Senate Panel OKs Sweeping Reform for Medicare

A Senate committee voted overwhelmingly Thursday to overhaul Medicare, adding a prescription drug benefit and paving the way for the substantial involvement of private insurance companies in the program that provides health coverage to 40 million senior and disabled Americans.

After nearly 10 hours of debate, all but two Republicans and three Democrats on the 21-member Senate Finance Committee approved the bill.

Lawmakers agreed that the changes, which would cost $400 billion over 10 years, would represent the most significant reform of Medicare in its 38-year history. But they disagreed sharply on how effective the program would be in helping seniors pay for medications and ensuring the government’s ability to manage the health-care costs of retired baby boomers.

“What we do today will affect every single American,” said Senate Majority Leader Bill Frist (R-Tenn.).

But Democrats warned their colleagues not to “overpromise and oversell” the value of the new prescription drug benefit, noting that coverage gaps and limited cost-sharing provisions would still leave average Medicare beneficiaries responsible for close to two-thirds of their drug costs.

Underscoring what even Senate Minority Leader Tom Daschle (D-S.D.), a harsh critic of key elements of the bill, called “a historic moment,” House Republican leaders unveiled their own Medicare reform plan. With floor debate on the Senate bill and House panel votes scheduled to begin next week, both chambers are now on track to meet a July 4 deadline for initial passage of Medicare legislation.

In the House, Democrats are expected to have little influence on the shape of legislation crafted largely by two powerful committee chairmen, Reps. Bill Thomas (R-Bakersfield) and W.J. “Billy” Tauzin (R-La.). But in the closely divided Senate, Finance Committee Chairman Charles E. Grassley (R-Iowa) and Sen. Max Baucus (D-Mont.) managed, after considerable effort, to build bipartisan support.

As a result, the Finance Committee’s passage of the still-evolving legislation was all but guaranteed by Thursday morning, when lawmakers gathered to restate their concerns and push the process forward.

“We can no longer hold seniors hostage to our political inability to compromise,” said Sen. Olympia J. Snowe (R-Maine).

Specific provisions of the House and Senate bills could still change as they move through the legislative mill. But the plans’ basic structures are similar and likely to withstand efforts to modify them.

For years, American seniors have demanded -- and politicians have promised -- a Medicare prescription drug benefit. Although some Medicare beneficiaries have drug coverage through their former employers, supplemental Medigap policies or state plans, roughly one-third have no help in paying for increasingly expensive drugs.

“Today, we’re here to deliver,” Grassley said.

The Senate bill and the House plan offer the most generous drug coverage to Medicare beneficiaries with very low incomes or very high drug costs. Seniors with average incomes and average drug costs would get less help.

Under both plans, which would begin in 2006, seniors would pay a monthly premium averaging $35 and a deductible of $250 or $275. Once annual drug expenses exceeded that amount, the House benefit would cover 80% of drug costs up to $2,000; the Senate bill would pay 50% up to $4,500.

Seniors would then have to cover 100% of their drug costs up to a “catastrophic” level, about $5,800 in the Senate bill and, in the House bill, an amount that would rise with seniors’ income.

Here’s an example of what the benefit package would look like under the Senate proposal:

A senior or disabled person of average income with $2,738 in annual drug costs -- the estimated average drug bill for Medicare beneficiaries this year -- would pay roughly $420 in premiums, a $275 deductible and $1,021.50 in co-payments. Total out-of-pocket spending would be $1,716.50. Insurance would pick up the other $1,021.50.

(The same person, using the tentative House formula, would pay $420 in premiums plus a $250 deductible and $413.60 in co-payments, or $1083.60 in all. Insurance would pay $1654.40.)

The “break-even” point for such seniors under the Senate bill, according to congressional aides and budget officials, would be about $1,200. Seniors with annual drug expenses higher than that would reap the benefits of Medicare drug coverage, while those with lower expenses would pay more for the coverage than they would get from it.

Seniors who declined to enroll in Medicare prescription drug coverage when they became eligible would be required to pay significantly higher premiums and deductibles if they chose to join when they were older and, likely, sicker.

Insurance would cover up to 90% or 95% of the drug costs for seniors with incomes of up to $14,368 for an individual, $19,392 for a couple. “That’s a massive subsidy,” said Sen. Don Nickles (R-Okla.), adding that he was concerned that the generous benefit would encourage poor seniors to get too many drugs.

Although the bill’s drug benefit has attracted the most attention, it is the wider involvement of private health plans -- preferred-provider organizations and HMOs -- envisioned by the bill that has the potential to fundamentally change the nature of Medicare over time.

Neither the Senate nor House plans would require or strongly encourage seniors to join private health plans -- as President Bush originally sought -- but even seniors who chose to stay in traditional fee-for-service Medicare probably would get their drug coverage from a private insurance company.

Since the program’s inception, Medicare beneficiaries have paid nominal premiums and deductibles for hospital care and doctor visits, while the federal government has established fixed prices -- considered too low by providers -- for thousands of medical services.

Republicans believe that competition among private plans for Medicare business will drive prices down and save the government money. Congressional budget officials, however, say the private plans could cost 10% to 12% more than traditional Medicare.