The House Republican Prescription Drug Plan Provides Little Help for America's Seniors

On June 28, 2002, the House of Representatives passed a prescription drug bill that was developed by the Republican leadership. The bill was adopted at the end of a very partisan debate. Under the House Republican leadership's rules, House Democrats were denied the opportunity to offer their proposal as an alternative. The House Republican leadership also precluded any consideration of amendments to their bill.

The House bill provides little relief for America's seniors. It also provides much less help to seniors than the House Democratic plan would have provided. Three major flaws in the Republican plan's design make this evident:

• First, the proposal provides very meager coverage and forces seniors to pay the lion's share of drug costs. The premiums, deductible, copayments, and holes in coverage would force seniors to pay the overwhelming majority of drug costs out of their own pockets. As a result, millions upon millions of seniors would remain unable to afford the medicines they need. The House Democratic bill would have provided substantially more relief.
• Second, the proposal does not guarantee specific drug coverage for America's seniors. This bill seeks to induce private insurance companies to sell prescription drug policies- rather than provide this coverage through the Medicare program. The bill deliberately bypasses the Medicare program. The proposal ironically relies on private insurance companies for drug coverage, even though those insurance companies don't want to provide such coverage and have a poor record of providing it. There is no guarantee that insurance companies would offer drug coverage in specific communities, and the GOP proposal gives insurance companies vast discretion to design the coverage they may wish to offer. As a result, seniors would have no predictability about the premiums they would need to pay, the cost-sharing they would bear, the drugs that would be covered, and under what conditions they could obtain those drugs. The House Democratic bill would have provided significant and defined coverage, and that coverage would have been available to all seniors.
• Third, the House proposal, which was endorsed by the pharmaceutical lobby, fails to moderate prescription drug prices. Unlike the Democratic plan-which prohibits drug companies from perpetuating anti-competitive practices that prevent the introduction of generic drug competition, thereby enabling price moderation-the House Republican bill fails to take any specific steps to decelerate skyrocketing drug prices.

The House GOP Bill Offers Meager Drug Coverage Resulting in High Out-of-Pocket Costs for Seniors. Under the proposal's so-called "standard coverage," seniors would need to pay a $396 annual premium. They would also have to pay the first $250 in drug costs per year as a deductible. After the $250 deductible, seniors would pay 20 percent of drug costs (with the program paying the remaining 80 percent) for annual drug costs between $250 and $1,000. For the next $1,000 in drug costs, seniors would pay 50 percent of costs (with the program paying the other 50 percent of costs). For any drug expenses above

$2,000, seniors would need to pay all of their drug costs until they spent $3,700 out of pocket (excluding the premium); at that point, the proposal would pick up all additional costs. Including the $396 annual premium, this means that:

• A senior with an annual drug bill of $1,000 would need to pay $796 - or 80 percent of those costs - out of pocket.
• A senior with an annual drug bill of $3,000 would need to pay $2,296 - or 77 percent of those costs - out of pocket.
• A senior with an annual drug bill of $5,000 would need to pay $4,096 - or 82 percent of costs - out of pocket. (See Table 1)

Hence, the proposal would require seniors to pay for the overwhelming majority of their drug bills, and those costs would remain unaffordable.

A significant reason why seniors would receive sparse relief under the House GOP plan is because the proposal provides no coverage for seniors' drug costs between $2,000 and $4,900 per year. As a result of this hole in coverage, coupled with the $250 deductible, there are many months each year during which seniors would receive no coverage under the House GOP bill. A senior with $3,000 in annual drug expenditures, for example, would receive no coverage at all in the months of January as well as September through December under the House GOP proposal. (See Figure 1) A senior with $7,500 in annual drug expenditures would receive no coverage from May through July and virtually no coverage in April and August. (See Figure 2)

The coverage under the House GOP plan compares unfavorably to the coverage in the House Democratic bill. Inclusive of the premium, seniors would need to pay much more out of pocket under the House Republican bill than they would under the House Democratic bill:

• A senior with $2,000 in annual drug costs would pay nearly twice as much out of pocket - $1,296 under the Republican bill versus $780 under the Democratic bill.
• A senior with $4,000 in annual drug costs would pay almost three times as much - $3,296 under the Republican bill versus $1,180 under the Democratic bill.
• A senior with $6,000 in annual drug costs would pay nearly three times as much-$4,096 under the Republican bill versus $1,580 under the Democratic bill. (See Table 2)

The House GOP Bill Does Not Guarantee Specific Drug Coverage for America's Seniors, and Coverage Would Be Unpredictable and Vary Widely from Community to Community. The House Republican drug proposal explicitly bypasses the traditional Medicare program in providing prescription drug coverage for America's seniors. Instead, it seeks to induce private insurance companies to offer such coverage. As a result, for the following reasons, seniors would not have any guarantees about the reliability of the drug coverage offered under this proposal:

• Insurance companies do not want to provide prescription drug coverage for seniors. The Health Insurance Association of America has repeatedly warned that prescription drug insurance policies are not viable. Those policies make little sense because only people with predictably high drug costs are likely to want to purchase them. As a result, these drug policies are very expensive, and the insurance companies do not wish to offer them.
• Insurance companies have a bad record of providing drug coverage for seniors. Private plans offering drug coverage - like Medicare+Choice (HMOs and other managed care plans) and Medigap (private, supplemental insurance for people in traditional Medicare) - have a bad record of serving seniors. In 2002, Medicare+Choice plans with drug coverage are completely unavailable throughout 15 states and are unavailable in significant portions of other states. In addition, Medicare+Choice plans have pulled out of many geographical areas altogether even though the General Accounting Office (GAO) says those plans were overpaid. And, over time, these plans have substantially increased premiums and cost-sharing while reducing coverage. Medigap policies with prescription drug coverage are so expensive that only 6 percent of America's seniors receive drug coverage through such plans.
• Insurance companies are given vast discretion in designing the drug coverage they may wish to offer in different communities. Under the House GOP proposal, insurance companies are given substantial discretion on a variety of matters, such as the premiums that seniors would be charged; the copayments seniors would pay generally or for specific types of drugs; which drugs would be made available and under what conditions they would be available; and the drug stores seniors could use to obtain their drugs.

The House GOP Bill establishes No Mechanism for Moderating Skyrocketing Drug Costs. The GOP drug bill was endorsed by the pharmaceutical lobby-which is spending millions of dollars to promote the legislation. If the House GOP bill became law, it is likely that drug prices would continue to skyrocket. The Democratic proposal, on the other hand, promotes price moderation in two ways. First, by extending coverage through the Medicare program, it enables that program to use its bargaining clout to leverage more moderate pricing from drug companies. Second, the Democratic bill prohibits drug companies from perpetuating anti-competitive practices that prevent generic drugs from coming to market; this enables generic competition, which, in turn, enables market forces to moderate drug prices.

As a result, the availability of drug coverage for seniors in the House GOP plan would vary considerably from one community to another. Senior citizens would have absolutely no guarantee that private coverage would be available, or if available, what drugs would be covered, and how much they would have to pay for those drugs.

See Table 1
See Table 2
See Figure 1
See Figure 2

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