Sweeping Medicare Changes OKd

The Senate launched a new era in health care for the nation’s seniors and disabled Tuesday, approving legislation that will create a long-sought Medicare prescription drug benefit while giving private insurance companies billions of dollars to lure beneficiaries away from the traditional program and into managed care.

The 54-44 vote, called historic by both supporters and opponents, followed the House’s 220-215 vote taken before dawn Saturday. The 10-year, $400-billion Medicare reform bill now goes to President Bush, who said Tuesday he was eager to sign it into law.

The bill would set in motion the most sweeping changes to the nation’s health care system since Medicare was established in 1965 as the bedrock of the Great Society.

“Today is an extraordinary day,” Majority Leader Bill Frist (R-Tenn.), who coordinated Senate support for the bill, said before the vote. “Today is a fateful day. Today is a red-letter day for seniors.”

Bush, who first promised a prescription drug benefit in his 2000 campaign, is eager to tout his success during his bid for reelection next year. During two campaign visits with seniors in Arizona and Nevada on Tuesday, he took credit for the legislation.

“Medicare has worked for many people,” Bush told a group in Phoenix. “It got a little old, it got a little tired, it needed to be changed. We changed it, and the system is better for it.”

Passage of the Medicare bill, which Bush is expected to sign as early as next week, helps the president fulfill a campaign promise and claim victory on an issue that has long been associated with Democrats.

Sen. Edward M. Kennedy (D-Mass.), who voted for an earlier Medicare bill but led the opposition to the new one, warned that the subsidies for private health plans would undermine traditional Medicare. “The Senate should stand with the elderly and their families and reject this legislation,” he said.

But in the end, 11 Democrats joined 42 Republicans and one independent in support of the bill. Nine Republicans and 35 Democrats voted against it.

Two senators, Democratic presidential candidates John F. Kerry of Massachusetts and Joe Lieberman of Connecticut, had been in Washington to vote against the bill on Monday but left when the vote was delayed. California’s Democratic senators were split, with Barbara Boxer voting against the bill and Dianne Feinstein supporting it.

Drug manufacturers, insurance companies, business groups, hospitals, the American Medical Assn. and the 35-million-member AARP -- among other groups -- hailed the bill’s passage.

“This legislation ... will allow for a strong partnership between the government and private health insurers,” said Karen Ignagni, president and chief executive of AAHP-HIAA, the trade group representing 1,300 insurance companies and managed-care plans.

But the Alliance for Retired Americans, which represents about 3 million retired union workers, said Congress had “failed older Americans” by passing legislation that would open the doors to Medicare privatization, enrich the pharmaceutical and insurance industries and prohibit Medicare from negotiating for lower drug prices.

The bill’s reach is likely to extend far beyond the 40 million seniors and disabled people now on Medicare, to include Americans of all ages who interact with the nation’s health-care system. Provisions making it somewhat easier for generic drugs to get to market could lower drug prices for everyone, while the absence of language legalizing the importation of U.S.-made drugs from other countries ensures that Americans will continue to pay the highest drug prices in the world.

And the expansion of health savings accounts that would generate tax-free earnings could mean more employers would move away from traditional benefits packages to high-deductible, catastrophic coverage. Workers could make tax-deductible deposits -- including perhaps some contributions from their employers -- to special savings accounts that could be used tax-free for health-care expenses.

Beginning in 2006, seniors for the first time would have access to prescription drug coverage under Medicare. They also would face a dizzying array of choices and cost-benefit decisions. Should they participate in the voluntary drug benefit program? If they do, which private drug benefit provider should they choose? Should they leave their own doctors for a health maintenance organization or preferred-provider organization that limits their choice of doctors but offers a complete package of government-subsidized health benefits for less than their traditional Medicare premium?

The bill also would inaugurate the annual indexing of Medicare premiums and deductibles to inflation. And for the first time, it would require wealthier seniors -- defined as individuals earning more than $80,000 a year -- to pay higher premiums than other seniors for outpatient medical services.

When President Johnson signed the original Medicare law in 1965, he said: “No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings they have so carefully put away over a lifetime so that they might enjoy dignity in their later years.”

At that time, modern medicine meant hospitalization, and the government stepped in to share seniors’ health-care costs because private companies were declining to insure older Americans against certain illnesses.

Thirty-eight years later, the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” offers seniors government-subsidized coverage for the cholesterol-lowering, ulcer-preventing, cancer-attacking and inflammation-fighting prescription drugs that now are central to the practice of modern medicine.

But the drug coverage would be provided by private insurers, not the government. The legislation gives private insurance companies $14 billion in incentives and risk-sharing payments to compete against one another and the government for seniors’ health-care business.

In addition to the drug benefit, the bill includes about $30 billion in increased Medicare payments to doctors, hospitals and other health-care providers. About two-thirds of that money benefits providers in rural areas. Employers and unions would receive $71 billion in subsidies and $15 billion in tax breaks to encourage them to continue providing health benefits to their retirees.

A cost-containment provision would require Congress or the president to act if more than 45% of Medicare spending came from the government’s general revenues rather than the Medicare trust funds. Democrats argue that this arbitrary cap could result in higher Medicare payroll taxes or, more likely, reduced benefits. Beneficiaries would receive about $2 billion in newly covered medical services, including a “welcome to Medicare” physical and screening tests for diabetes and heart disease.

