June 28, 2000
(House)

The Administration strongly opposes House passage of H.R. 4680 because its private insurance benefit does not meet the President's test of being a meaningful Medicare prescription drug benefit that is affordable and accessible for all beneficiaries. H.R. 4680 builds on an unstable and unreliable Medigap market, an approach which the insurance industry itself has concluded is unworkable. If H.R. 4680 were presented to the President, he would veto it.

The President has made passing a voluntary Medicare prescription drug benefit one of his highest priorities. His principles for a drug benefit are that it be voluntary; be accessible to all beneficiaries; be meaningful; give eligible seniors and people with disabilities bargaining power to reduce drug prices; assure access to medically necessary drugs; and be affordable to beneficiaries and the Medicare program.

The President's plan would ensure that Medicare pays half of all participants' prescription drug costs up to $5,000 when fully phased in and that no eligible senior or person with a disability pays more than $4,000 out-of-pocket. In addition, seniors would benefit from price discounts negotiated by private pharmacy benefit managers. Beneficiaries would have a choice of getting coverage through traditional Medicare, managed care, or retiree plans. Those who voluntarily opted for the new benefit would pay a monthly premium of $25 in the first year, and low-income seniors would pay no or lower premiums and cost sharing. This coverage would start in 2002 and is part of the President's overall plan to strengthen and modernize Medicare.

The Democratic substitute, which the President strongly supports, also provides an affordable, meaningful Medicare drug benefit. It, too, covers half of costs up to $5,000 when fully phased in, includes a stop-loss of $4,000, and ensures that seniors have a choice of coverage through Medicare fee-for-service, managed care or retiree coverage. The President is dismayed that the Republican leadership refused to allow a vote on a true Medicare benefit that provides the resources necessary to ensure that premiums are affordable.

H.R. 4680 does not meet the President's principles for a meaningful prescription drug benefit. Specifically:

• Private insurance model does not ensure access to a dependable benefit. H.R. 4680 relies on private insurers to offer Medicare beneficiaries a prescription drug benefit. The private insurance industry itself has repeatedly stated that they would not participate in this flawed plan. Even if they do participate, insurers could not be relied on to provide continuous coverage in all areas -- the same problem that we have in Medicare managed care today. Under the President's plan and the Democratic substitute, all beneficiaries -- including those in rural or otherwise underserved areas -- would be guaranteed a defined, accessible, reliable Medicare benefit for the same premium.

• Private insurance model would not be affordable to all beneficiaries. Under H.R. 4680, Medicare would not provide a single dollar of direct premium assistance for middle-class beneficiaries (any senior with income above $12,600). Instead, the plan relies on subsidies to insurers, not seniors. Insurers would set premiums. Thus, seniors would pay different premiums from plan to plan and place to place. A rural senior would be at particular risk of facing excessive premiums since insurers would likely face little competition and less incentive to offer affordable coverage. The premium cited by the Republican leadership for H.R. 4680 has not been confirmed by the Congressional Budget Office or any other independent entity, unlike the President's plan. Even accepting the Republicans' claim that the premium would average $37 per month, this premium would be over 40 percent higher than the President's plan premium of $25 per month.

• Seniors would pay more for less valuable and meaningful coverage. Under H.R. 4680, seniors and people with disabilities would pay a higher premium for less generous coverage. According to an analysis by the Department of Health and Human Services, the President's benefit would be 25 percent more valuable in 2003 and 50 percent more valuable when fully phased in than that of H.R. 4680. Moreover, private insurers may vary their benefits by setting their own deductibles, copays, and benefit limits within an actuarial value. This allows insurers to discourage enrollment by the oldest seniors and most disabled beneficiaries by offering no deductible and low copays, but also a low benefit cap that leaves a large gap in coverage before the stop-loss kicks in. In addition, private plans could limit access to community pharmacists and needed medications. Under the President's plan, seniors and people with disabilities would have a real choice: choice of using their community pharmacist and access to prescriptions that their doctor -- not their insurance company -- determines are necessary.

The Administration also objects to creating a new bureaucracy to administer the new drug benefit and Medicare+Choice. This is inconsistent with the President's principles of efficient administration of the drug benefit. The Administration believes that the prescription drug benefit should be integrated into the Medicare program like all other Medicare benefits. In addition, provisions in H.R. 4680 related to the Medicare Advisory Board and its reporting requirements raise constitutional concerns.

Pay-As-You-Go Scoring

H.R. 4680 would affect direct spending; therefore, it is subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990. OMB's estimate of the pay-as-you-go cost of this legislation is under development. The Congressional Budget Office estimates that H.R. 4680 will increase direct spending by a total of $39.7 billion over five years.

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