Rx for Medicare
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MARGARET WARNER: Some perspective now on what this change will mean in broadest terms for the Medicare program and its beneficiaries.
It comes from two longtime players and analysts in the health care debate. Robert Reischauer, former director of the Congressional Budget Office, is president of the Urban Institute. And Gail Wilensky, a former director of the federal agency that oversees Medicare, is a senior fellow at Project Hope, a foundation for international health education. Welcome to you both.
Bob Reischauer, how profound a change is this? Will this change Medicare as we know it?
ROBERT REISCHAUER: This really is a big deal. It’s a big deal symbolically, it’s a big deal substantively, and it’s a big deal budgetarily.
Symbolically, Congress has fulfilled a promise, a promise that has been out there for many, many years, and that’s important. Substantively, because while this is a benefit that has its limitations and its flaws, we’re going to pay $400 billion towards the cost of seniors’ drugs, and that is an important contribution. Budgetarily, because that $400 billion is going to grow very substantially, probably to around $1.5 trillion in the second decade of this program, and that’s going to worsen an already very serious problem that we have with the cost of the baby boomers’ retirement.
MARGARET WARNER: A very big deal, do you agree?
GAIL WILENSKY: Absolutely, $400 billion is a lot of money. People have commented for at least the last decade that Medicare is very out of date because it does not include out-patient prescription drugs. This adds it.
It is not a perfect bill. It’s too bad it didn’t do more to modernize and reform Medicare, but it’s impossible to look at what the Congress did and say this is not a big deal for seniors.
MARGARET WARNER: Now, something the Republicans in particular have been trying to do for at least a decade, if not longer, is create some kind of alternative, some competition, some choice to traditional fee-for-service Medicare. How far does this bill go in doing that?
GAIL WILENSKY: A little ways, not nearly as far as I would have liked it. It adds some money to support the growth of private sector plans for the first couple of years.
MARGARET WARNER: Meaning that they hope that will encourage seniors to join those rather than stay in the traditional.
GAIL WILENSKY: That’s right — in part making up for the very low growth that occurred after 1997 with the Balanced Budget Act which really slammed the brakes on the growth. This had been a robust program growing at 25 percent per year; 1997 came along, it just came to a screeching halt. This is an attempt to try to get this back on target.
But in terms of competition, it is a very limited piece of competition. We hear a lot about it from the Democrats, but it’s a demonstration, six places….
MARGARET WARNER: This is this thing that starts in 2010.
GAIL WILENSKY: Right. It is a very little piece, and the likelihood that it will actually make it into legislation, if history is any guide, is not very good.
MARGARET WARNER: Do you share that it has very little in the way of competition here?
ROBERT REISCHAUER: Gail exaggerates. I think it’s less than very little. It’s virtually nothing. All we have in this bill that is for certain is that we are going to pour more subsidies on a group of health plans that we are already subsidizing, and they haven’t been able to cut the mustard with respect to competing with traditional fee-for-service Medicare with the subsidies that they already have.
So I don’t expect much to come of this. I don’t, like Gail, expect the demonstrations ever to take place. We’ve tried them in the past. They have been nixed before they’ve ever gotten off the ground. This one will also be withdrawn.
MARGARET WARNER: All right. Let’s talk about the drug benefit. When it finally kicks in in full in 2006, we heard the Democrats — Daschle, Senator Kennedy — saying, ‘when seniors see how puny this really is, they’re going to be very disappointed.’ Is he right about that?
ROBERT REISCHAUER: Expectations probably exceed what these seniors are going to get. This isn’t a drug benefit that your employer provides to the working population, but it’s a drug benefit that’s better than what folks now on Medicare can get from a Medigap policy, and it does provide peace of mind for those who have catastrophic expenditures.
This is really a drug-assistance plan. We’re going to give a lot of money to people who have moderate drug expenditures. And anyone who spends, in 2006, more than about $810 on prescription drugs will be better off. The premiums will be less than the benefits they’re receiving from the government. Although there are big holes and there are limitations to this.
GAIL WILENSKY: It’s all relative to what? If you are a low income senior and you’re a senior that has very high spending, this bill is a pretty darn good thing.
It isn’t as good as the private sector, but that’s not what’s coming in for the seniors. For the most part, they’ve not had private sector drug coverage. Some of them, a few of them, have had retiree benefits, but many have had quite limited coverage. And so from that prospect, it will look pretty good. I’d like to go back and make one comment to what Bob Reischauer said. This is the first time that you will see direct head-on-head competition between traditional Medicare and the private sector plans in the limited number of places starting in 2010 with a lot of protections in place. So it hasn’t quite been done before, but I’m not very hopeful that it’ll make a big difference.
MARGARET WARNER: Let me just go back to the drug benefit because there is such interest in this. I tried to figure it all out today. It looks like you are going to have to be a very savvy consumer to figure out what to join and what kind of plan to even go for.
