NCPA - Policy Report 255 - Better Off Welfare

NATIONAL CENTER FOR POLICY ANALYSIS
/ / / /

Medicare Reform and Prescription Drugs: Ten Principles

Notes

1 Federal Interagency Forum on Aging-Related Statistics, Older Americans 2000: Key Indicators of Well-Being (Washington, D.C.: U.S. Government Printing Office, August 2000), Table 30a, "Rate of Nursing Home Residence Among Persons Age 65 or Older, by Sex and Age Group, 1985, 1995, 1997, and 1999."

2Despite the rapid growth in the elderly population (from 26.9 million in 1982 to 35.3 million in 1999), the number of older Americans with chronic disabilities has remained relatively stable at around 7 million. See Kenneth G. Manton and XiLiang Gu, "Changes in the Prevalence of Chronic Disability in the United States Black and Nonblack Population above Age 65 from 1982 to 1999," Proceedings of the National Academy of Sciences of the United States of America, Vol. 98, No. 11, May 22, 2001, pp. 6354-6359.

3The Pharmaceutical Research and Manufacturers of America, "New Medicines in Development for Older Americans," 2002 Survey.

4Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 1999, HCFA Pub. No. 03417, November 1999, U.S. Department of Health and Human Services, Figure 19, p. 37

5Although almost two-thirds of seniors have some type of prescription drug coverage, many of these face coverage limits and significant out-of-pocket costs. See Mary A. Laschober et al., "Trends in Medicare Supplemental Insurance and Prescription Drug Coverage, 1996-1999," Health Affairs, Web Exclusive, February 27, 2002. Figures vary; the Office of the Assistant Secretary for Public Affairs, U.S. Department of Health and Human Services, places the figure of those seniors without any drug coverage during the year at 25 percent. See "The Effects of Congressional Proposals on Prescription Drug Costs for Medicare Beneficiaries," Office of the Assistant Secretary for Public Affairs, U.S. Department of Health and Human Services, June 19, 2002.

6Frank Lichtenberg, "Pharmaceutical Innovation, Mortality Reduction and Economic Growth," NBER Working Paper W6569, May 1998, National Bureau of Economic Research.

7Part A requires an $812 deductible per hospital admission, except no deductible is required for subsequent admissions that occur within 60 days. There is a $203 copayment per day for days 61-90 and a $406 copayment for days 91-150, at which point Medicare coverage ends and the elder bears all further hospitalization costs. Part B requires a $100 deductible each year with 20 percent copayment for most services. Mental health services are subject to a 50 percent copayment. See "Medicare & You 2002," Centers for Medicare & Medicaid Services, U.S. Department of Health and Human Services, Pub. No. CMS-10050, rev. January 2002. For more information on Medicare cost sharing, see William J. Scanlon, "Medicare: Cost-sharing Policies Problematic for Beneficiaries and Program," General Accounting Office, GAO-01-713T, May 9, 2001, Table 1, "Medicare Coverage and Beneficiary Cost-Sharing for 2001."

8Margaret Davis et al., "Prescription Drug Coverage, Utilization, and Spending among Medicare Beneficiaries," Health Affairs, Vol. 18, No. 1, January/February 1999, pp. 231-43; also see John A. Poisal and George S. Chulis, "Medicare Beneficiaries and Drug Coverage," Health Affairs, Vol. 19, No. 2, March/April 2000, pp. 248-56

9John C. Goodman and Merrill Matthews Jr., "Simple Solutions for Elderly Prescription Drugs," NCPA Brief Analysis No. 300, July 26, 1999, National Center for Policy Analysis.

10On the specific legislative changes that are needed, see John C. Goodman, "Prescription Drugs for Seniors: The Roth IRA Solution," NCPA Brief Analysis No. 315, March 16, 2000, National Center for Policy Analysis.

11Thirty states have passed high-risk-pool legislation, with varying benefits and conditions. See Bruce Abbe, ed., "Comprehensive Health Insurance for High-Risk Individuals - A State-by-State Analysis," 16th ed., 2002, Communicating for Agriculture and the Self-Employed.

1212 Richard Cauchi, "State Pharmaceutical Assistance Programs," National Conference of State Legislatures, September 13, 2002.

1313 By February 2001, states had accumulated $7 billion in unspent federal antipoverty TANF funds. See Office of Sen. Paul Wellstone, "Wellstone to Minnesota State Legislature: Do Not Misuse Federal Antipoverty Funds," Press Release, March 22, 2000. Many states are taking advantage of their flexibility with regard to TANF funds to engage in "supplantation." That is, they are using TANF funds to supplant state funds in programs not targeted to low-income groups. See the report, "States Behaving Badly: America's 10 Worst Welfare States," National Campaign for Jobs and Income Support, February 22, 2002.

14Lichtenberg, "The Effect of Pharmaceutical Utilization and Innovation on Hospitalization and Mortality."

15Robert Goldberg, "Ten Myths about the Market for Prescription Drugs," NCPA Policy Report No. 230, October 1999, National Center for Policy Analysis.

16 Robert Goldberg, "Comparing Prescription Drug Proposals: Bush v. Gore," NCPA Policy Report No. 239, November 2000, National Center for Policy Analysis.

17See, for example, Grace-Marie Turner and Joseph Antos, "Prescription Drug Security Plan," July 29, 2002, Galen Institute.