“This bill is about enhancing the quality of life,” said Sen. Charles E. Grassley (R-Iowa), the Senate’s top negotiator on the compromise legislation.

But Democrats, who predicted that seniors would express their dissatisfaction with the bill at the ballot box, said they would begin working immediately to change it.

“The effort to reform the Medicare reform bill begins today,” said Senate Minority Leader Tom Daschle of South Dakota. He said Democrats would introduce a bill to repeal the prohibition on negotiating for lower drug prices and allow the unrestricted importation of U.S.-made drugs from Canada and European countries.

Kennedy -- who helped shape the Senate’s original, more liberal version of the bill -- said Tuesday that he had been committed to getting a down payment on a Medicare prescription drug benefit for more than 20 years.

“I think the Senate bill was a down payment, but it was hijacked by Republicans,” he said.

And recalling that the original Medicare bill was defeated in 1964 before passing with overwhelming support a year later, Kennedy said, “The intervening event was the election. Seniors got mobilized.”

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(BEGIN TEXT OF INFOBOX)

A snapshot of the new Medicare

Here is a look at how the legislation’s drug benefit would work out for various Medicare recipents in 2006:

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If you: Are below the poverty line, $9,670 for an individual or $13,051 for a couple, and live outside a nursing home

Your monthly premium will be: $0

And your annual deductible will be: $0

your costs will be: $1 per generic prescription per month, $3 per brand name, for the first $5,100 worth of prescriptions per year. Beyond $5,100, no co-payment

which means, for example, that Medicare will pay this amount if your annual drug costs are the national average of $3,167: $3,056 (97%)

or Medicare will pay this amount if your prescription drug costs total $6,000: $5,822 (97%)

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If you: Are below the poverty line and live in a nursing home

Your monthly premium will be: $0

And your annual deductible will be: $0

your costs will be: No co-payment

which means, for example, that Medicare will pay this amount if your annual drug costs are the national average of $3,167: $3,167 (100%)

or Medicare will pay this amount if your prescription drug costs total $6,000: $6,000 (100%)

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If you: Have income of $9,670 to $13,054 as an individual and have assets* below $6,000 or earn $13,051 to $17,618 as a couple and have assets below $9,000

Your monthly premium will be: $0

And your annual deductible will be: $0

your costs will be: $2 per generic prescription per month, $5 per brand name, for the first $5,100 worth of prescriptions per year. Beyond $5,100, no co-payment

which means, for example, that Medicare will pay this amount: $2,971 (94%)

if your annual drug costs are the national average of $3,167 or Medicare will pay this amount if your prescription drug costs total $6,000: $5,684 (95%)

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If you: Have income of $13,054 to $14,505 as an individual and have assets* below $10,000 or earn $17,618 to $19,577 as a couple and have assets below $20,000

Your monthly premium will be: $0-35

And your annual deductible will be: $50

your costs will be: 15% of costs up to $5,100. Beyond $5,100, $2 per generic prescription per month, $5 per brand name

which means, for example, that Medicare will pay this amount if your annual drug costs are the national average of $3,167: $2,649 (84%)

or Medicare will pay this amount if your prescription drug costs total $6,000: $5,137 (86%)

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If you: Have income of $14,505 as an individual or more than $19,577 as a couple

Your monthly premium will be: $35

And your annual deductible will be: $250

your costs will be: 25% of the next $2,000 and 100% of the next $2,850; 5% of additional costs over $5,100

which means, for example, that Medicare will pay this amount if your annual drug costs are the national average of $3,167: $1,500 (47%)

or Medicare will pay this amount if your prescription drug costs total $6,000: $2,355 (39%)

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*Everything except house.

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The formula for drug costs

Beyond $2,250, beneficiaries pay 100% of the next $2,850 in drug costs.

Most beneficiaries will pay a monthly premium of $35 and a $250 deductible.

After the $250 deductible is met, Medicare pays 75% of the next $2,000 in drug costs. After the total expenses reach $5,100, Medicare pays 95% of all other costs.

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Other highlights of the legislation

Drug card: The discount card, for seniors and the disabled to use in 2004 and 2005, will cost $30 per year and shave an estimated 15% off the cost of drugs. Lower-income seniors will receive a $600 subsidy both years.

Health savings accounts: Those under 65 may shelter up to $2,600 per year ($5,150 for families). After 65 the distribution and earnings are tax-free if they are used for health-care expenses, including health insurance premiums.

Premium support program: Starting in 2010 a six-year test program would require Medicare to compete against selected private plans. Premiums for those remaining in Medicare will be limited to a 5% annual increase; premiums for low-income seniors can be waived.

New benefit: New Medicare enrollees will receive a free initial doctor appointment as well as screening for diabetes and cardiovascular problems. Benefits for those needing coordinated care for chronic illnesses will be covered.

Generic drugs and imports: Drug patent law reform will make it easier for generic drugs to compete against brand-name items. Importation of prescription drugs will still be banned, but whether cheaper drugs can be brought in from Canada will be studied.

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Sources: Republican staff of the Senate Finance Committee, Reuters, Associated Press, Times research - Researched by Times reporters Tom Reinken and Julie Sheer

Times staff writers Janet Hook in Washington and Maura Reynolds, traveling with Bush, contributed to this report.