GAIL WILENSKY: Well, not necessarily. In the first place, the basic outline is not so complicated. You have a deductible; seniors know about that. You will pay a premium; seniors know about that. And for many seniors, they will stay in the first round of coverage, which is…
MARGARET WARNER: Up to $2,200.
GAIL WILENSKY: Up to $2,200 and they will have to pay 25 percent. There is the whole in the middle, there is no policy reason for it but it’s a budgetary issue. And, if you spend a lot on drugs, you will pick it up. What is less clear is how often there will be private plans, comprehensive benefit, if they will want that, what kinds of private sector entities will actually be selling these drug plans. We’ll have to wait and see what actually develops on that.
ROBERT REISCHAUER: Just one addition on what Gail said. The poorest of the poor will probably be worse off because the coverage that will be provided by these plans will not be as generous as that which Medicaid now covers.
MARGARET WARNER: And they’re getting that from the states.
ROBERT REISCHAUER: Six million people. They’re getting that from the states, right. The formularies will be more restrictive and they’ll have to pay small co-pays, so for that group of people, this isn’t a great deal. For the poor above the Medicare eligibility, it is a much better picture.
MARGARET WARNER: Would it be fair to say, and I know it is different for every income group, but if say your out-of-pocket expenses were $2,000, when you add up your premium and what you get back, you’ll still pay about $1,100 out of pocket?
ROBERT REISCHAUER: You’ll have to pay about $1,100 out of pocket but you are still getting drugs worth a lot more than what you are paying in the way of premiums.
Anybody in 2006 who has drug expenditures over $810 will be better off just on a financial standpoint, and they’ll certainly be better off by having the peace of mind that comes from knowing that if they have catastrophic drug costs, they aren’t going to have to sell their house. They aren’t going to have to go into poverty.
MARGARET WARNER: Which is no small thing. Now another big topic in all of this was cost containment. Would you say, Gail Wilensky, that this plan starts to get a hand on controlling the growth and the cost of Medicare, or does it in fact trigger explosive additional growth because it adds a new benefit?
GAIL WILENSKY: The devil is in the details here. It’s unclear, although it may be in the legislative language that I haven’t seen yet, exactly how much power the groups that will be administering the drugs will have, whether they will be able to steer seniors to generic drugs or preferred products or mail-order in the way that private sector companies do for the under-65 population.
That will help to the extent that many seniors really were the last group buying retail in the United States — as we heard so often before the bill was passed, it should help lower or moderate spending just because they will now be part of groups, first with the discount cards and then in their plans.
But it is not very aggressive in terms of providing a way to moderate spending. And I suspect we will be back on this issue, to say nothing of the pressure to increase the benefits in the future.
ROBERT REISCHAUER: The Republicans had in an earlier draft a mechanism for cost containment which said any time a fraction of Medicare expenditures that were supported by general revenues, general taxes, went over 45 percent, the president had to submit a plan to rectify the situation, the leaders of Congress had to run it through the committees, and there had to be a vote.
Well, in the end, they took all the teeth out of this tiger and what it says is it has to get up there onto the floor of the House and the Senate, but at that time it’s business as usual, so there’s really even less here than on the competitive front, I think, for control.
MARGARET WARNER: There have been a lot of talk about winners and losers. I’m just going to pick one: The drug companies. Would you both agree the drug companies are both winners here?
GAIL WILENSKY: In the short-term, there will be a lot more seniors demanding drugs. The reason the drug companies have had mixed views about whether they wanted this — they have been pushing hard for it — is because they know when the government spends as much as it is going to be spending, they will be in trying to slow down spending. So in the short-term, yes, but we’ll have to wait and see what happens in the follow-up.
ROBERT REISCHAUER: I think, from the drug companies’ perspective, this was better than the alternative because doing nothing was not an alternative, and over the long run, they’re not going to be happy campers about this.
MARGARET WARNER: Now we heard Tom Daschle predicting this is going to just trigger a whole new round of votes. I mean even though it took nearly ten years to get to this point, this is really just the beginning. Do you agree with that?
ROBERT REISCHAUER: I think that’s true. There’s a lot of devil in the detail here, and there’s a lot of latitude given to these drug plans to design formularies in particular ways, to change the co-insurance in different ways, and a lot of those changes that they’re going to make are going to generate opposition.
And that opposition is going to come right back to Congress with demands to legislate or regulate so that we have a more standard procedure for going about providing these benefits than the law now requires.
GAIL WILENSKY: Of course, that would have been true no matter what was passed, including the bill, the S-1 bill, the Senate bill that was passed before — very complicated — some areas that haven’t been dealt with and a lot of unintended consequences that always come out of legislation that’s this complex. So of course they will be back for more.
MARGARET WARNER: And from a particularly potent voting group: Seniors.
GAIL WILENSKY: Yes, but seniors should feel that something very important happened today. This is something they’ve wanted for a long time. And they got a very significant new benefit.
MARGARET WARNER: Gail Wilensky, Bob Reischauer, thank you both.