VALLEY BUSINESS

The election is months away, but this much is virtually certain: The next president of the United States will sign into law a major expansion of prescription drug coverage for the elderly and disabled.

Al Gore has already promised to do so. George W. Bush pledges to make drug coverage more accessible as part of a major Medicare overhaul. Most candidates for Congress, regardless of political stripe, say that they too favor more coverage.

“Prescription drug coverage is a gigantic election issue, and it’s gaining more and more momentum,” said Tom Scully, president of the Federation of American Health Systems. “It’s gotten a head of steam, so it’s politically irreversible. It will happen in the next couple of years.”

But the rhetorical enthusiasm obscures deep differences between the parties and even within them, and belies just how hard it will be to craft a plan that a congressional majority can agree on. For voters, few election-year issues are likely to affect them more directly.

Medicare, which helps pay for health care for 39 million elderly and disabled, faces a huge influx of new beneficiaries as the baby boom generation retires. The number of participants is expected to double to about 80 million by 2030.

Yet Medicare has never covered prescription drugs, which increasingly have become the first line of attack for both chronic and short-term illnesses. The only exception is for participants in Medicare HMOs, which generally offer some drug coverage.

The average senior spends $864 a year for prescription drugs, according to the nonpartisan Medicare Payment Advisory Commission, which advises Congress on Medicare issues. More than one-third of seniors have no coverage, and many of those who do are subject to caps on the amount their insurance plans will pay and must make expensive co-payments that bite deeply into fixed incomes.

As a result, many politicians agree that Medicare should be changed to offer people drug coverage. But their prescriptions for doing so vary widely.

Different Approaches for the Same Aim

The leading presidential contenders, in particular, are miles apart, philosophically.

Gore, who says that he wants to be the “prescription drug president,” proposes to work within the current system by simply adding prescription drug coverage to the list of items that the elderly are guaranteed.

Bush, by contrast, holds out drug coverage as a carrot to entice seniors to accept a Medicare overhaul in which managed health care companies and private insurers would take over much of the job now done by the government. After the restructuring, seniors could choose to buy an insurance plan that covers drugs.

“Gore is building on Medicare as a social insurance program which guarantees people certain benefits, and he adds drugs to the package of guaranteed benefits,” said Larry Levitt, a senior health care analyst at the nonprofit Kaiser Family Foundation.

“In contrast, the Bush plan very much remakes Medicare and includes a way to allow people to add prescription drugs in the process. But it’s part of a significant restructuring . . . which shifts a lot of the responsibility from the government to the private sector.”

Bush has yet to issue a detailed plan. Because so much about his proposal remains vague, groups that represent the elderly, such as AARP, are reluctant to comment on it. But Bush’s speeches and campaign documents suggest that his proposal resembles a bipartisan plan backed by Sens. John B. Breaux (D-La.) and Bill Frist (R-Tenn.). The Breaux-Frist legislation has won kudos from the insurance industry and HMOs, which would get a much larger share of the elderly’s health dollar if it were enacted.

“What our elderly need is a modern Medicare plan that will provide prescription drug benefits, just like federal employees get,” said Bush early in the campaign. In a recent speech given in Rancho Cucamonga, he declared: “Our nation must . . . reform Medicare, and in doing so ensure that prescription drugs are available and affordable for every senior who needs them.”

Under the Bush proposal, participants would be offered an array of health insurance options from HMOs, insurers and other private sector entities, as well as from the traditional Medicare program. Every participating plan probably would be required to offer seniors both a version with drug coverage and one without it, according to a campaign advisor.

The government would, in effect, contribute a fixed amount toward each participant’s coverage based on the national average cost of a plan, probably adjusted for age, for example. Seniors would then choose between a number of competing plans. They could pick a more expensive plan offering better benefits or more flexibility, for instance, but would have to pay the difference out of their own pocket.

Bush advisors believe that every senior would be able to choose at least one plan that is fully subsidized by the government and includes some level of prescription drug coverage.

Those with annual incomes below 135% of the poverty level, or about $15,000 for an elderly couple, would have their plans fully subsidized. All subsidies would end at 200% of the poverty level, or about $22,500 per couple.

Campaign aides say that under the Bush plan, poorer Americans would be guaranteed a large enough subsidy to cover the cheapest health plan that has drug coverage. But they acknowledge that Bush has yet to decide how large a drug benefit would be offered. He has also not addressed the size of the co-payments that seniors might be asked to contribute, or the caps that almost certainly would be placed on drug coverage.

