NCPA - National Center for Policy Analysis

Drug Benefit Would Compound Medicare's Problems

April 20, 1999

President Clinton and several members of Congress are calling for a new Medicare entitlement to prescription drugs -- even as the president has proposed setting aside 15 percent of the budget surplus in an effort to slightly delay Medicare's imminent financial collapse.

However, 65 percent of seniors had prescription drug coverage to help them with the costs. In 1995:

  • 95 percent of Medicare HMOs provided their enrollees with a prescription drug benefit.
  • 84 percent of seniors with employer-sponsored supplemental insurance had drug coverage.
  • And 88 percent of low-income seniors who received Medicaid coverage in addition to Medicare had prescription drug coverage.

In addition to Medicaid, at least 11 states have special programs to provide supplemental prescription drug coverage, and other states are considering similar programs.

Some seniors are losing drug coverage because last year the Health Care Financing Administration (HCFA), the federal agency that manages Medicare and Medicaid, decided to cut back on reimbursement rates to managed care providers in the Medicare+ program. Some managed care plans would get only a 2 percent increase in 1999, even though health care costs have been rising about 7 percent.

As a result, many of the largest HMOs announced plans to cut benefits or drop out of the program, leaving some 500,000 seniors, many with drug coverage, scrambling to find a Medicare HMO. Some had to switch back to traditional Medicare. But since Medicare beneficiaries are guaranteed enrollment in any supplemental policy only for the first six months after they reach age 65, they may have been unable to get a policy offering prescription drug coverage.

The solution to this problem is to increase private-sector involvement. It is the private sector that is providing seniors with prescription drug options. It's the Clinton administration that's taking the options away.

Source: Merrill Matthews Jr., "A Prescription for Medicare Disaster," Brief Analysis No. 288, April 20, 1999, National Center for Policy Analysis, 12770 Coit Rd., Suite 800, Dallas, Texas 75251, (972) 386-6272.

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