18Most studies have found that the increased spending is due to perverse insurance incentives and not to worsening health among seniors. For a discussion, see Susan L. Ettner, "Adverse Selection and the Purchase of Medigap Insurance by the Elderly," Journal of Health Economics, Vol. 16, No. 5, October 1, 1997, pp. 543-62; and Michael D. Hurd and Kathleen McGarry, "Medical Insurance and the Use of Health Care Services by the Elderly," Journal of Health Economics, Vol. 16, No. 2, April 1997, pp. 129-54. Also see Sandra Christensen and Judy Shinogle, "Effects of Supplemental Coverage on Use of Service by Medicare Enrollees," Health Care Financing Review, Vol. 19, No. 1, Fall 1997, U.S. Department of Health and Human Services.

19These proposals would shift costs for seniors' prescription drug purchases, mainly from seniors to taxpayers. Currently, enrollees pay 41 percent of the costs from their own pockets, with Medicaid, Medicare, and employer-sponsored and privately purchased insurance picking up the rest. With a new prescription drug plan available, some private plans likely would drop out of the market, and Medicare would pick up some costs now borne by Medicaid.

20Andrew J. Rettenmaier, "How Big Is the Government's Debt?" NCPA Brief Analysis No. 402, June 21, 2002, National Center for Policy Analysis.

21The material that follows is taken largely from John C. Goodman, "Prescription Drugs for Seniors," NCPA Brief Analysis No. 406, July 23, 2002, National Center for Policy Analysis. Calculations were made by Andrew J. Rettenmaier, Private Enterprise Research Center, Texas A&M University.

2222 House Ways and Means Committee, "Comparison on Key Components of Leading Prescription Drug Bills," August 7, 2002. Accessed September 30, 2002, at http://waysandmeans.house.gov/fullcomm/107cong/medreskit/side-by-side.pdf

23Mark E. Litow, "Defined Contributions as an Option in Medicare," NCPA Policy Report No. 231, February 2000, National Center for Policy Analysis. This report is summarized in John C. Goodman and Sean R. Tuffnell, "Prescription Drugs and Medicare Reform," NCPA Brief Analysis No. 314, March 16, 2000, National Center for Policy Analysis.

24See "Mass Exodus of Medicare+Choice Plans Projected for 2002," Healthcare Financial Management, November 2001; Jeanne Schulte Scott, "Medicare+Choice: Facing an Uncertain Future," Healthcare Financial Management, July 1, 2001; and Marilyn Moon, "Medicare," New England Journal of Medicine, Vol. 344, No. 12, March 22, 2001, pp. 928-31.

25Robert Pear, "H.M.O.'s for 200,000 Pulling Out of Medicare," New York Times, September 10, 2002.

26Almost 70 percent of Medicare HMO enrollees have annual incomes of $25,000 or less. Less than 5 percent earn more than $50,000 annually. See "Medicare and Health Care Chartbook," Committee on Ways and Means, U.S. House of Representatives, May 17, 1999, Table 4.17, "Age, Income and Health Status of Medicare HMO and FFS Enrollees," p. 196.

27John Hoff, "On Reforming Medicare," NCPA Policy Backgrounder No. 151, February 4, 2000, National Center for Policy Analysis.

28J. D. Kleinke, "Just What the HMO Ordered: The Paradox of Increasing Drug Costs." Health Affairs, Vol. 19, No. 2, March/April 2000, pp. 78-91.

29Shaun Matisonn, "Medical Savings Accounts in South Africa," NCPA Policy Report No. 234, June 2000, National Center for Policy Analysis.

30Greg Scandlen, "MSAs Can Be a Windfall for All," NCPA Policy Backgrounder No. 157, November 2, 2001, National Center for Policy Analysis.

31

32

33Kathleen Jaeger, "Drug Pricing & Consumer Costs," Presentation to the United States Senate Commerce Committee, April 23, 2002.

34S. D. Horn et al., "Formulary Limitations and the Elderly: Results from the Managed Care Outcomes Project," American Journal of Managed Care, Vol. 4, No. 8, August 1998, pp. 1105-35.

3535 The material in this section and in the following section is taken largely from Shaun Matisonn, "Medical Savings Accounts and Prescription Drugs: Evidence from South Africa," NCPA Policy Report No. 254, August 2002, National Center for Policy Analysis.

36Matisonn, "Medical Savings Accounts and Prescription Drugs."

37John C. Goodman and Gerald L. Musgrave, "Twenty Myths about National Health Insurance," NCPA Policy Report No. 128, December 1991, National Center for Policy Analysis.

38Research suggests that 10 percent of the population consumes 72 percent of health care expenditures and 2 percent consumes 41 percent. See Donald W. Light, "Sociological Perspectives on Competition in Health Care," Journal of Health Politics, Policy and Law, October 2000.

39Dan Crippen, "Disease Management in Medicare: Data Analysis and Benefit Design Issues," Testimony before the Special Committee on Aging, United States Senate, September 19, 2002, Congressional Budget Office.

40Goodman and Musgrave, "Twenty Myths about National Health Insurance."

41John C. Goodman and Gerald L. Musgrave, "A Primer on Managed Competition," NCPA Policy Report No. 183, April 19, 1994, National Center for Policy Analysis.

42 John C. Goodman, Mark Pauly and Phil K. Porter, "The Economics of Managed Competition," unpublished. Available from the National Center for Policy Analysis, 12770 Coit Rd., Suite 800, Dallas, Texas 75243.

Previous | Next

12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
601 Pennsylvania Avenue NW, Suite 900 South Building, Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
Copyright © 2002 National Center for Policy Analysis