid for Medicare coverage), and an increase in the Medicare Part B deductible with future raises in the deductible indexed to inflation.

Prescription drug coverage -- Incorporating the efficiencies of the private sector

The provision of the Medicare reform bill attracting the most attention is the prescription drug benefit. The big reason for this is that the drug benefit is admittedly the most costly aspect of the bill. But it should be pointed out that even the large estimated cost associated with the drug benefit is simply that -- an estimate -- and an estimate that is based on, if you will, a "worst-case scenario." The actual cost of the drug benefit is not known, and may end up being much lower than the Congressional Budget Office has projected.

One aspect which could result in this benefit being not as expensive as anticipated is that it is not actually an entitlement in the traditional sense of government assistance programs. First, the drug benefit program is voluntary; while available to every Medicare beneficiary, not every beneficiary will accept the benefit. In actuality, it is not a traditional government-run program at all. The Medicare prescription drug benefit will be made available through private drug benefit insurance companies or health plans which will administer the benefit. The benefit will, literally, be run as a commercial benefit plan, not as a traditional government program.

Similar to any private sector benefit plan, the Medicare drug benefit will require a monthly premium paid by the beneficiary; it will requirement the payment of an annual deductible; and once the deductible is paid, the benefit program requires a "coinsurance" cost paid by the beneficiary -- a 25% cost-sharing up to $2,250 of drug expenses. Such cost-sharing provisions have proven effective in controlling the cost of health care coverage.

Because the drug benefit is voluntary, Medicare beneficiaries are not required to buy into it. Many Medicare beneficiaries already have some form of Medicare supplemental coverage which includes a drug benefit, so they will likely be disinclined to sign up for the new Medicare drug benefit. Also, an aspect of the Medicare reform bill is to introduce competition between the Medicare program and private sector plans. There may be drug coverage products in the commercial market which provide a better deal to Medicare beneficiaries than what the Medicare reform bill provides. Another aspect of the Medicare reform bill is the enhancement of the managed care side of Medicare. Many of the existing private health plan products offered as an alternative to the fee-for-service side of Medicare already contain a prescription drug benefit, hence, the cost of drugs is already being paid by Medicare for those enrolled in such plans, which means that for these beneficiaries there will be no increase experienced in paying for their drug coverage. And since these plans will be offering comprehensive or "full-service" medical benefits, including prescription drugs, the cost to the consumer of the health plan's drug benefit may actually be less than the cost of the benefit as designed by the Medicare reform bill.

Additionally, the very inclusion of a drug benefit to Medicare will reduce the cost of the program. For example, prior to this reform, Medicare paid for extended hospital stays for ulcer surgery at a cost of about $28,000 per patient. Yet Medicare would not pay for the drugs which eliminate the cause of most ulcers, drugs that cost about $500 a year. Now, drug coverage under Medicare will allow seniors to replace more expensive surgeries and hospitalizations with less expensive prescription medicine to treat their conditions.

In short, while the Medicare drug benefit is available to all beneficiaries (those in the fee-for-service side, as well as in the managed care side), and since the cost estimates are largely based on the assumption that most will take advantage of the new benefit, the price tag placed in the drug benefit may actually be on the high side since many beneficiaries already have a drug benefit, or commercial products may provide a better deal than what the bill's design provides.

The bill also contains provisions, unrelated to Medicare, which will lower the cost of all drugs -- benefiting not only Medicare beneficiaries and the program, but every consumer. The law injects competition into the Medicare marketplace, which will drive down the price of drugs. Private health plans have largely been successful in negotiating discounts with pharmaceutical manufacturers. Beneficiaries enrolled in a Medicare prescription drug program or a Medicare Advantage program will reap additional savings, since these plans will likely combine the attributes of a private insurance company and a pharmacy benefit manager (PBM). PBMs are designed, in part, to negotiate discounts with pharmacies and drug manufacturers on behalf of health plans.

In addition, to help American consumers of all ages, the new law provides incentives to encourage the use of generic name drugs, which are usually less expensive than brand-name drugs. The law also streamlines the bureaucratic process to bring generic drugs to the market faster.

One of the main cost-containment aspects of the Medicare reform bill is the creation of a new "Medicare Advantage" program to replace the "Medicare+Choice" program established by the Republican Congress in 1997.

"Medicare+Choice" (M+C) was the addition of a managed care side to the Medicare program, providing a cost-effective option to the more costly fee-for-service design of traditional Medicare. Medicare+Choice was intended to bring the efficiencies of the commercial managed care design into Medicare. However, the funding formula for M+C in relation to the traditional fee-for-service side established by the Clinton Administration never enabled M+C to prove its promise of cost containment. (Some have speculated that the Clinton Administration's disdain for the commercial managed care industry after it helped defeat "HillaryCare" in 1994 motivated it to choke the life out of M+C before it could prove it's worth; clearly, the Clinton Administration never intended to allow M+C to succeed.)

