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by Edward A. McKinney
Friday, Jul. 16, 2004 at 7:26 AM
The Bush Medicare Nightmare (print edition)
By Edward A. McKinney
Last December, President Bush signed into law the Medicare Prescription Drug, Improvement, and Modernization Act (MPDIMA). A significant component of the law is a prescription drug benefit plan for seniors that will become effective in 2006. But, beginning in 2004, Medicare beneficiaries may purchase a prescription drug discount card from private insurers that negotiate reduced prices with various pharmaceutical companies. The projected cost of the MPDIMA, according to the Congressional Budget Office, is 5 billion over the next 10 years.
The new Medicare legislation is being hailed as the most significant change in Medicare since its passage in 1965. The legislation has serious economical, philosophical, and programmatic implications that need to be discussed and debated by all Americans. Also, this new legislation has to be debated because of the implications it has for special population groups, the low-income seniors, and African American seniors.
The winners so far are the private insurance and pharmaceutical industries and the Republican administration.
An analysis of the new legislation clearly points out that the winners so far are the private insurance and pharmaceutical industries and the Republican administration. Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare, had strong reactions following the signing of this legislation by the president in 2003. "The health and financial well-being of millions of older Americans dependent on Medicare has been bartered for a meager drug benefit and unprecedented changes to this 38-year old social insurance program." Furthermore, according to Kennelly, this new legislation "pulls the plug" on Medicare’s universal risk pool, that will have very serious financial implications for seniors. The one thing that the country can be assured of is that the new legislation will keep the profits of the private insurers and the drug companies rising at astronomical rates.
The Crisis in Prescription Drug Coverage
Prescription drug costs for seniors have been rising at an astronomical rate, and faster than any other major health component. The rates increased by 132 percent from 1992 (.5 billion) to 2000 ( billion). The rise was nearly double the rate of increase for senior health care spending in general, which rose by 71 percent during the same time period. Some health care analysts have projected that prescription drug costs for seniors would reach 3.6 billion by the year 2010. This projection was made prior to the passage of the new legislation. It is projected that the increase will be significantly higher now considering all of the negotiated clauses introduced in the legislation by the private sector insurance and pharmaceutical industries.
Medically, it is obvious that seniors 65 and over have higher out-of-pocket payments for prescription drugs because they have more acute and chronic illnesses. American seniors represent approximately 13 percent of the population but account for 34 percent of all prescription drugs dispensed and 42 percent of all prescription dollars spent.
The average Medicare beneficiary pays approximately half of all prescription drug costs out-of-pocket. Let’s not forget we are talking about seniors, for the most part, on fixed incomes. Half of Medicare beneficiaries without prescription drug coverage have incomes below 175 percent of the federal poverty threshold. Seniors without minimum coverage spend on the average of approximately 80 percent more for medications than those with coverage. The Kaiser Family Foundation projected that Medicare beneficiaries would spend on the average of approximately 0 in 2001. The Foundation is projecting that 20 percent of Medicare beneficiaries currently spend more than ,100 annually; approximately eight percent spend about ,000. These projections were made prior to the passage of the new legislation. From all indications many seniors will be spending more.
Families USA has alerted seniors not to expect any significant changes in the out-of-pocket expenditures with the passage of the new legislation. Even under the new law seniors will have to pay a significant amount of their drug costs, and rising drug costs will affect those out-of-pocket expenses.
African American Seniors and the Prescription Drug Crisis
Because of historical institutional racism African American seniors are faced with special problems related to the prescription drug crisis. One can reach the same conclusion regarding other special population groups, such as Hispanics, and Native Americans. Because of historical factors related to social, political, and economic inequalities, The Congressional Black Caucus Foundation, Inc., has concluded that African American seniors are less likely than their white counterparts to have access to quality, consistent and affordable health care and health education over a lifetime. The result is that African Americans experience high rates of morbidity, disability and mortality related to such chronic conditions such as Type 2 diabetes, heart disease, stroke, kidney disease and high blood pressure. As a result, statistics show that 43 percent of African American Medicare beneficiaries describe their health as poor or fair, compared to only 26 percent for their white counterparts.
