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Prescribing a Plan for Medicare

June 29, 1999 at 12:00 AM EST
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SUSAN DENTZER: President Clinton’s new Medicare reform plan is aimed at modernizing and shoring up the program that today covers 39 million elderly and disabled Americans.

PRESIDENT CLINTON: In the months before the election season begins, we can put partisanship aside and make this a season of progress. With our economy strong, our people confident , our budget in surplus, I say again we have not just the opportunity but a solemn responsibility to fortify and renew Medicare for the 21st century. It’s the right thing to do for our parents and grandparents, it the right thing to do for the children of this country.

SUSAN DENTZER: The President’s package has three main components. First, he proposes to boost the program’s long-term financial health by injecting nearly $800 billion of general tax revenues into Medicare over the next 15 years. That money would come from projected federal budget surpluses now expected to total almost $5 trillion. The President says that would postpone depletion of the program’s hospital insurance trust fund until 2027.

PRESIDENT CLINTON: There are a thousand ways to spend the surplus, all of them, arguably, attractive, but none more important than first guaranteeing our existing obligation to secure quality health care for our seniors. First things first. (Applause)

SUSAN DENTZER: Next, the President proposes a series of steps to improve benefits. He would start with a new prescription drug benefit for the first time. Beginning in 2002, any beneficiary who wished to enroll could sign up for the program, called Part “D” of Medicare, for a premium of $24 a month. That premium would be wholly or partly paid by the government on behalf of low-income beneficiaries. In exchange, Medicare would pay half the cost of each beneficiary’s prescription drug up to a ceiling of $2,000 a year. By 2008, that ceiling would rise to $5,000 a year, while the monthly premium would almost double. The total cost to the taxpayers: A projected $118 billion over ten years, of which about $46 billion would come from the projected budget surpluses.

PRESIDENT CLINTON: In a nation bursting with prosperity, no senior should have to choose between buying food and buying medicine. But we know that happens. (Applause) I’ll never forget the first time I ever met two seniors on Medicare who looked at me and told me that they were choosing every day between food and medicine. That was almost seven years ago, but it still happens today. At a time of soaring surpluses, no seniors should wind up in the hospital for skimming on their medication to save money. But that also happens today in 1999.

SUSAN DENTZER: Finally, the President proposed a series of steps that he said could make the Medicare program more efficient and competitive. For example, Medicare enrollees could get new incentives to have costly operations performed at specially designated hospitals that provided high quality care. On the other hand, for the first time, beneficiaries would also have to pay 20 percent of the cost of laboratory services. The President says this would cut down on the number of costly and unnecessary lab tests. Critics immediately took issue with the President’s plan.

SEN. PHIL GRAMM, (R) Texas: We need to provide pharmaceutical benefits for low-income Americans who don’t have insurance coverage for pharmaceuticals. But the idea that somehow miraculously for free that we can have pharmaceutical coverage for everybody not only makes no sense, we’re promising something clearly we can’t deliver.

SUSAN DENTZER: The President now plans to send his Medicare reform blueprint to Capitol Hill.

JIM LEHRER: Three perspectives now on the Clinton Medicare proposal. Martin Corry is director of federal affairs at AARP, the American Association of Retired Persons. Alan Holmer is president of the Pharmaceutical Research and Manufacturers of America. Robert Moffit is the director of domestic policy studies at the Heritage Foundation. He served in the Department of Health and Human Services under President Reagan. Gentlemen, let’s take the President’s three major proposals one at a time. Mr. Moffit, you said $800 billion of the surplus to help the program financially; what do you think of that?

ROBERT MOFFIT: I think the General Accounting Office has answered that question. The General Accounting Office testified before the Senate Finance Committee a few weeks ago really and said that if you’re going to rely upon these surpluses to reform Medicare, you may make the situation actually worse, because what you will do is you will lull policy makers asleep thinking that you don’t have to make structural changes in that program. And as a result, things could get worse. Moreover, the General Accounting Office pointed out you’re relying upon surpluses in the future that may, in fact, not materialize. Those surpluses are dependent upon the politics of the Congressional Budget Office or the budget process on Capitol Hill. And, God knows, if you’re going to rely upon that for the future of the security of your Medicare system, you are actually taking quite a risk. I understand the popularity of relying upon the surplus. The question is: Can we afford to rely upon future surpluses 15 years out? Those numbers may look quite different.