As a revamped managed care side of the program, Medicare Advantage will allow beneficiaries a wider range of health coverage products, including preferred provider organizations (PPO) and HMO options, opening up the Medicare program to commercial health coverage designs which have proven more cost-effective than traditional fee-for-service indemnity insurance products. These more cost-effective alternatives will enable both the beneficiary, and the government, to share in anticipated cost savings.

According to a recent survey conducted by the American Association of Health Plans of commercial plans intending to sell products to the Medicare market, Medicare-Advantage beneficiaries will see immediate improvement in their coverage over current Medicare coverage, at an overall cost savings to the Medicare program due to the managed care approach. For example:

-- Lower cost sharing: The management of coverage built into the Medicare Advantage program will allow plans to lower monthly premiums, in some cases dramatically. As an example, one health plan in New England will decrease its premiums by an average of 23% -- with beneficiaries saving as much as $67 per month compared to current out-of-pocket costs; there is also expected to be a reduction in the cost of co-pays and deductibles.
-- Enhanced benefits: In addition to prescription drugs, many plans will be able to provide benefits not found in the traditional Medicare design, such as preventive screenings (e.g., for prostate or breast cancer, diabetes, and cardiovascular disease) which will enable diseases to be found earlier enhancing the likelihood of cure and lowering the long-term costs of treatment, and disease management programs.
-- Increased enrollment: After five years of slow growth and declining availability of private plans available through the Medicare+Choice program, plans are now expecting to add -- not subtract -- beneficiaries in the program. That is a strong sign of confidence in the direction of Medicare reform, and will result in greater cost savings for the Medicare program overall as more beneficiaries opt for the Medicare Advantage program.
-- New Products: A number of companies which intend to market products through the Medicare Advantage program plan to also offer Health Savings Accounts, drug discount cards, and new Medigap packages in addition to the basic scope of benefits guaranteed to Medicare beneficiaries. The reform legislation passed by Congress enables modernization of the Medicare program through the joining of product innovations brought in by the private sector.
-- Coordination of benefits: An element of the commercial health care marketplace, this practice has resulted in slower increases in health coverage premiums than have been experienced in the standard indemnity market. It will not be an element of Medicare through the Medicare Advantage program.

The passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 will provide all Medicare beneficiaries with the option of a standardized prescription drug benefit, but the bill also contains provisions which move the Medicare program on a path of privatization, introducing competition into the system, and expanding the quality of benefits and care to beneficiaries while instituting new cost-containment methods. The estimated cost of the reforms -- primarily the drug benefit provision -- are admittedly hefty. But the conservative principles of competition, private sector administration of the drug benefit, innovation in administration of benefits, and cost-containment provisions, could very likely bring down the overall cost of the program, while bringing Medicare coverage up to the level and quality of private benefit plans, and into the 21st Century.

(This overview of the Medicare reform bill was produced, in part, from information from the following sources):

So, your suggestion is what...? End the program, cold-turkey? Then we'd really be throwing granny out into the street. Old people WOULD be dying. Boy, Hillary would love that!

I assume that by the thrust of your question, you are referring to the program that LBJ pushed through in 1965, and not what has not yet gone into effect with respect to drugs.

No, my suggestion, frankly, is not to end Medicare, cold turkey. While it is not a Constitutional program, recognizing obligations is Constitutional, and I believe that there is a certain moral obligation, here, created by reason of the fact that millions of people have been led to expect that it would be there, and have planned around its being there. This in Law would create what we call an "estoppel"--which, while the Government could possibly defend against it, on the theory of sovereign immunity, it really ought not to, because of the morality involved.

What I would do is gradually phase the program out, while limiting its applicability to types of care that were reasonably anticipatable during the previous lives of the beneficiaries--that is not necessarily covering expensive new procedures, except under circumstances that might be hashed out in Congress.

As for the "hue and cry over such a phase out," I would deal with that on many levels, each designed for different elements of society, putting the whole issue in the context most understandable from the perspective of each such element. I find no difficulty, in discussing this issue with people of all ages, in finding bases to create such understanding.

And understand me, the continuance of benefits for those now covered, or soon to be covered, who have relied on same being available for long periods, is not intended as a way to buy votes. Rather, it is as I suggested, an effort to see that the United States always act fairly towards their people. I know that some will accuse me of rationalizing, but I do not see it that way.

William Flax

Reaction to Medicare Public Information Ads: Several Congressional Democrats have asked the General Accounting Office to investigate the use of taxpayer money on ads publicizing recent changes to Medicare.

Medicare Ad Riles Bush Critics

Excerpt:
In December, President Bush signed a sweeping Medicare reform bill that, starting in 2006, adds a prescription drug benefit to the government insurance program. Beginning this summer, seniors can obtain a discount card for purchasing prescription drugs. The White House estimates the new law will cost $534 billion over ten years.

In the television ad, a senior asks, "So how is Medicare changing?"

"It’s the same Medicare you’ve always counted on, plus more benefits like prescription drug coverage," an announcer replies. The ad goes on to tell seniors "You can always keep your same Medicare coverage" and "You can save with Medicare drug discount cards this June. And save more with prescription drug coverage in 2006."

