Prescription Drug Plan

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President Clinton Highlights New Analysis Supporting the Clinton Administration Prescription Drug Plan

THE WHITE HOUSE
Office of the Press Secretary

For Immediate Release

March 13, 2000

PRESIDENT CLINTON HIGHLIGHTS NEW ANALYSIS SUPPORTING
THE CLINTON ADMINISTRATION'S PRESCRIPTION DRUG PLAN

Today at an event in Cleveland, Ohio, President Clinton will highlight new data documenting the financial burdens middle-income Medicare beneficiaries face in purchasing prescription drugs and accessing affordable insurance coverage for these lifesaving medications. The analysis being released today shows that: (1) middle-income beneficiaries without prescription drug coverage purchase 20 percent fewer drugs but pay about 75 percent more out-of-pocket than those with drug coverage; and (2) premiums for private Medigap insurance with drug coverage – mostly purchased by middle-class seniors – are extremely expensive and get more costly as beneficiaries age. These findings, combined with additional recent research, reveal the shortcomings of some narrowly-targeted proposals by some in the majority party that fail to cover middle-income seniors. The President today will renew his call for his own comprehensive reform plan that includes a voluntary drug benefit accessible to all Medicare beneficiaries.

LOW-INCOME BLOCK GRANT WOULD EXCLUDE MILLIONS OF SENIORS. Some Republicans propose to expand prescription drugs through a block grant to states to cover low-income seniors. While low-income Americans would certainly benefit from a prescription drug benefit, the data show that targeting only the low-income would leave millions of seniors without affordable, dependable coverage.

Middle-income seniors without drug coverage purchase fewer prescription drugs but pay more out-of-pocket. Analysis by the National Economic Council shows that middle-income beneficiaries without coverage average 20 percent fewer prescriptions but spend about 75 percent more out-of-pocket on drugs than insured middle-class beneficiaries.

Over half of Medicare beneficiaries who lack prescription drug coverage have income above 150 percent of poverty.chart This is the income limit (about $17,000 for a couple) for most low-income block grants.

In Ohio, most seniors would not qualify for a low-income block grant. There are 776,000 middle-income seniors in Ohio who earn too much income to receive assistance in a low-income plan but too little to be able to afford expensive private premiums.

Governors oppose shifting responsibility of drug coverage for seniors to states. Although some states have extended Medicaid coverage to additional low-income seniors, the National Governors' Association, at its meeting last month, called on Congress “not to shift the cost or responsibility of any new prescription drug benefit for seniors to states.”

RELIANCE ON FLAWED PRIVATE MEDIGAP AND TAX APPROACHES LEAVE MAJOR GAPS IN COVERAGE. Others in Congress propose solving the prescription drug problem by expanding private Medigap insurance and through tax breaks rather than creating a voluntary Medicare prescription drug benefit. But such policies would disproportionately assist high-income seniors and would still leave millions of middle-income seniors without a dependable, affordable option. And because they do not promote group purchasing, these approaches cannot leverage price reductions for seniors.

New General Accounting Office (GAO) data being released today show private Medigap premiums are expensive – especially for older seniors. On average, it costs about $164 per month for a 65-year-old to buy a Medigap plan that pays for prescription drugs and lower cost sharing (seniors cannot buy insurance for prescription drugs alone). Monthly premiums range from $107 to $249.

In most states, Medigap for an 80-year-old costs 33 percent more than the same coverage for a 65-year-old. In all but 12 states, Medigap insurers can charge premiums based on age. As a result of “age-attained rating,” younger seniors, who are healthier and wealthier, sign up for coverage but get priced out of Medigap as they age – and just as they need coverage most. The average premium for Medigap with prescription drug coverage is $217 per month for an 80-year-old – 33 percent more than the same coverage for a 65-year-old.

In Ohio, an 80-year-old can expect to pay over 50 percent more – $84 per month – than a 65-year-old for Medigap that includes prescription drugs. For seniors on fixed incomes, this can be prohibitively expensive.

Extra amount for a plan with prescription drugs is high. A 65-year-old beneficiary pays nearly $60 more a month for a Medigap plan with prescription drugs than for one without drugs. In some states, the extra cost for the plan with drugs is higher than the value of the coverage itself ($1,250 per year).

These high and variable premiums help explain why only about 10 percent of beneficiaries get prescription drugs through Medigap – and why almost half of Medigap enrollees do not keep it for the entire year. A recent study found that Medigap is the most unreliable source of prescription drug coverage.
A new prescription Medigap plan covering only prescription drugs would be prohibitively expensive or inaccessible altogether. Medigap insurers have testified that the likelihood of attracting sicker beneficiaries in this type of option would force them to charge excessively high premiums or not participate at all.

Providing tax breaks for prescription drug costs misses many seniors. About 40 percent of seniors do not have any tax liability and thus would not be helped by a tax-based approach to helping cover prescription drug costs.

Tax and Medigap approaches not only provide for poor coverage but do not achieve discounts for medications purchased. Because these approaches do not promote group purchasing, they cannot leverage price reductions for seniors.

PRESIDENT'S APPROACH ASSURES AFFORDABILITY AND ACCESS. President Clinton's FY 2001 budget includes a comprehensive plan that makes Medicare more competitive and efficient and dedicates part of the surplus to improve Medicare solvency and to add a long-overdue prescription drug benefit. Last week, the Congressional Budget Office (CBO) released an analysis of the President's plan that estimated its cost at about $150 billion over 10 years. This analysis confirms that the President's plan meets the principles, agreed to by all Senate Democrats, that a prescription drug benefit should be:

Voluntary. Medicare beneficiaries who now have dependable, affordable coverage would have the option of keeping that coverage. According to CBO, 75 percent of seniors with retiree coverage would keep it under the President's plan.
Accessible to all beneficiaries. All seniors and people with disabilities would have access to a reliable benefit. Beneficiaries who join the program would pay the same premium and get the same benefit, no matter where they live, through a private, competitively selected benefit manager or, where available, through managed care plans.
Accessible to all beneficiaries. All seniors and people with disabilities would have access to a reliable benefit. Beneficiaries who join the program would pay the same premium and get the same benefit no matter where they live, through a private, competitively selected benefit manager or, where available, through managed care plans.
Designed to give beneficiaries meaningful protection and bargaining power. A reserve fund in the President's budget enhances the base benefit and helps seniors and people with disabilities with catastrophic prescription drug costs. The plan also gives beneficiaries bargaining power they now lack; according to CBO, discounts would average 12.5 percent.
Affordable to all beneficiaries and the program. According to CBO, premiums would be $24 per month in 2003 and $48 per month in 2009, when fully phased-in. Low-income beneficiaries – below 150 percent of poverty ($17,000 for a couple) – would receive extra help with the cost of premiums; those below 135 percent would have no cost sharing.
Consistent with broader reform. The new, voluntary prescription drug benefit is part of a larger plan to strengthen and modernize Medicare. This plan would make Medicare more competitive and efficient, reduce fraud and out-year cost increases, promote fair payments, and improve preventive benefits in Medicare. The plan would also dedicate $299 billion from the non-Social Security surplus to Medicare to help extend its solvency to at least 2025.