Private health plans may play bigger role in Medicare reform

The ongoing debate over reforming Medicare is not just about helping seniors pay for their medications. It’s about whether Medicare will continue as a social insurance program for everyone or be transformed into something very different -- a program in which private health plans such as health maintenance organizations would play a much greater role and Americans would have to foot more of the bill for coverage.

The outcome will affect everyone now on Medicare and many millions of others who someday will be dependent on the program to pay their medical bills.

In the coming weeks, Congress and the Bush administration will try to build support for changing the 38-year-old program that now provides health care for 41 million Americans. A Senate bill, mainly supported by Democrats, aims to keep the current program largely intact. The House bill, mainly supported by Republicans, begins to change Medicare into a program that relies on the private market to provide coverage.

One thing everyone agrees on, including Republicans and Democrats, is that seniors need help in paying for their medicines. Many studies have documented the rising cost of prescription drugs in the United States and the increasing inability of millions of Medicare recipients to afford these drugs. The median annual income for a person on Medicare is $14,300, and that person will spend an average of about $1,000 out-of-pocket this year for medications, according to the Kaiser Family Foundation, a Menlo Park, Calif., health policy research group.

When Medicare was signed into law in 1965, Americans took far fewer medications, on average, so Congress did not include a prescription drug benefit. It’s now not uncommon for a Medicare beneficiary to take five or more medications a day -- many more than a generation ago. Neither bill would provide comprehensive coverage to pay for all those prescriptions.

Under the House bill, for example, people would pay an annual premium of $420, a deductible of $250, then 20% of all drug expenses up to $2,000 a year. After $2,000 in expenses, Medicare recipients would have to pay the full cost of drugs until their expenses reach $4,900. Policy experts are calling this the so-called doughnut hole where there is no coverage. After expenses exceed $4,900, the government would pay the rest.

People with chronic illnesses -- those spending $3,000 to $5,000 a year on medications -- would slip through the doughnut hole. Their expenses are high -- but not high enough to get a lot of help. Someone who takes Lipitor for high cholesterol, Prilosec for acid reflux disease and Celebrex for arthritis spends about $4,700 a year on those medications. Under the House bill, that person would pay about $3,300 out-of-pocket -- or about 66% of the cost of those drugs.

The Senate bill provides less generous benefits for those with fewer drug expenses, but has a smaller doughnut hole as expenses rise.

No one on Medicare would be required to sign up for the drug benefit, thereby saving the $420 premium. But if you don’t sign up for it when you first would become eligible, you would pay what could be a steep penalty. “Under the House bill, if you sign up late, the insurance plan determines the penalty on the basis of what it costs to serve you,” said Marilyn Moon, a health economist at the American Institutes for Research. “If you’re sick, they can charge you a great deal of money.”

Under the current Medicare program, everyone gets the same coverage provided by the federal government. But that won’t be the case with any new drug benefit. Under both the Senate and House bills, Medicare would not offer the coverage the way it does for hospital, physician and laboratory services. To get drug coverage, Medicare recipients would be required to join private health plans such as HMOs and PPOs (preferred provider organizations). Each plan could offer a different benefit.

Those favoring a private approach, including many Republicans and conservatives, say such a program would provide a wider range of benefits for people than the current program. For instance, they might find a plan that covers drugs used in clinical studies. But critics of the Republican-supported House bill worry that the plans may not adequately serve all populations, such as those living in rural areas, meaning that they may not have the option of choosing drug coverage. The Senate bill would allow Medicare to offer a drug benefit if patients were unable to find a health plan that does, but that feature is controversial. Some Republicans fear that a government-sponsored drug plan eventually might lead to the regulation of drug prices, something the drug industry opposes.

The House bill contains an equally controversial provision that would move Medicare closer to a privatized system by 2010. People on Medicare would receive money from the government to buy benefits from private insurers. Insurers would compete directly with Medicare. Supporters of privatization say this gives a greater choice of benefits and encourages price competition. Opponents -- those who believe everyone has a right to a benefit financed by the government -- say healthy people would flee Medicare in search of cheaper and more comprehensive coverage in the private market. That would leave the poorest and sickest unable to find alternative coverage.

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Trudy Lieberman can be reached by e-mail at trudyal530@aol.com.