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The New Medicare Law - Will It Help or Hurt?

by Sue Young Wilson, Jan 12, 2004
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President George W. Bush signed into law in December, 2003 the most sweeping changes to Medicare since the 1965 creation of the federal health insurance program for people over 65 (as well as some disabled persons under 65). The most significant - and controversial - element of the new law is the addition to Medicare of prescription drug coverage.

The $400 billion Medicare Prescription Drug Modernization Act has generated bitter conflict throughout its progress into law, with supporters claiming it will greatly help the 40 million seniors on Medicare to pay for the medications many of them rely on, and critics fearing that the plan will mainly benefit the drug companies and the private insurers and plans that will deliver the Medicare benefit. They even suggest that it is a first step towards the dismantling of Medicare. The bill squeaked through Congress by the narrowest of margins - according to a CNN.com report, in the House of Representatives the vote was running against the bill 218 to 216 until Bush himself made a series of last-minute telephone appeals to members, and slid to victory with 220 for and 215 against.

Now that the bill is law, health care experts and advocates for the elderly seem as divided as ever about whether it will benefit or hurt most present and future Medicare recipients. Indeed, with provisions having been added to and removed from the bill until the last possible moment, and many of them discreetly buried in the nearly 700 pages of drug-plan legislation, both the analysts and those charged with implementing the plan are still figuring out exactly what the law says. Answers to these questions are likely to be slow in coming, since most of the new legislation's provisions will not take effect immediately -- the drug plan, for instance, not until 2006. (Starting this spring, however, Medicare enrollees will be able to purchase prescription-drug discount cards for $30 or less that are expected to save them 10 to 25 percent.)

"The short-term impact in New York is not likely to be dramatic," says James R. Tallon, president of the United Hospital Fund, a federated charity (the nation's oldest) that researches and analyzes health care issues in New York City and issues public-health grants. "There will be some benefit to the hospitals, especially rural hospitals, like those upstate. They used to be reimbursed less than urban hospitals, on the assumption that their costs were lower; now much of that gap has been closed. Hospitals in New York City probably won't be affected that much."

"Over the long term, we're just not sure what will happen," he says.

PRESCRIPTION DRUG COVERAGE

For those Medicare recipients who currently have no prescription drug coverage at all, something is clearly better than nothing. Some aspects of the new prescription drug provisions do look good on paper, at least for those seniors with especially high drug costs and/or very low incomes. The benefit will cover 95 percent of the cost of drugs for people with $5,100 or more in drug costs. And for the 11 million or so Medicare recipients whose income is less than about $13,000 for individuals (or $17,500 for couples), it will pay almost the full cost of prescription drugs, with no premiums or deductibles. Those with incomes no more than 50 percent above the federal poverty level will pay sliding-scale premiums and a modest deductible of $50.

However, the benefit is stingier for seniors who do not fall into the above categories. These seniors must pay the first $250 of their drug costs out of pocket. Medicare would then pay 75 percent of costs up to a limit of $2,250. At that point payments would stop altogether until/unless the beneficiary's costs reach the $5,100 mark, and the 95-percent coverage kicks in. Enrollees will still be required to pay their premiums, estimated at about $35 a month, throughout this $2,850 gap in coverage.

Groups such as the National Committee to Preserve Social Security and Medicare and the Medicare Rights Center and public officials such as Senator Hillary Clinton, have expressed serious concern that the new law does not allow the government to negotiate drug prices with the drug companies, even though it does so for other health care programs like the Veterans Administration's, and such negotiations have been vital in keeping costs down. Spending on prescription drugs in the U.S. has been increasing by over 15 percent annually for several years; critics of the Medicare plan say that with no price controls, by 2006 and beyond seniors will be spending more with the insurance than they do now without it.

NEW CAP ON CONTRIBUTIONS

The new law also allows the government for the first time to cap its general contribution to Medicare. And the $400 billion in federal funds set aside for the Medicare changes over the next ten years will not all go to pay seniors' drug costs; a quarter of it is earmarked for subsidies to private enterprises like the HMOs, PPOs, and other private providers who will administer the drug coverage, and to the companies that will be needed to perform the complex task of coordinating benefits. With costs escalating and the federal contribution capped, the result might well be higher premiums and the shifting of other costs to Medicare enrollees.

"I'm skeptical about these so-called market-driven initiatives," says James Tallon. "The administration used phrases like offering seniors more 'choice' and 'flexibility' in choosing providers, but these words really are euphemisms for cost-sharing. One thing we do know is that the private health care market has higher administrative costs than the federal programs, and its reflexive strategy tends to be to pass on the higher costs to the insured."

"When costs go up, and costs are going to go up, the seniors and the disabled are going to pay for it," says Judy Wessler, director of the Commission on the Public's Health Systems, a New York nonprofit that advocates for affordable health care for all residents. "And the legislation leaves very clear holes, holes that people will fall through. A lot of these holes came out only after the bill was passed. Lots of things have come out since that raise red flags and concerns. The law is very problematic, and a big disappointment to those of us who have been waiting so long for Medicare drug benefits."

BENEFITING OR HURTING NEW YORKERS?

It remains far from clear whether the new plan will end up, on balance, benefiting or hurting the 2.7 million current Medicare recipients in New York State.

"One big question, especially for low-income people, is how the new plan is going to be administered, and how confusing the new options and changes will be," says Tallon. "One of the things we have learned, historically, is that the implementation of a new program this big typically involves complexities that far exceed anything the legislators foresaw. These added complexities are a big problem for people. They are confusing even to health care administrators. If English is not your native language, or you're not skilled at dealing with bureaucracies, you can get completely lost in the shuffle.

"Another big issue is, how is this bill going to connect to existing programs like EPIC [Elderly Pharmaceutical Insurance Coverage], New York's state-run pharmaceutical assistance program, and Medicaid and private retiree programs?"

Tallon is not alone in his concern; many of the plan's opponents and critics predict that seniors will actually end up paying more for prescription drugs when that part of the law goes into effect, particularly if the new Medicare coverage means they lose their eligibility for other, more generous prescription-drug plans such as state-run pharmaceutical-assistance programs or an employer's retiree plan.

New York State's Elderly Pharmaceutical Insurance Coverage program (EPIC), for example, currently provides prescription drug benefits at very low cost to about 320,000 seniors. Notably, the program's eligibility requirements are much less stringent than those set by the new Medicare plan for full coverage of drug costs. For seniors with individual incomes under $20,000 (or married seniors with total income under $26,000), the state program's fees are also generally much lower than the premiums for the Medicare drug plan. A senior with an income of $14,000 who is enrolled in the state program pays an annual fee of $60; a senior with the same income would pay premiums totaling $420 a year for the Medicare plan. EPIC covers almost all prescription drugs, which will almost certainly not be the case with Medicare benefits delivered by a myriad private providers. It imposes no deductible for individuals with incomes under $20,000 or couples with incomes under $26,000.

A Jan. 4 New York Times article reports that both Democrat and Republican state legislators are worried that coordinating the two programs will be extremely complicated and confusing to seniors eligible for both, and some fear that the Medicare plan will provide an excuse for greatly diminishing or eliminating the state program.

Also, under the new law, the 219,000 low-income seniors in New York who qualify for both Medicare and Medicaid will lose their eligibility for the Medicaid prescription coverage and be covered only by the Medicare plan. Whether the forced change from the Medicaid to the Medicare drug plan will benefit or hurt them depends, like so much else, on how the Medicare provisions play out; something which will remain unknown at least until 2006, and probably a good while longer.

Sue Wilson is a journalist who writes frequently on health and science topics for such outlets as the New York Times, WNET, and UNICEF.

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