Reform or Deform?

The new Medicare law will help the most needy seniors with drug costs--but others might find much they don't like in the bill.

During last month's State of the Union address, President George W. Bush proudly hailed the recently passed Medicare Prescription Drug, Improvement and Modernization Act of 2003. Signed into law on 8 December 2003 and now expected to cost $530 billion to $540 billion over 10 years, the bill adds a prescription drug benefit to the federal Medicare program, providing needy senior citizens with "the modern medicine they deserve," as Bush put it. When the bill takes effect in 2006, seniors lacking drug coverage will have the option of paying a monthly premium of "about $35," Bush said. In return, he added, "most … can expect to see their drug bills cut roughly in half."

At a time when many seniors can barely afford the drugs they need to stay alive, halving their expenses sounds like a dramatic improvement. But some doubt that the new law will serve as the panacea that Bush promised. The criticisms begin with the $35-a-month premium figure itself. This money will largely go to private companies contracting to provide drug benefits, notes Deane Beebe of the New York-based Medicare Rights Center, not to Medicare itself. And these companies could charge whatever they want--not just $35. "That's just a guesstimate," says Beebe. "Really, nobody knows, because in truth it's going to be private plans offering the estimate."

Those backing the new law counter that market forces will keep premiums low. "Because the premium is not set in the statute, plans will compete," says Christin Tinsworth, communications director for the House Ways and Means Committee, which has jurisdiction over Medicare legislation.

The unfixed premium is just one worry about this controversial and hotly debated piece of legislation. Last week the legislation's price tag came into question as the White House announced that the program would most likely cost one-third more than the $400 billion originally predicted when Congress passed the legislation 2 months ago. More troubling still, doubters citing the bill's knotty complexity have expressed concern about the law's potential impact--an effect that will extend far beyond the price of prescription drugs.

At 415 pages long, the Medicare reform bill has 12 different "titles," or sections. Only the first relates to a prescription drug benefit. The rest of the law contains a dramatic, privatization-friendly overhaul of the Medicare system--one that policy analysts still haven't fully digested. But so far, "what they know, they don't like," says Yale public policy and management professor Theodore Marmor, author of The Politics of Medicare. Marmor fears that in the long term, the non-drug-related parts of the bill will shift traditional Medicare functions into the hands of private health-maintenance companies. This move could ultimately undermine the idea of Medicare as a universal social insurance program that puts all senior citizens in the same boat instead of leaving them at the mercy of the market and private companies.

When it comes to drug costs, one of the bill's most criticized features is the so-called doughnut hole. In addition to monthly premiums, under the new law seniors will pay the first $250 of their drug expenses as a deductible and then 25% of anything over that--until the total reaches $2250 in the space of a year. Then coverage falls off completely and doesn't kick in again until yearly drug costs reach $5100. At that point, catastrophic coverage begins and Medicare picks up 95% of the remaining expense. Despite the gap, Peter Ashkenaz, a spokesperson for the federal Centers for Medicare & Medicaid Services, says the new law represents an improvement over what existed before. "You have to remember that the drug benefit is a benefit that most Medicare beneficiaries don't currently have," he says.

Still, the $2850 hole will bedevil many seniors grappling with high drug costs that don't reach the "catastrophic" level. (According to the Kaiser Family Foundation, the average Medicare beneficiary spent about $2300 on drugs in 2003.) Even Joseph Antos, a health care expert at the conservative (and generally pro-Bush) American Enterprise Institute, has described this gap as "confusing, unfair, and designed to fail." The law's defenders, however, call the coverage void an inevitable consequence of trying to provide a benefit to 40 million Medicare beneficiaries with limited funds. "Nobody thought it was a good idea, trust me," says health analyst Julie James of the consulting firm Health Policy Alternatives Inc. "It was just something that was dictated by the fact that there was only so much money."

Unfortunately, the new law prevents senior citizens from obtaining Medigap supplementary insurance to protect themselves from the doughnut hole--even though such insurance can be obtained to make up for deficiencies in other Medicare coverage, such as hospitalization deductibles and excess doctor fees. And Bush's statement that the bill will halve the drug costs for "most" seniors puts the best spin on what's something of a crazy quilt. According to the House Ways and Means Committee, for instance, a senior spending $2500 annually on drugs will save 57% under the plan, but a senior spending $1285 annually will save only 34%.

The doughnut hole might not have been so wide were it not for another controversial provision. In his State of the Union speech, Bush told Congress, "We must work together to help control [health care] costs." But critics say that controlling drug-cost inflation is one thing the new Medicare law expressly avoids.

The bill contains a provision, dearly desired by pharmaceutical companies, that prevents the federal Medicare program from using its massive purchasing power to negotiate cheaper drug prices from manufacturers. Defenders of the bill say that private plans will use their own, smaller purchasing power to obtain drug discounts. Yet by failing to use all the available leverage to bring down costs, critics charge that the new law fails to deal with a glaring problem: steady inflation in the price of prescription drugs.

Such inflation stems from a combination of year-to-year price inflation, steadily increasing drug usage, and expenses that arise from improvements in technology. Taken together, these rising costs can gouge senior citizens. According to Trudy Lieberman, director of the Consumers Union Center for Consumer Health Choices, a Medicare beneficiary who currently spends $2300 on drugs each year will spend $2900 by 2007. If the bill had made an effort to combat inflation, it might not have filled the doughnut hole entirely, but it could have "closed the gap somewhat," notes Brian Biles, a professor of health policy at George Washington University.

The drug industry counters that putting "price controls" on its profits could damage the industry's ability to invest in the research and development that leads to innovative new medicines. Yet according to the Kaiser Family Foundation, between 1994 and 2000, the pharmaceutical sector was by far the most profitable industry in the United States, almost four times more profitable than the median Fortune 500 company. Considering that the industry is basking in profit, Biles says, a modest dent in manufacturers' income should not eat into their R&D. Other nations use their purchasing power to get better prices from drug companies, adds Biles. So does the U.S. Department of Veterans Affairs.

Bush also sold his bill to the public by explaining that seniors "can choose a Medicare plan that fits them best." Many would argue, though, that the legislation restricts rather than expands options. Once seniors opt for a plan, they could find that their drug choices are limited rather than broadened, because different plans could have different drug formularies, or lists of covered drugs. The trouble is that, when joining a plan, seniors might not know which drugs they will ultimately need. "If you're healthy and you're choosing a plan, but then you become unhealthy later on, how do you make a rational decision about which set of drugs to buy into?" asks Robert Friedland, director of the Center on an Aging Society at Georgetown University. Supporters of the bill, however, don't see the problem. Seniors will have the right to appeal any "formulary determination," says Tinsworth of the House Ways and Means Committee.

On the upside, the law indisputably benefits seniors with extremely low incomes. "That's a wonderful expansion of health care to the people in our society who weren't taking their pills, or were cutting them in half, or were just going without," says Bill Vaughn, government affairs director of the liberal organization Families USA. But, Vaughn adds, "having said that, the rest of the bill is filled with gaps and problems." If seniors become fed up with these gaps and complications, passage of this legislation might mark the beginning, not the end, of the battle over Medicare reform.

Chris Mooney, a writer living in Washington, D.C., hopes Medicare lasts until he's 65.