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):

You argue just like this ultra-liberal neighbor I have. You pretend to return the volley but you completely ignore the point that the other person maked, instead whipping out completely unrelated tennis balls and slamming those across the net.

No matter what anyone says, I don't think you'll ever discuss this honestly so... I'll just bid you g'nite.

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

Yes he is.

The ad is accurate and an effort of HHS to inform seniors about Medicare in a NON-PARTISAN manner. Note that President Bush and Republican members of Congress aren't mentioned in the ads.

A number of dems, including Rangle, evidently find the innovations in Medicare so threatening to them politically that they don't want accurate information disseminated. Complaining about a government agency providing updates and a contact number for further information for the citizens it serves illustrates the self-serving nature of the dems.

Would they complain about a FDA food recall announcement or a State Department travel advisory.....probably, if there were some advantage to them. Some aspects of Medicare have changed. The recipients need to be aware of those changes.

The dems prefer the MoveOn Medicare ads with President Bush entering the home of an elderly couple and literally pulling the rug out from under them.....and another accusing President Bush of lying about Medicare. These ads appear every night on the local NBC news station at 11:00 p.m.!

Ciexyz, in post #60, asked why the positive information you posted hadn't been brought to the public's attention before now by the Bush administration. The answer is that dems have no tolerance for knowledge and truth and will seek to squelch it at every opportunity.

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....That's conservatism?"

Let's deal with this issue. Why should I allow your brand of conservatism to push ME out on the street, when greedy drug companies deny me the right to get lower priced prescriptions from Canada? Why should YOUR brand of conservatism be the order of the day, when I'M suffering from the high cost of prescription drugs? (By the way, I'm NOT eligible for Medicare for a number of years yet.)

I refuse to allow the "Bare down government at all costs gang" to dictate their version of conservatism on the Republican Party. Go ahead, flame away.

I love the liberal arm of the Republican party. I present the fact that the drug bill has increased 30% in less than two months in response to your 'well everyone wants it' and I'm ignoring the point? Republicans used to stand for limited government, used to believe in balanced budgets, and less intrusion in the lives of the citizens of the respective states among other issues. I do not see how pointing out the fact that the bill you plead is so important to the masses is increasing exponentially even before it's started is ignoring the point and unrelated. Matter of fact it isn't. You just can't argue the point. So be it.

Again I will ask. Do you realize the difference between conservative values and Republican platform planks? Or do you even care?

Why should I allow your brand of conservatism to push ME out on the street, when greedy drug companies deny me the right to get lower priced prescriptions from Canada? Why should YOUR brand of conservatism be the order of the day, when I'M suffering from the high cost of prescription drugs?

Why should I flame you. You want the government to take care of you and yours. According to the precepts of 'new' conservatism, you'll fit just fine in the ~~Democratic~~ Republican party. They're no longer conservative either

Yes, I realize the difference between straight conservative values and the GOP platform and I care very much. The problem is that straight conservatives only comprise a portion of the GOP and the GOP only comprises approximately half of the voting pool.

My point that you ignored is that a majority of the public wants government to provide or supplement health care... we're outnumbered and need to acknowledge that fact and face it like grown-ups. If the GOP refuses to allow them to have it, they'll vote in a Dem who will. In Bush's handling of it we now have the chance for the medical care to be administered in a way that brings in market competition... the Dems would have gone with a completely socialistic medicine model a la Canada or France.

My turn to ask you a direct question... did you read Newt Gingrich's editorial about it?

No, the only way to reduce prescription drug costs is all citizens to pay for the products directly. Third-party payers -- insurance companies and the government -- are the problem in this nation. The only way the cost of health care will ever come down is for market forces to return in the form of direct payment for consumers.

Actually, allowing the free market to work by allowing consumers full access to the lowest prices available for prescription drugs anywhere in the world is the best way to bring prices down in this nation. If pharmaceutical companies are faced with losing a large percentage of their consumer base, they will reduce prices.

Sure, liability and regulations pay a role and those problems need to addressed. Regardless, the answer is NOT to have government pay for prescription drugs for seniors. That only makes the core problem worse.

I think I heard the director of the CBO say the other day, at a CATO event aired on CSPAN, that, contrary to common assumption, only 30 percent of projected increases in Medicare costs over the next x years are due to baby-boomers entering the system. 70 percent are due to projected increases in health care costs.

Cost containment in CRUCIAL. If we don't modernize the system we are screwed, and there is no way to modernize the system without co-opting the efficiencies of the private sector.

That would normally be my take on a market, however after paying close attention in the threads that delved into the workings of the pharmaceutical market on the global scale, it is clear that the US market subsidizes the research and development of all major drugs. If you don't reduce the costs, then massaging who pays them doesn't really solve the problem.

No, the only way to reduce prescription drug costs is all citizens to pay for the products directly. Third-party payers -- insurance companies and the government -- are the problem in this nation.

Third party payers are indeed part of the problem. They are excessive overhead. Insurance must operate for cost plus profit and government is extremely inefficient. If their sole contribution is simply moving the money from one hand to the other, what have they contributed to the process.

Third party payers are not the only source of overhead that could be eliminated though. Their are opportunity cost throughout the system.

Well... my opposition comes mainly from the fact that Medicare itself is in violation of the 10th amendment. It's just kinda depressing that we can't get this through to people... you know, use the bully pulpit to get people to realize this.

But... I realize that may be asking too much. I'll have to hold my breath and see how this thing turns out.

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