Medicare Drug Bill Helps Companies, Too

The nation's 40 million seniors aren't the only ones who stand to gain from the Medicare bill now before Congress.

By Martha Lynn Craver, Associate Editor, The Kiplinger Letter

June 19, 2003

After years of stalemate, Medicare patients are close to getting long-promised drug benefits. Odds favor passage of a bill President Bush will sign this summer.

Many details still need to be worked out on the 10-year, $400-billion bill, but its key provisions have taken shape. Beginning in 2006, seniors and the disabled will get federal help to pay for prescription drug expenses and additional benefits will be available to those who opt for a private insurance plan. And, after 2010, private companies will be able to compete for Medicare patients.

The legislation will also provide subsidies to employers who offer drug coverage to their retirees, an incentive for companies to continue those programs. The size and the form of the subsidies are still being negotiated.

For years, Democrats and Republicans have been at odds over how to construct a prescription drug benefit for Medicare. Both agreed that such a benefit was necessary in light of the increasing reliance on costly pharmaceuticals to prolong and improve the quality of life. But the Democrats held fast to their belief that the benefit should be administered by the government as part of traditional Medicare, while the Republicans insisted that any benefit should be provided through the private insurance market.

The breakthrough came early this month when President Bush agreed to provide equal drug coverage to those who remain in traditional Medicare and to those who join new private plans. Bush had favored offering more-extensive drug benefits as an incentive for people to join private plans.

Bush's concession led to a bipartisan compromise approved by the Senate Finance Committee, which, in turn, led to a key Democratic concession. Although the bill's benefits are much less than he wanted, Sen. Edward Kennedy (D-MA), the Democrats' most influential spokesman on health, urged his colleagues to accept the measure, arguing that it opened the door to additional benefits down the road.

Still, not everyone is happy with the bill. Conservatives say it will end up costing much more than expected and it doesn't do anything about Medicare's long-term fiscal problems. Liberals say the benefits are too low and the bill opens the door to the privatization of Medicare. However, there are enough votes in the middle to make passage a good bet.

"Both sides can claim victory. The Republicans for finally getting the bill passed, and the Democrats for making sure that people in traditional Medicare get the same drug benefits that those in private plans get," says Steve Wojcik of the Washington Business Group on Health, a trade group that represents a number of large employers.

But the bigger victory will go to Bush, who will have succeeded in co-opting one of the Democrats' most potent campaign issues. If Bush and members of Congress had gone into the election empty-handed after years of promising a Medicare drug benefit, voters may well have taken out their frustrations on the GOP, which controls the White House and both chambers of Congress.

Passage also will allow the new Senate Majority Leader Bill Frist to redeem himself after his missteps during consideration of the tax-cut bill. Frist, a surgeon, has said that passing a Medicare Rx benefit is one of his highest priorities.

The Senate and House have competing versions of the Medicare bill, but there are many common elements. The differences will have to be worked out in negotiations tentatively set for July.

Seniors would pay a monthly premium of $35 and an annual deductible ($275 in the Senate bill, $250 in the House bill). Medicare would then pay a percentage of drug costs (50% in the Senate bill up to $4,500 a year and 80% in the House bill up to $2,000 a year). After that, the beneficiary would be responsible for all costs (up to $5,800 in the Senate bill and $5,100 in the House bill) before catastrophic coverage kicks in (90% in the Senate bill and 100% in the House bill).

The House and Senate are expected to approve their versions of the legislation in the next week or so, to be followed by negotiations between the two chambers to iron out differences.