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Capitol Comment

    Capitol Comment 267 - H.R. 1495: Kennedy-Style Tax-and-Spend Liberalism at its Finest

    02/22/2000

    Congressional liberals have stepped up their campaign for a big government program to control seniors’ access to medicines. They recently filed a petition to force a vote on H. R. 1495. This bill is the house version of Sen. Ted Kennedy’s (D-Mass.) “Access to Prescription Medications in Medicare Act of 1999,” a universal entitlement program that would dramatically increase Medicare costs.1 Under the bill, also known as S. 841, Medicare would pay most of the prescription costs for all retirees through Medicare Part B (see table).

    Congressional liberals have stepped up their campaign for a big government program to control seniors’ access to medicines. They recently filed a petition to force a vote on H. R. 1495. This bill is the house version of Sen. Ted Kennedy’s (D-Mass.) “Access to Prescription Medications in Medicare Act of 1999,” a universal entitlement program that would dramatically increase Medicare costs.1 Under the bill, also known as S. 841, Medicare would pay most of the prescription costs for all retirees through Medicare Part B (see table). The program is strangely designed as a subsidy for some prescription bills combined with stop-loss protection for very high bills, leaving many people with low bills with little to gain from the plan. Seniors that already have coverage stand to lose a great deal.

    The worst aspect of the Access to Prescription Medications in Medicare Act of 1999 is a premium hike for seniors who may not want or need this bloated program in the first place.

    Adding this benefit to Medicare could cost taxpayers $20 billion to $40 billion each year. Although the bill does not identify ways to pay for these new benefits, Democratic supporters mentioned new tobacco taxes and the budget surplus. And since the bill would raise the costs of Medicare Part B, seniors’ Part B premiums would inevitably rise.

    As to be expected, the proposal also gives more power to the Health Care Financing Administration (HCFA). Instead of directly administering this purchasing program, the Secretary of Health and Human Services (HHS) would contract with pharmacy benefit managers (PBMs), insurers, or groups of pharmacies. Part and parcel with this authority would be the ability to control prices by refusing to award contracts to companies or groups whose medicines are sold at prices not approved by the government. Price controls and subsequent rationing could be legacies of this proposal.

    Prescription Coverage Under the Access to
    Prescription Medications in Medicare Act of 1999 For drug costs between ... Medicare would pay ... And beneficiaries would pay ...
    $0 and $200 0% 100%
    $200 and $1700 80% 20%
    $1700 and $4200 0%
    100%

    Over $4200 100% 0%

    In addition, because PBMs negotiate prices to obtain discounts from pharmaceutical companies, they often try to push seniors toward cheaper medicines in order to constrain costs, rather than exactly what doctors may have prescribed for their patients. PBMs and other managed care organizations typically use a variety of cost-constraint techniques: formularies, referrals for specialists, utilization review, price negotiations, differential co-payments, selective contracting, and so forth. These methods are not intrinsically good or bad. It is important, however, that prices and practices be transparent, and that health care consumers have a choice among prices and practices, rather than having them required and implemented by the government. That is the difference between creating incentives for comparison shopping and rationing.

    Finally, not only would seniors face a new medical gatekeeper, they could be forced into the program. Unless a retiree has coverage through a group health plan that HCFA deems adequate, HCFA would automatically enroll beneficiaries in one of the PBMs for their region of the country, whether or not they wish to participate. Of course, these seniors would also have to pay the higher Part B premiums.

    Expanding Medicare while doing nothing to ensure its long-term existence is a cynical political maneuver that would actually worsen health care for America’s elderly. Providing prescription drug coverage through Medicare in this fashion would naturally displace private-sector coverage by encouraging employers to drop this benefit for current and future retirees. Accordingly, the cost of this legislation may rise even higher. But the worst aspect of this legislation is a premium hike for seniors who may not want or need this bloated program in the first place.

    1 This Capitol Comment is an excerpt from “Clinton, Gore, and Congress: Medicare Reforms That Don’t Measure Up,” Citizens for a Sound Economy Issue Analysis 101, February 2, 2000.