The Effects of Congressional Proposals on Prescription Drug Costs for Medicare Beneficiaries. Protection Against High Drug Costs with a Secure Entitlement


  • The House proposal also includes generous catastrophic protection for all seniors who have high out-of-pocket drug expenses – targeting help to those who need it most. It thus would help fulfill President Bush’s call to renew the commitment that President Johnson made when Medicare was enacted – so that illness will no longer crush and destroy the savings that older Americans have put away over a lifetime.
    • Such catastrophic protection is the most difficult coverage to obtain today, and filling this gap is a very appropriate target for government support. At the same time, it was noted above that third parties like employers and Medigap policies are projected to pay $1.1 trillion toward the costs of seniors' prescriptions over the next decade. The approach contained in the House Republican plan helps limit the extent to which these liabilities are simply shifted to the Federal budget, and instead focuses government help on reducing the $700 billion in out-of-pocket costs that seniors themselves will have to bear over the next 10 years.
  • The CBO analysis of the House bill also makes it clear that beneficiaries will have a secure entitlement to the drug benefit, and that virtually all seniors will have a range of options so they can choose the drug plan that provides standard drug coverage or an improved benefit package in a way that best meets their own needs.
    • To ensure that the premium for this benefit remains attractive and affordable for all seniors, the bill provides a 65 percent premium subsidy. This approach would prevent the kind of “adverse selection” problems that have made drug coverage difficult to obtain for many Medicare beneficiaries.
    • It also provides reinsurance subsidies for drug plan sponsors so that they are not penalized for attracting less healthy enrollees even as they retain appropriate incentives to get the best value for their enrollees and the Medicare program.
    • The bill also makes it clear that this is a secure entitlement for beneficiaries and authorizes the program’s administrator to take the steps necessary to ensure that all beneficiaries have a choice of plans.
    • When proposals with a similar structure were analyzed the independent Medicare actuaries, they concluded that these drug benefits would be universally available to those in the traditional Medicare program and through Medicare+Choice plans.

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