Perhaps more significant is the fact that Bush has not suggested allocating any additional money to cover the plan’s costs because he expects that increased competition and new efficiencies brought to Medicare by private insurers will make new funding unnecessary. There would be no cuts in Medicare, campaign aides emphasize, and the program would grow at its current rate, which is faster than inflation.

But the absence of new money leads critics to suggest that the Bush plan could end up giving the elderly less than it appears to promise.

Medicare almost certainly would end up costing more than it does today under the Bush proposal (just as Gore’s would) if for no other reasons than the addition of drug coverage and the influx of baby boomers, according to some economists.

Either doctors and hospitals would be paid less so more money would be available to cover prescription drugs, younger people would have to subsidize the expanded coverage or the elderly themselves would have to pay the difference, predicted Uwe Reinhardt, an economist at Princeton University.

“Do you think the doctors and hospitals will stand idly by and let this be taken out of their hides?” he asked. “Part of this plan is to ask the elderly themselves to pay more toward their health care.”

General Terms vs. Specific Plan

Even supporters of the Bush approach say that lack of additional funding is a serious omission. “It’s hard to imagine adding prescription drug coverage and covering the 78 million baby boomers who are retiring and not needing more money. . . . Anyone who says you don’t is just not realistic,” said Gail Wilensky, chairwoman of the Medicare Payment Advisory Commission and an administrator of the Health Care Financing Administration under former President Bush. “Maybe it will work in the short term, but not in the long term.”

Despite that reservation, Wilensky, like a number of Republicans and conservative Democrats, said that the younger Bush is moving in the right direction. “I am one of those who thinks that Medicare should look like the rest of the country’s health insurance, and certainly at this point it does not,” said Wilensky, noting that most coverage is now provided by managed care plans that place limits on many services but generally cover prescription drugs.

Gore’s plan, which is essentially the same as President Clinton’s, offers the elderly more certainty about what they would get. Those who elect to receive prescription drug coverage would pay an additional premium of $44, and the government would subsidize the balance of a policy that would cover 50% of all prescription drug costs up to $5,000 when the plan is fully phased in. In addition, the government would cover 100% of out-of-pocket costs above $4,000.

“At a time when prescription drugs are at the forefront of modern medicine, we need a health care system that treats them as a medical necessity, not a luxury,” said Gore.

Gore would attempt to control the amount the government spends on prescription drugs by allowing pharmacy benefit managers to negotiate with pharmaceutical manufacturers for better prices. Pharmacy benefit managers are private companies that act as middlemen between HMOs and drug manufacturers, bargaining for lower prices in exchange for providing a large group of patients. They are often able to win discounts of as much as 30% off the average wholesale price charged by drug makers.

Gore would commit $200 billion of the federal government’s anticipated fiscal surplus over the next 10 years to pay for his prescription drug plan. He has said that he wants to make a long-term commitment to caring for the elderly and that, especially in a robust economy, expanding health care would be a better use of taxpayer dollars than the tax cut promised by Bush.

Gore’s proposal is generally viewed as substantial and detailed. “We know more about the vice president’s proposal and they’ve put a lot of work into it, so people can look at it and see what they think,” said Marty Corry, director of federal legislation for AARP. “[Texas] Gov. Bush’s proposal is in very general terms . . . so you can’t make much of a judgment. They are going to have to provide greater clarity about what the elderly and frailer beneficiaries are going to be guaranteed in the way of a prescription drug benefit.”

The sharpest criticism of Gore’s plan comes from the pharmaceutical companies, which view it as the first step toward price controls.

Alan Holmer, president of the Pharmaceutical Researchers and Manufacturers Assn., denounced Gore’s proposal as a “one-size-fits-all, big-government program run by federal bureaucrats who care about cost, not care.”

Health policy experts worry about the cost of Gore’s plan. Over time, as drug costs grow, it could consume an ever-rising share of the federal budget, they say.

Researchers at the University of Maryland School of Pharmacy estimate that national spending on prescription drugs will rise at an annual rate of at least 15% over the next five years.

Another criticism of the Gore plan is that it would do little to bring Medicare in line with the rest of the health insurance system. And many analysts believe Democrats need to take the lead in grappling with the funding shortfall facing the entire Medicare program; Gore’s drug plan does not do so.