With African American seniors we have the "double jeopardy" factor in play. Not only their poor health status, but the problem is compounded by the low socioeconomic status of African American seniors. For African American Medicare beneficiaries 65 percent have incomes below 200 percent of the poverty level, compared to 40 percent of all Medicare beneficiaries. A recent study from the Center for Studying Health Systems Change by Marie Reed, J. Hargraves and Alwyn Cassil reported that African American seniors are more than twice as likely as whites to report being unable to afford filling at least one prescription in the previous year. This means that a significant number of African Americans are making choices between eating, paying utilities or a place to live, before having their prescriptions filled.
The 2003 Act
Further analysis of the new law clearly indicates that it is not the American seniors that will benefit, but the medical/health monopolistic sector of the economy. Yes, the medical/health monopolistic sector has prevailed once again. An evaluation of this legislation that was triumphantly signed by the president last year in December is that it does very little financially for American seniors. In the next two to three years we will witness an astronomical rise in the cost of prescription drugs. There is nothing in this legislation to keep in check the current and future rise of prescription drugs. What happens when a new drug enters the market? An incredible increase in the volume of sales will be seen. Wall Street is already predicting that an increase in sales, following a new drug on the market could amount to approximately billion a year. The current legislation as written provides the private insurance industry with the incentives to go "cherry picking," by only enrolling the youngest and healthiest of American seniors.
The new law adds a prescription drug benefit coverage option that begins in 2006. But, beginning in May of 2004 beneficiaries may purchase a prescription drug discount card from private companies who can negotiate reduced prices with various pharmaceutical companies. This card can cost up to per year, but states may choose to pay that fee for beneficiaries. Seniors who are receiving prescription drug coverage through Medicaid can’t get the discount card.
The Cleveland Plain Dealer reported last May that Medicare’s new million drug pricing website, which lists companies offering discount cards, is rife with mistakes. Walgreen’s, one of the nation’s largest chain drug stores, complained that the website showed inaccurate prices for about half of its drugs. One discount card sponsor reported that the price for cholesterol-lowering Zocor was listed at 6.06, more than double the correct price of 5.46. Many of the other companies had similar complaints to report. How are seniors going to make intelligent choices without correct information?
A significant feature of the new legislation is the emphasis on the "means test." This feature is a dramatic turn around from the traditional social insurance nature of the original Medicare legislation. The payment format is now set by the poverty status of each beneficiary. There are two benefit structures in the new legislation. Individuals with incomes above the 150 percent federal poverty level will qualify for the standard benefit structure, whereas individuals who fall below this level will qualify for the low-income structure. The standard benefit has a set deductible of 0, an unfixed premium, and 75 percent coverage up to ,250 of total drug spending. When beneficiaries reach the ,250 limit, they face what has become known as the "doughnut hole" or a period of zero drug coverage until total drug spending reaches ,100. When a senior beneficiary reaches the ,100 spending level, he/she qualifies for catastrophic insurance if needed.
The Congressional Budget Office has estimated that half of all Medicare beneficiaries will eventually reach the "doughnut hole," but less than 20 percent will have drug costs high enough to ever regain coverage at catastrophic levels. Some beneficiaries may decide to drop coverage to save on regular premium payments after reaching the "doughnut hole," but this could result in more expensive coverage on returning to the system. It should be pointed out that because of poorer health African American seniors will more than likely reach the ,100 limit much sooner than their white counterparts.
The law forbids Medigap insurers, the companies that offer supplemental plans to Medicare recipients, from offering coverage for the beneficiaries when spending on prescription drugs reaches the "doughnut hole" criteria. Also, it forbids the offering of supplemental coverage for any other cost sharing measures. This provision seems rather punitive. So beneficiaries without some kind of employer-based supplemental insurance will face a significant gap in coverage.
