NCPA - National Center for Policy Analysis

Medicare Prescription Drug Benefits

June 6, 2003

Yesterday, Sen. Charles E. Grassley (R-Iowa), chairman of the Finance Committee, and Sen. Max Baucus (D-Mont.) offered a plan to add prescription drug benefits to Medicare, with equal benefits for seniors who remain in traditional Medicare and those who join private, more comprehensive Medicare plans. The senators' agreement may ease the way for passage of a bill by Congress. The estimated cost of the plan is $400 billion.

Under the bill, the government would define a standard drug benefit:

  • Beneficiaries would have to pay a deductible of $275 a year and an average premium of $35 a month.
  • Medicare would pay 50 percent of drug costs from $276 to $3,450 a year.
  • The beneficiary would then be responsible for all drug costs up to about $5,300 a year.
  • Beyond that point, Medicare would pay 90 percent of drug costs, and the beneficiary would have to pick up 10 percent.

Under the senators' plan, Medicare drug benefits would begin in 2006. In 2004 and 2005, beneficiaries could save money by using drug discount cards approved by the government.

Medicare beneficiaries will have the option to enroll in health maintenance organizations and preferred provider plans, which cover doctors' services and hospital care as well as prescription drugs. Those who stay in the fee-for-service Medicare program could get drug coverage from private insurance plans subsidized by the government. Medicare officials would sign contracts with insurers, to guarantee at least two such prescription drug plans in each region of the country.

The Grassley-Baucus bill includes a complex formula for calculating federal payments to private health plans. Dozens of managed care providers have pulled out of Medicare in recent years, saying federal payments did not cover costs.

Source: Robert Pear, "Bipartisan Deal on Drug Coverage," New York Times, June 6, 2003.  


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