MEDICARE REFORM: Clinton Unveils Ambitious Plan

"Kicking off what could be his final campaign for a domestic policy legacy," President Clinton yesterday outlined a far-reaching overhaul of the Medicare system, which he said would extend the program's solvency to 2027, while providing a prescription drug benefit. Clinton said, "The plan is credible, sensible and fiscally responsible. It will secure the health of Medicare while improving the health of our seniors." The voluntary drug plan would "initially cost seniors $24 a month and pay for half of all drug costs up to $2,000 a year." By 2008, the premium would rise to $44 a month and cover half of all costs up to $5,000. It would be offered free to low-income seniors, the Arizona Republic reports (6/30). "Nobody would devise a Medicare program today, if we were starting all over, without including a prescription drug benefit," Clinton said (ABC, "World News Tonight," 6/29).

Who Pays?
White House National Economic Adviser Gene Sperling said, "The majority of the prescription drug benefit will be from savings from Medicare" (Goldstein, Philadelphia Inquirer, 6/30). Clinton also "proposed paying for about 61% of the 10-year, $118 billion drug plan by giving ... [Medicare] new tools to hold down costs" (Arizona Republic, 6/30). They include:

Full coverage for certain diagnostic tests such as mammograms and colorectal screenings. The president said, "It makes no sense for Medicare to put up roadblocks to these screenings and then turn around and pick up the hospital bills that screenings might have avoided" (Albany Times Union, 6/30).
Giving beneficiaries incentives to choose low-cost HMOs. Seniors would be allowed to keep 75 cents of every dollar saved.
Increasing the $100 annual deductible in line with consumer price increases.
Offering subsidies to employers as an incentive for them to continue providing health benefits to retired employees (Pear, New York Times, 6/30).
Adding co-pays of 20% to laboratory services to help curb unnecessary use and control fraud.

The president's proposal would also allow those aged 62-65 to buy into Medicare for $300 per month, in return for a small surcharge once they turn 65. Those 55-62 could buy in for $400 per month if they lost their jobs and their insurance (S cripps Howard/Arizona Daily Star, 6/30). CongressDaily/A.M. reports that while the president decided against charging wealthier beneficiaries a higher premium in his official proposal, Sperling said the administration would still push for the provision in debate on Capitol Hill. "If, as the process of Medicare reform goes forward, that was something the Republicans and Democrats could come together on, it is a policy that the president would support," he said (Koffler, 6/30).

Federal PBMs?
The AP/Dallas Morning News reports that under the drug plan, the federal government would contract with pharmacy benefit managers, much as large HMOs do. While some drug companies expressed concern that such a move would throw the drug market into turmoil, Sperling said the government would "attempt to avoid distorting the marketplace by using private benefit managers to negotiate drug discounts only on a regional and local basis, rather than nationally." He said, "This is simply at the local and regional level, allowing the Medicare program to get the same discounts for their beneficiaries that every other insurance provider can." But, he said, Medicare could still realize savings of 10% to 15% on drug costs via PBMs (6/30).

Sticking Point
Much of the funding for the president's prescription drug program will come from savings realized in the Balanced Budget Act of 1997. While Medicare savings as a result of the act were projected at $112 billion through 2002, revised estimates peg the windfall at $197 billion (Philadelphia Inquirer, 6/30). But hospitals complain that the president's plan, rather than putting the money back into their coffers, puts it into the new prescription drug program. CongressDaily reports that while the plan includes a $7.5 billion "provider set-aside" to smooth out some of the more drastic cuts, and some "specific relief for teaching hospitals," it looks to save an additional $31.5 million over 10 years by "extending other cost saving provisions of the BBA" (Rovner, 6/29). However, New York officials immediately complained that the relief would not be sufficient. Sen. Charles Schumer (D-NY) said, "New York's hospitals are given the short shrift," estimating that the plan would "cost hospitals in [New York City] $1.7 billion over 10 years, and hospitals in the state $3.2 billion." He said he would meet with Clinton to discuss easing the cuts. An aide to Sen. Daniel Patrick Moynihan (D-NY) said New York hospitals "have taken some pretty big hits. This will make it much more difficult for them" (Blomquist, New York Post, 6/30). Andrew Dreyfus, executive vice president of the Massachusetts Hospital Association, said the plan would impose "additional devastating cuts" on hospitals in the state. "They would hurt. They would affect every floor in every hospital in Massachusetts" (Zitner/Knox, Boston Globe, 6/30)

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