Medicare bill leaves 'doughnut hole' for mid-range prescription costs

By Vicki Kemper
Los Angeles Times

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The drug benefit is the centerpiece of a $400 billion bill, endorsed by a conference committee yesterday, that would make the most far-reaching changes in Medicare, a health-care program for the elderly and disabled, since its enactment in 1965.

But the legislation's particulars suggest the benefit will vary depending on seniors' drug needs and incomes.

"Seniors felt they had been promised the kind of prescription drug coverage that members of Congress have," said Judith Feder, dean of public policy at Georgetown University. "What they're getting doesn't even remotely resemble that."

In the House, GOP leaders said they hoped to bring the bill to the floor today. Republicans said they were still trying to persuade some fellow party members to vote for the bill.

Last week, President Bush implied the new benefits provided by the reform bill would be much like those enjoyed by many working average Americans and their elected representatives.

"You see, every member of Congress gets to choose a health-care plan that makes the most sense for them. And the same for federal employees. If choice is good for members of the Congress, then choice is good for America's seniors," he said.

Drew Altman, president of the Menlo Park-based Kaiser Family Foundation, an independent health-care philanthropy, said senior citizens were expecting the bill to create a benefit similar to prescription-drug coverage provided by employers: A patient makes a co-payment of perhaps $10 or $20 toward each prescription, and insurance picks up the rest.

But the plan expected to be approved by Congress is different, Altman said, resulting in what he called an "expectations gap."

The first gap is one of timing. Even if Congress passes the Medicare bill by Thanksgiving and Bush signs it soon after, the prescription-drug benefit wouldn't begin to kick in until 2006.

To fill that void, the bill would create a Medicare-endorsed discount card that the Bush administration estimates would help seniors save from 15 percent to 25 percent on their prescriptions. Low-income seniors would also get the equivalent of a $600 credit for each of the two years the discount card would be valid.

Once the real benefit begins, seniors with low to moderate drug expenses would indeed get something similar to what many employer-based plans provide. Seniors who chose to join the voluntary program would pay a monthly premium of $35, plus the first $250 of their drug costs each year. Medicare would then start picking up 75 percent of additional expenses.

But as seniors' drug expenses mounted, the Medicare benefit would differ significantly from more traditional health coverage.

When total annual drug costs reached $2,250, government support would stop. Seniors would be responsible for the next $2,850 in drug costs. Only when their cumulative drug bill for the year reached $5,100 would Medicare begin paying 95 percent of all further costs.

The so-called doughnut hole — the span of drug expenses where Medicare would contribute nothing — would affect millions of people. It would begin at very close to the $2,322 that the average Medicare beneficiary paid in 2003 for prescription drugs, according to the Kaiser Family Foundation.

And Medicare drug insurance would kick in again for only a relatively small slice of seniors.

Gail Shearer, director of health-policy analysis for Consumers Union, estimated substantially fewer than 10 percent of seniors would have drug expenses so high that they would qualify for Medicare's "catastrophic" coverage for costs above $5,100.

Most seniors, she said, would spend more for drugs in 2007, with the program fully in effect, than in 2003; that is because Medicare's coverage likely would not offset any drug-price increases.

In most areas, Medicare will not be the only choice for drug coverage. The bill allows for health-maintenance organizations, preferred-provider organizations and stand-alone drug insurance to compete for seniors' business.

But Feder said she could find "no evidence that the insurance industry is willing or able to fill this need." The bill recognizes this possibility by authorizing government-run drug-insurance plans in areas where no private plan or only a single plan is available.

Shearer warned that in areas where stand-alone drug plans competed for Medicare beneficiaries' business, seniors would probably have great difficulty determining which one offered the best deal for them. What's more, she said, plans would vary from state to state and region to region, adding to the confusion.

Retirees whose drug costs are covered by insurance from their former employers would face an additional risk: that their employers will use the Medicare drug benefit as an opportunity to shed their own retiree coverage. The bill sets aside $71 billion in tax-free subsidies — valued at $86 billion over 10 years — to encourage employers to keep their retiree coverage.

The bill's prescription-drug benefit makes special allowances for seniors whose incomes are under the poverty line: $8,980 for an individual and $12,120 for a couple. They would have no premiums or deductibles and would be expected to pay $1 a month for generic prescription drugs and $3 a month for brand-name drugs.

Those seniors earning 35 percent above the poverty level would pay $2 and $5. Those with incomes up to 50 percent more than the poverty level would be required to pay a $50 deductible, 15 percent of their drug costs up to $5,100, and $2 or $5 for each prescription above that level.

But those small co-payments could become harder to make because the bill apparently would eliminate the current practice of using Medicaid, the health-insurance program for the poor, to pick up the costs that Medicare misses for the elderly poor.

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