JIM LEHRER: Mr. Corry?

MARTIN CORRY: Well, the numbers may change some up or down. But, in fact, the structural deficit that we’ve worried about for the last 15 years is behind us. We do have some choices about priorities and a good place to put some of this surplus is obviously in health care for seniors. Now, I don’t think anybody, I don’t think Bob suggests that everybody is saying, well, let’s just spend our way out of this. There will be continued reforms in Medicare, there will be additional cost sharing by beneficiaries, and there will be additional cost cutting on providers. It’s going to be a mix of things. But we should capitalize on this surplus that we have and try to ease the transition for the baby boomers. There’s no way you can cost control your way out of 70 million baby boomers.

JIM LEHRER: And there was not a solution that would have been more dramatic, in other words, a basic structural change that could accomplish the same $800 billion difference?

MARTIN CORRY: You’re not going to get that much structural reform. Now the President has some reforms, Senator Breaux and Congressman Thomas have some reforms. I think that in the end it will be a mix of these things. But no one seriously suggests that we can simply cost constrain our way out of this.

JIM LEHRER: You seriously can suggest that?

ROBERT MOFFIT: No, I think you have to have a fundamental structural change. I was disappointed in the President today because I thought that the President could do actually much better. He has a great political imagination. The bipartisan Medicare Commission worked for month, day in and day out, on a fundamental change of the Medicare system. What they proposed, Jim, was to create a system for the next generation of retirees based on the Federal Employee Health Benefits Program, which covers every member of Congress, every congressional staffer, and nine million federal workers and their families. That program is based on two things: Patient choice, patients get to pick and choose the plans they want, and market competition, real market competition where insurance companies have got to compete with each other to please consumers. That program has been in effect for almost 40 years now. It has solid catastrophic coverage, which means people in that program do not have worry about losing their house or their life savings, and also it has rich and solid prescription drug coverage. Virtually every plan in that system has prescription drug coverage. I don’t know why the President can’t be more imaginative and build upon the work that’s already been done by the Medicare Commission.

JIM LEHRER: Would that work?

MARTIN CORRY: It will be perhaps part of the solution, but as Bob well knows, competition only works there you’ve got lots of plans. And in probably two-thirds of the country, there isn’t going to be any competition because there are no HMO’s, there are no managed care plans, there is only fee for service traditional medicine. We have, in fact, in Medicare had HMO’s and managed care for certainly the last 30, 25 years with HMO’s, and there has been some growth in that area, but it’s not going to solve the whole problem.

JIM LEHRER: All right. Let’s go to the second one, and that is the prescription drug program that we just outlined. Mr. Holmer, how does the pharmaceutical industry like this?

ALAN HOLMER: Well, we agree with the premise that we need to expand drug coverage for seniors, that we need to be able to address some of the concerns that the President laid out but it’s terribly important that we do it right. We need to make sure that whatever we do does not harm biomedical research. A lot of people don’t know the fact that the pharmaceutical industry now has over a thousand medicines in development. Just for cancer, we have over 350 medicines in development. I know in the case of my own family I’ve got two kids at home, both of whom have cystic fibrosis. But they’re doing wonderfully, thanks to the pharmaceutical research. But they are like millions of other Americans like them that are impatiently waiting for those new cures and issues. And how we’ve address this issue – the President and the Congress – is going to be enormously important as to whether or not that research is allowed to continue.

JIM LEHRER: How would what the President is suggesting today affect research? I thought it was directed at helping seniors get medicine.

ALAN HOLMER: It’s directed at helping seniors but the concern is what happens down the road. And if you have a program that is run by the Health Care Financing Administration, which is an entity that is intended essentially to impose price controls and to ratchet things down, there aren’t price controls that we’ve seen yet in the President’s plan, we’ll look at it carefully, but down the road, it is quite possible, and I think with a HCFA-run program, likely that ultimately you would -

JIM LEHRER: That’s the -

ALAN HOLMER: I’m sorry. The Health Care Financing Administration run by the Department of Health and Human Services — that it would likely have price controls and potentially restrictions on access to medicines. And that’s a concern we have.

