Think of it as adding a third leg to a wobbly stool. Since 1965, Medicare has helped the elderly and disabled pay hospital bills and doctors’ fees. But this government-sponsored program has all but ignored prescription drug costs.
Now, change is in the air. Although not a sure thing, Congress is closer to approving a drug-benefit plan than ever before. Odds favor passage before the end of the year.
Driving forces. The clamor to add prescription drugs to Medicare benefits is being driven by at least two factors. First, drugs – especially newer ones – are expensive, often costing seniors hundreds of dollars each month.
Pharmaceutical companies respond that they must charge prices high enough to cover all costs, including those associated with research and development. In fact, if there’s no chance for profit, they’ll not be in business.
Second, growing numbers of Americans are eligible for Medicare. Bluntly speaking, this group represents a potent political force. And as baby boomers reach retirement age in the next few years, even more people are likely to be concerned about prescription drug costs.
Difficult matter. Each of the factors above complicates matters for policy makers. The reality is that prescription drug benefits with few, if any, strings attached would be prohibitively expensive.
The federal deficit already is expected to reach a record high this year. Thus, costs must be contained. Budget planners want to limit spending on prescription drugs to no more than $400 billion over the next 10 years.
Cost control. The question then becomes one of fitting benefits to the spending cap. The Senate and House have approved separate bills that purport to do so. Still, differences in the bills and emotions surrounding the issue are likely to slow consensus on a single final bill.
Don’t be surprised if it takes weeks or months to do so.
One thing the bills agree on is those eligible for Medicare must pay a $35 monthly premium as a starting point to receiving prescription drug benefits.
In addition, an annual deductible of either $250 or $275 will apply. Together, these provisions mean that only when prescription drug costs approach $700 annually will it pay to participate.
Savings. After the deductible is met, both houses propose to pay a portion of drug costs up to a certain limit. The House proposes 80 percent of costs up to $2,000. The Senate counters with 50 percent up to $4,500.
Then, to save money, participants will be asked to pay the full load beyond the initial cutoff up to a catastrophic threshold of either $4,900 (House) or $5,800 (Senate).
After reaching this threshold, either 100 percent (House) or 90 percent (Senate) of any remaining costs would be covered.
Low income. Some additional benefits likely will be offered to those below 150 percent to 160 percent of the poverty level.
If all this is not enough, both bills encourage seniors to opt out of Medicare and join privately managed-care plans. And congressional representatives from rural areas will attempt to make health-care reimbursements more equitable with urban areas.
In short, Congress not only may add a third leg to the Medicare stool, but go a long way toward total redesign before all is said and done.
(Roy Frederick is an agricultural economics professor and public policy specialist at the University of Nebraska in Lincoln).
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