Although the low-income benefit plan is a little more beneficial for seniors than the standard plan there are some problem areas for beneficiaries. For example, it has some cost containment measures that allow coinsurance costs to rise as the costs of pharmaceuticals increase. Also, this is the provision that has a non-negotiable clause that prevents Medicare from negotiating lower prescription drug prices with the pharmaceutical companies. Lobbying efforts by special interest groups representing the medical/health monopolistic sector of the economy has been reassured by this legislation that Medicare will not be able to negotiate lower costs for prescription drugs. Also, there are bureaucratic mechanisms in place in this legislation that prevent the re-importing of drugs from Canada or other countries. It is obvious that with such a provision drug costs will continue to escalate for all beneficiaries.
In response to a nationwide revolt by seniors to this legislation, some congressional leaders have finally seen the political light in this election year, and are beginning to advocate changes, especially in the provision related to drug imports. A bipartisan Senate bill was introduced in April that would permit prescription drug imports from Canada. The pharmaceutical industry opposes any efforts to make drug imports legal, whipping up fears of counterfeit drugs.
One of the most devastating features of the new law is related to "wrap-around" coverage. In "wrap-around" coverage Medicare is the primary payer, but it allowed Medicaid to supplement the benefits offered including coverage gaps, as well as subsidizing co-payments. But, under the new law beneficiaries who have been considered dual eligible or dual enrollees will no longer benefit from this "wrap-around" provision. Therefore, they can expect to face serious cutbacks in benefits and cost increases in the future. These beneficiaries are going to confront difficult times under the new law. According to the Center for Medicare Education seven million beneficiaries are dually enrolled in Medicare and Medicaid. Approximately six million presently receive full Medicaid-covered services, and the remaining one million receive Medicaid assistance only with Medicare cost sharing. For the recipients who receive full Medicaid, Medicare becomes the primary insurer, and will pay for most hospitalization and medical services. Medicaid will pay for some or all of Medicare’s cost sharing, and for such services as prescription drugs as well as non-skilled long-term care that Medicare will not cover. The dual eligible enrollees are the poorest, sickest and highest users of medical services. It should also be pointed out, according to the Center for Medical Education, that due to a number of factors, a significant number of people who are eligible as dual enrollees were not enrolled in either.
The elimination of the dual eligible provisions will have serious implications for many seniors, especially African Americans as they are not only disproportionately represented among the low-income Medicare beneficiaries, but also disproportionately represented among the dual enrollees. Also, those that have made use of this provision have utilized pharmacies of their choice, more specifically in areas close to their homes. The new plans are expected to have a smaller network of pharmacies to choose from, resulting in fewer choices for the seniors, or pharmacies conveniently located in their neighborhoods.
Another component in the new legislation that is critical to consumers has to do with the limitations of the preferred drug lists that will be offered by the prescription drug plans (PDP). Beginning in 2006 seniors will be offered a minimum of two prescription drug plans administered by the lowest competitive bidders. One of these plans must be a stand-alone plan that is not incorporated into a medical insurance plan. Beneficiaries will not be able to learn about or have advanced knowledge about the various types of drugs offered on insurers’ preferred drug lists prior to joining a particular PDP. The real "kicker" here is that the plans will be allowed to change the types of drugs included on their lists whenever they find it necessary to do so, but enrollees are only allowed to change their coverage once a year. Furthermore, the insurers can vary the cost-sharing amount paid to beneficiaries by drug type.
Another critical component included in the new legislation is a provision calling for demonstration projects that are scheduled to begin in 2010. These demonstration projects are suppose to determine which plans, including the traditional Medicare plans will prove to be more cost effective and efficient. What can we expect at the end of these projects? The fear here is that the demonstration projects have been designed to ensure that the Medicare program ends up in the greedy hands of the private insurance companies. One major fear here is that the private insurance plans will have the opportunity to go "cherry-picking." These companies will be allowed to enroll the healthiest beneficiaries, therefore, leaving the older, sicker beneficiaries in traditional Medicare programs. During the demonstration projects the traditional fee-for-service component will be expected to compete against the private plans. One can only imagine how fair this competition will be. The traditional Medicare plans have and will continue to serve the most vulnerable and expensive population of recipients, those with more severe health problems. Costs are always higher among this population and will continue to escalate. Now, the legislation calls for the extra costs to be passed on to this very vulnerable population of enrollees, pushing low-income seniors off of the traditional plans. They will opt for the private plans in their efforts to survive financially. In the end the demonstration projects will claim that it is time to privatize Medicare because privatization is more economical and efficient.