JIM LEHRER: To make sure I’m understanding the point here, what you are afraid of is that in the long run it will hold down profits of your companies that are used in medical research. That’s the bottom line?

ALAN HOLMER: And more specifically, it would hold down revenues.

JIM LEHRER: Okay, revenues.

ALAN HOLMER: Our companies plow back 20 percent — over 20 percent of their revenues into research and development. That’s a higher percentage than any other industry in America. And we want to make to be able to make sure that’s allowed to continue.

JIM LEHRER: All right. That issue aside, and I realize that’s hard for you to put aside but understood, as a concept of putting pharmaceutical – putting prescription drugs under Medicare, is that a good idea?

ALAN HOLMER: If it’s run by the Health Care Financing Administration, we think it’s probably a bad idea. But we agree with the notion of expanding drug coverage for seniors. I think Bob Moffit had it about right; Senator Breaux, Senator Kerrey, Congressman Thomas, the plan they came out with to model a drug benefit and a health plan on the Federal Employee Health Benefits Plan, we think that’s the right way to go, that that will allow intense competition among health plans. That will contain overall health care costs; it will allow seniors to be able to have a broad array of choices among health plans that they pick. We believe that’s the way — the best way to provide quality health care and at the same time contain overall health care costs.

JIM LEHRER: Mr. Corry, what do you think of the President’s proposal?

MARTIN CORRY: First of all, we haven’t seen the details but the President is not proposing to have HFCA, the Health Care Financing Administration or Medicare run this. He’s proposing to have these private sector pharmaceutical management entities do the pricing so that the concerns — legitimate concerns that people have about price controls are addressed. But frankly, this whole issue of we have to choose between prescription drugs for seniors or research so that kids get breakthrough drugs is a bogus argument. It’s a classic Washington Monument argument. We’ve heard it time and again from the pharmaceutical industry. We should perhaps look at a little bit more closely at where some of that research money is spent — on me, too, drugs — if revenues are short, some of these feel-good ads that have been running on all the networks, would be an appropriate place to look for revenue, Alan. I think we can work through this. And I think the President, as well as members of Congress, don’t want to do anything, nor do we, that is going to really hamper research and innovation. But that should not be at the price of no prescription drugs for 20 million seniors who can’t afford it.

JIM LEHRER: And so you support basically what the President – the specifics of what the President is suggesting -

MARTIN CORRY: The specifics we haven’t seen. But prescription drug coverage for all Medicare beneficiaries, we definitely support that.

JIM LEHRER: All Medicare beneficiaries. Yes. Now, Mr. Moffit, I’ll — I hear you, Mr. Holmer, I want to get Mr. Moffit in here. But to the concept here now, you’re — you tell me what you think about that. It has to do with means test, does it not, rather than -

ROBERT MOFFIT: Yes. Well, I think that it would have been much better if we are not going to overhaul the entire Medicare system, which I think we should — but if we’re not going to do that and we’re going to provide a prescription drug benefit or we’re going to provide help, what we should do basically is target the limited Medicare resources to the people who need the most help. The National Academy of Social Insurance, which is certainly not a front of the Heritage Foundation, recently came out and they said that roughly 4 percent of American seniors spend more than $2,000 a year on prescription drugs. Almost half of the seniors spend actually less than $100 a year. So I’m not saying that there’s not a problem t there. There’s clearly a problem. I think the President is right in saying that. But what we do not need is we do not need the federal government to basically expand a benefit and establish a benefit in such a way that it — the only way you are going to control cost is to limit basically the access of people to that benefit through price controls. Alan Holmer is not off the mark here. When he mentions the Medicare bureaucracy, he is talking about an institution which is now governing Medicare with 111,000 pages of rules and regulations and guidelines and paperwork. And one of the problems with the President’s program today is he touches none of that. All of that bureaucracy and paperwork is left in place.

