Vol. 41, No. 5

A Note from the Chairman Emeritus

States have been called the laboratories of our democracy. They’re places where policy experiments are carried out. If the experiment is successful, the lessons are often applied nationwide.

A More Perfect Constitution – A Q&A with Larry Sabato

America’s favorite political scientist talks about his new book, “A More Perfect Constitution.”

So Far, So Good

When the Medicare Modernization Act was signed into law in December 2003, there were many predictions of problems implementing the new drug benefit.

Prescribing a Financial Fix for Post-Acute, Long Term Care

As greater numbers of patients and residents enter our nation’s long term care system, it is imperative that our policymakers address America’s entitlement programs.

Entitlement Reform: The 800 pound gorilla that’s being ignored in the 2008 campaign

When asked what they would do about fixing entitlement spending, with just a few exceptions, the current presidential candidates quickly retreat into clichés.

Leading the Way: Health Care Reform

California’s Health Secretary discusses Governor Arnold Schwarzenegger’s plan to reform health care in their state.

It’s Not Just in California

A look at some of the other health care reforms being pushed by Republican Governors around the country.

Schwarzenegger’s Health Care Plan: A Bridge too Far, or a Bridge to Nowhere?

The key question is not whether the Governor’s plan is good politics, but whether it is good policy.

Health Care Reality Check

The goal of any reform plan should be the same as the Hippocratic Oath: First, do no harm.

From Barefoot Doctors to Red Envelopes

China’s health care system is weighed down by a legacy of government control.

Should SCHIP be Expanded?

Yes, the program is working, and America’s families need the coverage.

Should SCHIP be Expanded?

No, it will result in bigger government, not better care for our children.

The Backpage: Above All, Try Something

It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.

Ripon Profile of Judy Biggert

We must work very hard to earn back the respect and trust of the American people.

So Far, So Good

Competing Private Plans in Medicare Part D Succeed in Keeping Costs Down

When the Medicare Modernization Act was signed into law in December 2003, there were many predictions of problems implementing the new drug benefit. 

Questions were raised as to whether enough private drug plans would want to participate in the prescription drug program, with elaborate government fallback plans put in place in case they did not. Concern was raised whether seniors would be too confused by the details of the benefits to be able to choose a plan that made sense for them. And many in Congress bemoaned not only the lack of government-set pricing (as is the case in numerous other parts of Medicare), but also the inability of the government to “negotiate” prices in order to get drug prices down (despite the fact that Medicare doesn’t have much of a history of “negotiating” prices.) 

The Part D drug benefit is complicated — although so is the inpatient hospital coverage under Part A. Under Part D, there is a deductible, initially set at $250 (now set at $275), after which Medicare pays 75 percent of the drug costs for the first block of spending — initially set at $2250 and now set $2510. There is a period of spending when there is no coverage — the so-called “doughnut hole” – after which a catastrophic coverage kicks in and Medicare pays approximately 95% of any additional drug costs. The doughnut hole makes no policy sense — just a case of politics trumping policy. 

Now that seniors are getting ready to enroll in the 2008 Part D Drug Plan, what have we learned? Well, the concern about too few plans was certainly a misplaced concern. As is now well-known, so many plans wanted to participate that in some areas of the country, seniors have had to choose from more than 40 plans. Perhaps, to no surprise, the concern has been raised as to whether there are too many plans — not too few. 

In order to help stem confusion that could result either from the number of plan offerings or from the benefit itself, many groups have come forward to help seniors. The plans themselves have used multimedia resources to help seniors understand the benefit as well as promote their own products. Pharmacies have actively intervened to help seniors understand the benefits and choose plans and healthcare professionals, churches and aging agencies have also helped seniors in a variety of ways. The federal government has also committed both money and time to engage in outreach programs, and provide a lot of information on its website, www.Medicare.gov, including a drug plan cost estimator that helps seniors understand the advantages of various plan choices, given their prescription drug use history. 

Now that seniors are getting ready to enroll in the 2008 Part D Drug Plan, what have we learned? Well, the concern about too few plans was certainly misplaced.

Of the more than 42 million people eligible for Medicare, more than 31 million people with Medicare now have prescription drug coverage. The challenges of bringing in low-income seniors who qualify for drug coverage at no or very low cost continue, as do the challenges of enrolling all qualified low income individuals in any of the programs geared for them. Federal, state and local officials continue to reach out to qualified individuals who have not yet enrolled. Early in October, Minnesota had federal, state and local Medicare officials visiting Minneapolis and Duluth offering to help people apply for the low-income subsidy. Other states are trying a variety of strategies. 

Perhaps the biggest success factor has been the lower than expected premiums for 2007. According to the Centers for Medicare & Medicaid Services, premiums for the basic drug benefit fell to an average of $22 per month in 2007 — over 40 percent less than the $37 a month that the coverage was originally projected to cost. This decline has been attributed by CMS to competition among the drug plans and the choices by seniors of more efficient plans with lower premiums. 

The downside for the plans of the lower-than-expected drug costs for 2006 is that the Part D plans owe CMS $4 billion. Under a risk-sharing arrangement that was part of the initial legislation, the plans submitted bids for 2006 during the middle of the previous year based on expectations about number of enrollees and expected utilization. CMS pays the plans prospectively and then reconciles after the end of the plan year. Since the 2007 bids were substantially lower than the ones submitted in 2006, the final reconciliation for 2007 is likely to be much lower. 

The average premium paid by beneficiaries for standard coverage in 2008 is expected to be almost 40 percent lower than was originally projected for the benefit when the legislation was passed in 2003. Nonetheless, seniors who want to stay in the plans they had previously chosen may have to pay substantially more — as much as a 20% increase according to one recent analysis. The question is what will seniors choose to do? Most seniors in stand-alone plans will have at least one plan with a premium less than the current plan and all seniors will have access to at least one plan that has a premium of less than $20 per month. 

Despite the apparent success that the competing plans have had on premium charges and on moderating spending on prescription drugs and despite the conclusion of the Congressional Budget Office that government involvement in price negotiation will not lower costs, there are some in the Congress that continue to press for Medicare to use its muscle to negotiate for lower prices. 

During the last round of consideration, even some of the mainstream papers not usually champions of concepts of competition in health care regarded prices under Part D as an issue that didn’t need fixing. 

Only time will tell whether the “price-setters” can be kept at bay.

Gail Wilensky is a senior fellow at Project HOPE and a commissioner on the World Health Organization’s Commission on the Social determinants of Health. She was the HCFA administrator from 1990 to 1992 and the chair of the Medicare Payment Advisory Commission from 1997 to 2001.