The new law offers financial and structural incentives in an effort to attract and retain Health Maintenance Organizations and the Preferred Provider Organizations that are operating in the Medicare Program, according to the Congressional Black Caucus Foundation. These organizations will receive payment rates that will be at least 25 percent higher than those paid to the traditional Medicare fee-for-service program. These subsidies will provide advantages for these organizations and provide them with the opportunity to go "cherry picking." The financial incentives provided to these organizations will only take away needed resources from the traditional Medicare program where at the present time more than 85 percent of the beneficiaries are receiving their care. The Congressional Black Caucus Foundation has concluded that this unfair competition between the private plans and the traditional plan actually will begin in 2006.
The process of "cherry picking" has serious racial overtones. A primary goal of this legislation is to attract the private insurers or Health Maintenance Organizations. Since their existence depends on making a profit, one can expect HMOs to go "cherry picking" among the healthy, low-cost beneficiaries. The Black Congressional Caucus Foundation also warns us of another danger: "medical redlining." Companies, in order to avoid geographical sections considered high-risk pools, will establish their operations in areas where the density of high cost is lower.
The private insurance and drug industries with this new legislation have gained a significant foothold in this government social insurance program for seniors. Since 1965 Medicare has provided almost 100 million seniors and disabled Americans with access to health care. Life expectancy has increased by 20 percent, and seniors have come close to achieving universal access to medical care. So, instead of continuing in the direction of comprehensive social insurance for seniors, including prescription drugs, this law turns back the clock to pre-1965 and moves toward the privatization of Medicare.
The same private sector forces that fought so bitterly to prevent the enactment of Medicare legislation in the early 1960s have become major players in the legislative process. The American Medical Association spent millions in an advertising campaign to fight what was referred to as socialized medicine. The president of the AMA, Dr. Edward Annis during legislative debates on Medicare some 40 years ago estimated that 90 percent of physicians in the country would not touch a government form. Also, many physicians at the time were urging their elderly patients not to sign up for Medicare and told them if they did, they would have to find another physician. Dr. Annis, did not urge a boycott of Medicare but instead "declared that the AMA should cooperate with the government and get inside the camp of the enemy [those who supported Medicare] in order to find the vital, the vulnerable spots." In many respects Dr. Annis and the AMA were successful. Powerful special interests lobbyists of the AMA wrote sections of the final version of the Medicare legislation. Although the current AMA organization may be a minor player in the current medical/health monopolistic sector, the organization’s special interest offspring continue to find the vital and vulnerable spots in controlling this sector of the economy.
The goal of this legislation is the privatization of Medicare. It moves Medicare away from a social insurance program towards a private system. Now, one can only imagine what the administrative costs will be, including the profits, once corporate greed and corporate welfare take over prescription drugs under Medicare. Several years ago the General Accounting Office, United States Government Research Unit, projected what could be done with the difference between the high administrative cost of the private insurance sector in the United States and what the administrative cost was for running the Canadian Health System. The difference in dollars was so significant that the GAO concluded that the amount could be used to insure all 40 million Americans, presently uninsured or without access to healthcare.
The control of the multi-billion-dollar medical/health industry is in the hands of drug or pharmaceutical and the private insurance companies. They spend millions of dollars through lobbying efforts contributing to political campaigns. One cannot overlook the fact that the top financial institutions are crucial players in the health industry, considered the second largest industry in the country. The same financial and corporate forces that are dominant in shaping the economy also play a major role in shaping the health services sector. So with billions of dollars at stake in the medical/health sector of the economy, the private insurance and drug industries have little or no interest in the right of seniors to prescription drugs and a quality of life in their advanced years.
--Edward A. McKinney teaches at Cleveland State University. Comment on this article by writing to firstname.lastname@example.org.
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