JIM LEHRER: Mr. Corry?

MARTIN CORRY: Well, we always hear this how many pages of regulations. In fact, Medicare is probably the most efficient and indeed the only traditional health insurance program left in this country. It insures all older persons, regardless of income, regardless of health — no cherry picking, no medical underwriting. And that’s why it’s so important that prescription drugs be available to all Medicare beneficiaries. Bob cites only 4 percent have costs above a certain amount. You don’t know year from year whether you’re part of the 4 percent or whether you’re part of the 96 percent. Currently there’s about 15 million seniors who can’t even afford a prescription drug benefit; several million more have Medigap plans that are very limited and frankly pretty expensive, so add several more million on top of that. The only people who have prescription drug coverage today that’s at all meaningful are some who have it from their retiree health plans and those are dropping like a rock.

JIM LEHRER: Mr. Holmer, what is your industry’s view of the need to help people? Where do you come down on the 4 percent, or what kind of percent would you say of the seniors who really need some help somewhere.

ALAN HOLMER: We come down clearly on the side of providing assistance. We believe that coverage should be provided to all seniors. Some of them like Ross Perot, they probably don’t need a subsidized drug benefit, but there are others who clearly do need help and we believe they should receive very substantial assistance from the government. I can’t give you a precise number right here. But the other point I wanted to have a chance to make was as we’ve talk about the potential impact on biomedical research, last week I testified before the Finance Committee and I had a chart that I shared with the committee and what it showed was the percent increase in research and development between the period 1980 and 1998. And it showed double digit levels of increases in research and development throughout that entire time period, except one period, 1994 and 1995 the numbers were way down. I wonder what happened during that time period. That was precisely the time period when the industry was reeling from the last time the Clinton administration came out with their plan. This plan is different but the potential impact of potential price controls can be very profound on the industry. And that could have an adverse impact on patients who are waiting for those new cures.

JIM LEHRER: All right. Now, before we go, all three of you are involved in one way or another in taking the temperatures of various people in Washington who are supposed to get these kind of things done. Is anything going to happen, Mr. Moffit?

ROBERT MOFFIT: I think that we will have a very spirited debate for the next few months on this issue. I think that members of Congress are going to be very careful. They’re going to do what Martin Corry suggested we all do, which is to read the fine print — be very clear about exactly what is in this plan. I think the reason for that is that the best intentions can go horribly wrong. We’ve had an experience here ten years ago with prescription drug coverage and Medicare. Back in 1988 everybody supported prescription drug coverage with the Medicare catastrophic health care plan. Everybody supported it. Republicans, Democrats, AARP, the medical community, just about everybody did. One year later that bill was repealed. And one of the reasons why it was repealed is because our estimates of the cost of prescription drugs were wildly inaccurate and the seniors found themselves faced with high costs.

JIM LEHRER: Mr. Corry, is this going anywhere? Can the President and the Congress get together here?

MARTIN CORRY: There’s not a lot of trust between the institutions right now, which makes it awfully hard to get something like this done. We might do some incremental steps. But I do agree with Bob. We need to do this carefully, deliberately. We do need to understand what’s in the fine print. And, frankly, our members, we want to hear from them; we want to know what do they think about this? They’re going to pay some of the cost.

JIM LEHRER: Should candidates for President in the year 2000 talk about this subject?

ALAN HOLMER: Well, I suspect that they will. I may be the optimist in the group here. I think the Senate Finance Committee is going to take the leadership on this issue. I think they’re going to start with Senator Breaux and Senator Kerrey and Senator Graham and what came out of the national Medicare Commission with Congressman Thomas, and I think they’re going to have a markup in September. And I would be hopeful that they would do something along the lines of what came out of the national Medicare Commission and move along that direction.

JIM LEHRER: If not, an issue until the year 2000 election?

ROBERT MOFFIT: It’s going to be an issue in any case. Medicare will be an issue; Social Security will be an issue; and taxes will be an issue.

JIM LEHRER: Do you agree?

MARTIN CORRY: Medicare reform with prescription drugs is already an issue for 2000.

JIM LEHRER: Thank you, gentlemen, very much.