"Congress should never have passed the Republican Medicare bill".

Senator Edward M. Kennedy (D-Mass.),
ranking member of the Senate Health, Education, Labor, and Pensions Committee,
United States Senate, Washington, DC

"The Republican Medicare bill is wrong for senior citizens, wrong for Medicare, and
wrong for the country. Its inadequate and badly designed drug benefit is a Trojan
horse created with one purpose in mind — to privatize Medicare and pander to the
pharmaceutical and insurance industries at the expense of the nation's senior
citizens. This agenda has been Republican dogma ever since Medicare was enacted
in 1965. For the first time since then, the Republicans have control of the White
House and both houses of Congress, and they did not hesitate to use that control to
force their anti-Medicare ideology through Congress. At the very least, the new law
needs to be restructured and corrected in major ways.

President George W. Bush's original strategy was to deny senior citizens any drug
benefit unless they joined a health maintenance organization (HMO) or other private
insurance plan. That proposal was a nonstarter, and Republicans in Congress
developed a more devious way to achieve the same goal.

The new law practically bribes private insurers to enter the health insurance market
for seniors. It pays 25 percent more than it would cost Medicare to provide the
same health services to seniors. About one third of the bonus comes from the new
payment formula contained in the bill. The other two thirds comes from the Bush
administration's refusal to reflect the reality that the healthiest seniors are the most
likely to join HMOs [1]. Understandably, sicker and frailer elderly people do not want to
give up the free choice of doctor that has been one of the central features of Medicare
from the beginning.

HMOs and other private insurers will reap huge profits under the new law at the expense
of Medicare and its beneficiaries. According to a recent estimate, private insurers would
gain an additional $189 billion per year in revenues by entering the Medicare market [2].
The Bush administration says that all it wants is competition between Medicare and
private insurance plans for seniors, but instead of allowing fair competition, it has stacked
the deck against Medicare. The new law also provides a $12 billion slush fund for a new
kind of private alternative to Medicare — regional preferred-provider organizations, or
PPOs— in addition to the 25 percent overpayment.

The bill sets up a massively destructive program called "premium support" in which
as many as 6 million senior citizens will be forced to participate. Under the plan, the
premiums for Medicare and private plans are linked to one another. As healthy seniors
are enticed out of Medicare by private plans, Medicare premiums will have to increase
to cover the costs of the seniors who remain in Medicare. Those higher premiums will
then force more and more healthy seniors out of Medicare into private plans, further
increasing Medicare premiums and resulting in a death spiral, as Medicare becomes
more and more unaffordable and finally collapses.

Even the new drug benefit for seniors who remain in the Medicare program will be
administered through private insurers who are free to set their own premiums and
establish their own formularies. If no insurers offer the benefit in a given geographic
area, Medicare itself can step in with a plan. But if even one private insurer offers a
drug benefit — even if its premiums are unaffordable or its formulary does not meet a
given patient's needs — the only other way to obtain the drug benefit is to join an HMO
or a private plan.

These shameful provisions should all be eliminated. Senior citizens should be free to
choose a private plan instead of Medicare, but the choice should be genuine — not
dictated by unfair competition.

A separate but severe problem with the new law is that the prescription-drug benefit
itself is far from adequate. The Bush administration and Republicans in Congress
gave a higher priority to tax breaks for the wealthy than to health care for senior citizens.
The budget allocated for prescription drugs represents only 25 percent of the cost of
the drugs that senior citizens need [3]. So many seniors will have to pay such a high
proportion of drug costs out of their own pockets that the new program hardly qualifies
as insurance. Senior citizens with $500 in drug costs will actually pay more, including
premiums, than they would if they did not participate in the program. Elderly persons
with $1,000 in drug costs will pay 86 percent of that amount in premiums and cost sharing;
those with $5,000 in drug costs will pay 78 percent.

Moreover, the inadequacy of the benefit will grow over time. Drug costs are increasing
much faster than the incomes of the elderly, and the law does nothing to ease that burden.
Seven years after the new program begins, the premium will have increased from $35
a month to $58, and the deductible will have increased from $250 to $445. The threshold
in expenses that allows a beneficiary to qualify for the so-called catastrophic protection
will have increased from $5,000 to $9,000 [4].

Because the benefit is administered by private insurance companies operating in
different geographic areas, the premium can vary widely, depending on where seniors live.
The drugs that are actually available can also vary, depending on the formularies offered
by the plans in the particular area.

The benefit also discriminates against seniors who have private retiree coverage through
a former employer — even though these seniors and their employers pay the same taxes
to support Medicare that everyone else does. As a result, the Congressional Budget Office
and outside experts estimate that almost 3 million retirees will lose the good coverage
they now enjoy, because their former employer will eliminate its drug coverage for
retirees [4, 5].

