NCPA - National Center for Policy Analysis

Drug Coverage Without Increased Costs

March 6, 2000

If the amount of money that is now spent on Medicare were added to the sums Medicare beneficiaries now spend on supplemental drug coverage, there is enough to provide those beneficiaries with full coverage of all medical care -- including comprehensive coverage for prescription drugs.

This suggests that seniors should be allowed to use what the government is already spending and supplement it with their own premiums for physician coverage and Medigap insurance to get complete, comprehensive private coverage. But that would require reforming Medicare.

  • In 1996, the National Bureau of Economic Research reported that every dollar spend on prescription drugs is associated with a $4 reduction in hospital costs -- so proper prescription drug regimens are certainly cost effective.
  • Most Medicare beneficiaries are in a fee-for-service plan which does not pay for prescriptions and a small number are enrolled in HMOs that pay for prescriptions up to a limit.
  • The National Center for Policy Analysis estimates that about 360,000 Medicare enrollees faced doctor and hospital costs in excess of $5,000 above what Medicare paid last year.
  • To protect themselves, a majority of Medicare beneficiaries supplement their Medicare coverage with private insurance -- one-third of them through a former employer and 36 percent through Medigap policies; however, many of these plans do not cover prescriptions.

Medicare enrollees could use the Medicare and Medigap to join a fee-for-service plan that included prescription drugs -- combined with a high deductible and a Medical Savings Account -- and face out of pocket costs of about $1,200 a year.

Or they could use those same monies, plus about $150 per year, and enroll in an HMO with comprehensive coverage which includes prescription drugs.

Senators John Breaux (D-La.) and Bill Frist (R-Tenn.) have introduced a Medicare reform bill along these lines. But there is no guarantee it will get a favorable hearing in this election year.

Source: Pete du Pont (National Center for Policy Analysis), "No Cure in Rx Rights Covered by Medicare," Washington Times, March 4, 2000.


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