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Prescription For Chaos

For Most Retirees, Medicare Program Fails To Lower Costs

by Bette Hileman
June 19, 2006 | A version of this story appeared in Volume 84, Issue 25

Credit: Americans United Photo
Citizens rallied on April 6 in Washington, D.C., for change in the Medicare Part D drug program.
Credit: Americans United Photo
Citizens rallied on April 6 in Washington, D.C., for change in the Medicare Part D drug program.

Pharmaceutical industry representatives claim that the Medicare Part D prescription drug program, which is being implemented this year, will provide medicines at low cost to most of the nation's elderly and allay anxieties about the high cost of drugs. "Price concerns were addressed with the passage of the Medicare Modernization Act," says Alan Goldhammer, associate vice president for regulatory affairs at the Pharmaceutical Research & Manufacturers of America.

Enrollment in the Medicare drug program has fallen short of expectations, however. As of May 15, the deadline for enrollment, only about 10 million Medicare recipients had voluntarily signed up for the program. In addition, 5.8 million indigent seniors whose drugs were formerly paid for by Medicaid were randomly and automatically assigned to one of the 40 to 70 private insurance companies designated by Medicare to run the drug program.

The Medicare program is so complex and confusing that about 5 million seniors without drug coverage have not signed up for the benefit, and those who were automatically enrolled have had great difficulty obtaining their drugs, says Stephen W. Schondelmeyer, an economics professor at the University of Minnesota. When elderly beneficiaries who had had drug coverage under Medicaid went to pharmacies in January to get their prescriptions filled, the pharmacies often had no way to identify which of the many specific insurance plans they had been automatically enrolled in. Even after attempting to reach Medicare, pharmacists were usually unable to verify coverage and often filled the prescriptions without authorization. This is a failure of implementation that will probably be rectified eventually, Schondelmeyer says.

But the design of the Medicare drug program is flawed, because most of the Medicare prescriptions are costing the government 20-30% more than Medicaid was paying for the same drugs, Schondelmeyer explains. Under Medicaid, the government can bargain for low prices, just as the Department of Veterans Affairs (VA) does when purchasing drugs for its hospitals. But the Medicare drug law forbids price negotiations.

Schondelmeyer calls that provision a "policy failure." It is a feature, however, that drug industry lobbyists fought hard for when the legislation was being crafted, says Jerry Avorn, professor of medicine at Harvard Medical School. "Lobbyists argued that it would not be fair for drug companies to have to negotiate prices with such a powerful buyer."

The plan embodies another important policy failure, Schondelmeyer says. In any specific region, a senior who voluntarily signs up for the Medicare drug program must choose from among 40 to 70 insurance plans. Each has a different benefit design and different levels of premiums, deductibles, coverage gaps, copays, co-insurance, and prescription prices.

The law was designed to allow plans to offer low prices through competition. But the information about each plan on the Medicare website is so complex and sometimes so erroneous, that it is almost impossible to choose one with the greatest benefits, Schondelmeyer explains. The program needs to be changed, he says, so that it offers one or two standardized drug plans, rather than a confusing array.

The Centers for Medicare & Medicaid Services (CMMS) reported on May 15 that about 38 million people had enrolled in the program. But in that figure, CMMS included many retirees whose drugs are being covered by the health insurance plans of former employers, VA, and government and military retirement plans, as well as those whose drugs had been covered by Medicaid. CMMS considers a senior to be covered by Medicare if the individual has drug coverage from a former employer or union that is equivalent to or better than the Medicare coverage.

Furthermore, a large group of people are worse off than they were before the Medicare drug plan started, Schondelmeyer says. "Some employers who were providing drug coverage to retirees have dropped their benefit. They have said to themselves: 'We're having trouble paying our bills. Why don't we just drop our coverage, and let our retirees sign up for Medicare drug coverage?' Many retirees now have to pay more for their drugs than they did under the employer-based system."

The Medicare drug plan is "a rip-off for taxpayers, a confusing mess for senior citizens, and a $700 million boondoggle for the pharmaceutical industry," says Massachusetts State Sen. Mark Montigny (D).

Kentucky, Maine, Missouri, New Jersey, and Texas have filed suits against the secretary of the Department of Health & Human Services over the Medicare prescription drug law. They claim the provision in the law requiring states to pay a share of the prescription drug costs for persons enrolled in both Medicare and Medicaid programs is unconstitutional because it requires states to fund a wholly federal program without having any authority over it. The states also point out that they are paying much more for elderly Medicaid recipients' drugs than they used to.

Several members of Congress are developing legislation to change the Medicare drug program. At this point it is unclear how the program will evolve.



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