NCPA - National Center for Policy Analysis

Heritage: Limited Drug Benefits Would Be Costly

July 9, 1999

President Clinton's Medicare prescription drug proposal will not help the small proportion of seniors who need it most, say analysts, while providing a costly benefit to seniors who have other coverage for drug expenses.

  • Under the Administration's plan, seniors would pay an additional, optional $24 per month in Medicare premiums, and would be reimbursed for 50 percent of up to $2,000 in drug costs in the year 2002.
  • Premiums would increase gradually to $44 per month by 2008, when the program would cover 50 percent of up to $5,000 in drug costs.
  • The estimated ten-year cost is $118 billion, but history suggests that it would cost taxpayers far more.

Critics say the drug benefit proposal has a number of flaws, including:

  • It does not give catastrophic "stop-loss" protection, and would not help toward costs exceeding $5,000.
  • The offer of such benefits might induce seniors to give up better private coverage they already have, and will discourage the inclusion of drug benefits under other health plans, such as employer-provided medical benefits for retirees, Medicare HMOs or Medigap plans.
  • The Health Care Financing Administration (HCFA) would be put in charge of choosing which drugs are available to beneficiaries, through "formularies" and other restrictions designed to hold down costs.

Paying for prescription drugs is not a serious problem for most seniors, say researchers. A recent study from the National Academy of Social Insurance found that the median amount spent by seniors out of pocket on drugs is $200 -- thus 50 percent of seniors spend less than $200 annually. However, 4 percent of seniors spend in excess of $2,000 a year on their medications.

Source: James Frogue, "Bill Clinton's Risky Drug Plan," Executive Memorandum No. 611, July 6, 1999, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington D.C. 20002, (202) 546- 4400.


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