The new law does offer generous coverage for low-income elderly persons — those
with incomes below 150 percent of the poverty level. But even this coverage is tainted.
The law imposes federal copayments on 6 million elderly persons and disabled Medicaid
beneficiaries — the poorest of the poor — and these copayments are higher than what
most of these people pay today. In this very poor population, even these low copayments
— $1 for a generic drug and $3 for a brand-name drug — often lead to a failure to take
needed drugs and, ultimately, serious health consequences. One study found an 88 percent
increase in the rate of such consequences, including hospitalization, institutionalization in
a nursing home, and even death, and a 78 percent increase in the rate of emergency room
visits [6]. In addition, to qualify for low-income benefits, beneficiaries have to pass a
demeaning assets test that prevents those who have managed to save a small amount for
retirement from qualifying, no matter how low their income is.

The new law also contains numerous provisions that benefit the insurance companies that
administer the program at the expense of the people it is supposed to help. When senior
citizens sign up with a particular insurance company to obtain the drug benefit, they are
locked in for a year. But the company can change the formulary of drugs it covers at any
time — and does not even have to tell beneficiaries about the change; all it has to do is
post an announcement on its Web site.The law even prohibits seniors from using their
own money to buy a "wrap-around" policy to fill in the gaps in the benefit.

The worsening prescription-drug nightmare that seniors and many others face in our
country today is caused by the exploding cost of drugs. Studies predict that the new law
will mean higher drug prices and even higher windfall profits for the pharmaceutical
industry [4, 7]. Shamefully, the law prohibits the government from negotiating lower prices
for Medicare, even though negotiations regarding the drugs purchased by the Department
of Veterans Affairs and the Department of Defense have resulted in charges 60 percent
lower than the prices paid by others. Medicare should be given explicit authority to
negotiate with drug companies for better prices, and it should use that authority.

Congress should also pass legislation to provide for the safe reimportation of drugs from
Canada and the European Union, in order to exert downward pressure on U.S. prices.
The pharmaceutical industry has been the most profitable industry in the country for a
decade. According to an analysis of 2001 data, it was five times as profitable as the average
Fortune 500 company [8]. The industry deserves great credit for supplying miracle drugs,
but no responsible industry would engage in the price gouging and advertising abuses
that taint its reputation today.

Congress should never have passed the Republican Medicare bill. It was rammed through
the House and Senate only after normal rules had been bent or broken. It is a partisan
law shaped by right-wing ideology and powerful special interests that contribute heavily
to the Republican Party. It is designed to destroy Medicare, and it benefits the
pharmaceutical and insurance industries, not senior citizens. It needs profound restructuring
if it is to meet the needs of the elderly, protect Medicare, and serve the best interests
of the American people".

References:

1. Centers for Medicare & Medicaid Services. Medicare+Choice in 2004. October 9, 2003
(transcript). (Accessed January 27, 2004, at
     http://www.medpac.gov/public_meetings/transcripts/100903_M%20C_SH_transc.pdf )

2. The impact of Republican Medicare proposals on insurance industry revenues and profits.
Report. Washington, D.C.: Senate Committee on Health, Education, Labor, and Pensions
Minority Staff, January 16, 2004.

3. Congressional Budget Office. Statement of Douglas Holtz-Eakin, Committee on Ways
and Means, U.S. House of Representatives, April 9, 2003. (Accessed January 27, 2004, at http://waysandmeans.house.gov/hearings.asp )

4. Congressional Budget Office. Letter to the Honorable Don Nickles providing additional
information about CBO's cost estimate for the conference agreement on H.R.1. November
20, 2003. (Accessed January 27, 2004, at
     http://www.cbo.gov/MoreRecentlyReleased.cfm )

5. Thorpe KE. Implications of a Medicare prescription drug benefit for retiree health
care coverage. November 2003. (Accessed January 26, 2004, at http://www.house.gov/schakowsky/Thorpe_paper_2.pdf )

6. Tamblyn R, Laprise R, Hanley JA, et al. Adverse events associated wtih prescription
drug cost-sharing among poor and elderly persons. JAMA 2001;285:421-429.

7. Sager A, Socolar D. 61 Percent of Medicare's new prescription drug subsidy is windfall
profit to drug makers. October 2003. (Accessed January 26, 2004, at
     http://www.yuricareport.com/Medicare/MedicareRXwindfall-1pg-Sager-Socolar.pdf )

8. Families USA. Profiting from pain: where prescription drug dollars go. July 2002.
(Accessed January 26, 2004, at
     http://www.familiesusa.org/site/DocServer/PPreport.pdf?docID=249 )

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