The ad tells viewers that more information is available at 1-800-Medicare. A print ad delivers much the same message.

Neither ad mentions the role of President Bush or Congress is developing the new drug benefit. But the Democrats who wrote Thomspon — including Ways and Means Committee ranking minority member Rep. Charles Rangel of New York — complain that the ad misleads when it says "It's the same Medicare."

All we've been seeing on FR is people screaming about the cost and threatening to bolt the party, with inflammatory language like "why should we pay for a bunch of old geezers."

Well not to put too blunt of a point on it but why should the national government be involved in this fiasco? Can you provide verifiable information that the Founders of this nation of states thought it should be the general government's place to provide such a service? Surely there were older people in those days as well? What did they do? Just get thrown out in the streets? Pushed off the road?

Or perhaps families did their duty and took care of one another. Without depending on the national government to pass another entitlement to 'fix' it. I tell you, the Republicans are really stealing the issues away from the Democrats aren't they? Instead of limiting government they're adding to it. Faster than even some of Bush's predecessors did. That's conservatism?

Supporting the concept that seniors should actually pay for their own prescription drugs and, that by doing so, that would drive the price down is a liberal idea?

Presciption drugs ARE cheaper when purchased from Canada and Mexico. I'm assuming because the pharmaceutical companies there don't inflate the price to pay for their research. I imagine there is less governmental regulation and red tape as well.

Or perhaps families did their duty and took care of one another. Without depending on the national government to pass another entitlement to 'fix' it.

Yep... sounds lovely. Too bad the country has moved far, far from that direction. If we want to move it back to the way it used to be we have got an enormous amount of work ahead of us, in the meantime the vast majority of the electorate has grown to expect government health care for those who don't have it.

Yep, that's that 'compassionate conservatism' we've come to know and love. Pay lip service to anything conservative, and continue to be 'compassionate'. All at the expense of the taxpayers of the respective states. Should have that stamped over the entrance to RNC headquarters

Meanwhile, we continue to move to the left, incrementally mind you, with no hope in sight of it stopping anytime soon. And the 25 or so brave Conservatives in the House that were willing to stand up to the White House's healthcare entitlement are ostracized and challenged by their 'leadership'

Because a huge majority of the public demands this, billbears... it's only the minority slice on the right that doesn't value it. The President has to appeal to half or more of the country to get elected, you can't have a major plank to your platform that causes the public at large to run screaming from you.

I think he's done as good a job on Medicare reform as he could possibly manage without being booted out of office entirely... or he could have just left it alone and the next Dem to come down the pike would have given the Workers World Party everything they wanted.

If there was a true interest in reducing the cost of prescription drugs, seniors would be given greater access to buy drugs on the free market from countries like Canada and Mexico.

This is a flawed argument. It has been shown on other threads discussing the costs of perscription drugs that the low costs of drugs in other countries is being subsidized by the higher cost of drugs in the U.S. Increasing the volume of low cost drugs sold outside the U.S. will only drive the prices higher in the U.S.

The only true way to reduce the cost of drugs is to eliminate overhead involved with development, documentation and liability.

More energy should be expended on finding creative, innovative ways to attack the overhead aspect rather than trying to play shell games with point of purchase.

Ways and Means Committee ranking minority member Rep. Charles Rangel of New York — complain that the ad misleads when it says "It's the same Medicare."

It is the same Medicare. If some wants to stay in the traditional fee-for-service, and not buy into a prescription drug plan, nothing changes. The changes are in the new options for alternatives means of coverage. The intent is to, hopefully, get folks to shift away from the fee-for-service option, which is the most costly means of Medicare service.

The ad is accurate. Rangel is a shameless partisan hack.

Well not to put too blunt of a point on it but why should the national government be involved in this fiasco?

Sorry, but this debate was lost 40 years ago. Please fast forward to the 21st Century. The existing system is a mess, headed for a disaster. It needs reform, and to be put on a path which will move people away from the tradition form of coverage. This is a start, but only a start. No one is going to propose getting rid of Medicare.

I think he's done as good a job on Medicare reform as he could possibly manage without being booted out of office entirely... or he could have just left it alone and the next Dem to come down the pike would have given the Workers World Party everything they wanted.

Oh yes, I can't tell you how much I wait to pay for a $400 billion healthcare program with more taxes. Oh wait, it's $540 billion isn't it? 30% growth and the god forsaken thing hasn't even kicked in. I'm sitting here just joyfully imagining what it's going to be like when the baby boomers start grabbing this entitlement. Of course this doesn't cover the other well thought out programs that are soooo necessary to keep the national government going.

But you and others like you will keep re-defining 'conservatism' until you have a completely Socialist system won't you? But 'our' guy will be in charge so that's all that matters, eh? Tell me, do you know the difference between conservative values and Republican platform planks? Better yet, do you even care? Because to the untrained eye they're quite different

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