TOPICS > Politics

Medicare Prescription Drug Bill Signed Into Law

BY Karyn Schwartz  December 8, 2003 at 12:00 PM EDT

President Bush, who had pushed lawmakers to pass the legislation, hailed the bill as “the greatest advance in health care coverage for America’s seniors since the founding of Medicare.”

Bush said that by passing the Medicare Act of 2003, “our government is finally bringing prescription drug coverage to the seniors of America.”

“With this law, we’re giving older Americans better choices and more control over their health care so they can receive the modern medical care they deserve,” he continued.

President Bush praised Congress for finally passing a Medicare bill after years of debate over possible changes to the entitlement program that provides health care coverage to some 40 million older and disabled Americans.

“The challenges facing seniors on Medicare were apparent for many years. And those years passed with much debate and a lot of politics, and little reform to show for it. And that changed with the 108th Congress. This year we met our challenge with focus and perseverance. We confronted problems instead of passing them along to future administrations and future congresses. We overcame old partisan differences. We kept our promise and found a way to get the job done,” President Bush said.

In his speech, the president specifically credited the bill’s backers on and off Capitol Hill, including Democratic Sens. Max Baucus of Montana and John Breaux of Louisiana, and the AARP, which represents 35 million members aged 50 and over. The AARP’s key endorsement toward the end of Congress’ approval process gave the legislation a boost. The measure also gained the support of some Democrats who had misgivings about provisions within the legislation but argued that on balance the bill would help seniors.

During the congressional debate on the bill, opposition to the measure came from elements in both parties. Many Democrats have vowed to revise the legislation and to make Medicare an issue in next year’s national elections.

“You sold us out, so we’re going all out to repeal what you’ve done. … We’re going to win this battle. We’re going to take back our Medicare,” Sen. Edward Kennedy, D-Mass., who backed the original Senate bill but opposed the conference committee legislation that President Bush signed, said in a written statement.

Some conservative Republicans warned that the changes to the program would not go far enough to rein in Medicare spending and nine crossed party lines and voted against the bill.

“I think we are expanding this program like it is on a solid foundation, and it is not. We are not paying for these new benefits. We are saddling our future generations with enormous liability,” Sen. Don Nickles, R-Okla., said during Senate debate on the bill before he eventually voted against it.

The 678-page bill contains a prescription drug benefit for seniors as well as provisions that aim to control the program’s costs.

Help paying for prescription drugs: Medicare beneficiaries beginning in 2006 will be offered a chance to purchase the drug coverage primarily from regional private companies at a monthly premium of $35. After a $250 annual deductible, insurance will pay 75 percent of drug costs up to $2,250, but then provide no coverage until out-of-pocket spending reaches $3,600. Insurance will pick up 95 percent of the cost of drugs after beneficiaries have spent $3,600 in one year. Some low-income seniors will qualify for additional help under the bill. Those seniors who had been getting help from Medicaid to pay for drugs will be covered under Medicare.

To provide some relief to seniors before the full prescription drug benefit starts in 2006, the bill provides drug cards that older Americans can purchase starting as early spring 2004. The Bush administration estimates these cards will yield savings of 10 to 25 percent or more off retail price of most drugs. Under the changes, low-income seniors get an annual subsidy of $600 to further defray their costs.

Expanded role for private firms: Along with having private firms primarily administer the drug benefit, the bill also allocates some $12 billion to subsidize private insurers who choose to offer Medicare beneficiaries basic health insurance. Preferred provider organizations, which encourage use of certain doctors but allow patients to go elsewhere if they pay extra, can participate in this program.

Along with those subsides to private insurers, the bill also includes a six-year experiment in head-to-head competition between traditional Medicare and private plans in six metropolitan areas that is scheduled to begin in 2010. Residents of those areas who choose to remain in traditional Medicare will have their premium increases capped at 5 percent a year and waived for low-income seniors.

Limiting the share of Medicare paid for with general funds: The bill requires that Congress and the White House review Medicare’s finances if general revenues reach 45 percent of total Medicare spending. Medicare’s funding comes from a combination of general revenues, Medicare payroll taxes, premium payments and other sources.

Protecting benefits provided by former employers: In response to concerns from seniors who want to keep drug coverage currently provided by their former employers, the bill gives up to $70 billion in tax-free subsidies to employers who maintain drug coverage for retirees once the Medicare drug benefit begins.

Increased costs for higher-income seniors: In a departure from the current system that has all beneficiaries paying the same amount for coverage, under the new plan individuals with incomes greater than $80,000 starting in 2007 will pay a larger premium for Medicare Part B, which covers doctor visits.

Changes in reimbursement rates: Medicare will spend about $25 billion to help even out disparities in the amount rural areas are reimbursed for treating Medicare patients.

The bill also reverses a 4.5 percent pay cut to Medicare doctors that was scheduled for 2004 and instead provides a 1.5 percent increase in 2004 and 2005. Hospitals will not experience fee cuts in fiscal 2004 and will be protected from cuts in the next three years if they submit quality data to Medicare.

Congress also used the bill as an opportunity to change the way that Medicare reimburses oncologists. Currently, these doctors are reimbursed for injected treatments such as chemotherapy that are given in their offices. Congressional investigators have reported that Medicare was overpaying for the drugs. Oncologists countered that they were under-reimbursed for other costs they incurred, such as nurses and general office visits. The new reimbursement system will reduce government payments for cancer medicines beginning in 2004 but will increase payments for practice expenses to oncologists and other providers.

Changes that could affect drug prices: Measures in the bill are aimed at getting generic drugs to consumers more quickly by limiting pharmaceutical companies’ ability to block the cheaper versions of their band-name medicines. The bill does not, however, clear the way for legal access to lower-cost prescription drugs from Canada. It also contains a provision that prohibits the government from directly negotiating with drug companies for lower prices for medicine purchased for Medicare beneficiaries.

New tax-free health savings accounts: An over $6 billion provision in the bill will allow individuals with health insurance deductibles of over $1,000, or $2,000 for couples, beginning in 2004 to put away the amount of their annual deductible — up to $2,600 a year for individuals and $5,150 a year for families. People age 55 to 65 can make additional contributions to build a medical nest egg.

Money deposited in the accounts can be invested and then withdrawn free of taxes for insurance premiums and other health costs. The account will stay with a person for a lifetime and upon death the assets could be transferred tax-free to a spouse.