Congress Proposes to Expand Medicare to
Include Coverage For Outpatient Prescription Drugs

Amy Dilcher, J.D., LL.M. Candidate

Congress is considering an expansion of Medicare benefits to include coverage of outpatient prescription drugs. In the past ten years, two congressional attempts to provide the Medicare prescription benefit have failed (The Medicare Catastrophic Coverage Act of 1988 and The Health Security Act of 1994).

The congressional proposals attempt to address inadequate prescription drug coverage among seniors. Approximately 75% of Medicare beneficiaries have inadequate prescription drug coverage, and 33% of Medicare beneficiaries do not have any outpatient prescription drug coverage. See

Those Medicare beneficiaries who do have outpatient prescription drug coverage obtain it through employer-sponsored plans, Medicare+Choice Health Maintenance Organization (HMO) plans, individually purchased supplemental coverage (e.g., Medigap policies), or the Medicaid program. These options, however, are becoming less accessible as fewer employers are offering drug coverage for retirees. In addition, Medicare+Choice plans are offered in limited areas, and drug benefits may cease in the future as drug costs increase. Medigap plans are costly and usually have a $250 deductible, 50% co-pay, and benefit caps. Although Medicaid provides payment for prescription drugs, many indigent Medicare beneficiaries do not meet Medicaidís eligibility requirements.

Several bills pending in the 106th Congress propose to provide a Medicare outpatient prescription drug benefit. The bills differ in the extent of coverage provided for prescription drugs, the cost of the benefit to the federal government, and the source of revenues. Some plans are comprehensive and propose to streamline the Medicare program as well as provide a Medicare prescription benefit. Other proposals are stand-alone bills that purport to offer solely a Medicare prescription benefit. One proposal that has received serious attention is the Senior Prescription Insurance Coverage Equity Act proposed by Senators Snowe and Wyden, which the pharmaceutical industry supports.

The Snowe-Wyden Bill (S. 1480), a stand-alone bill, would provide coverage for prescription drugs to seniors eligible for benefits under Parts A and B of the Medicare program for a monthly premium. The amount of the premium is based on seniorsí income levels. For example, seniors earning below 150% poverty level would not pay premiums for prescription drug insurance, whereas those earning between 150-175% would have their premiums phased down from 100% to 25%. All other seniors would have their premiums subsidized by 25%. The prescription drug benefit under this bill is estimated to cost $15 billion per year and would be funded by tobacco tax increases. H.R. 2782 is the companion measure introduced in the House by Reps. Marge Roukema (R-NJ) and Frank Pallone (D-NJ).

In addition to congressional proposals, the White House has formulated a plan to offer a prescription drug benefit under the Medicare program. On June 30, 1999, President Clinton announced his plan, which would provide a drug benefit to all Medicare beneficiaries who elect to receive it for a monthly premium. The program would pay for one-half of beneficiariesí drug costs each year up to a $5,000 cap. The plan would also offer federal subsidies to employers to encourage them to continue providing drug benefits to retirees. Although White House officials reported that the plan would cost $118 billion over ten years, the Congressional Budget Office estimated the plan would cost an additional $50 billion dollars.

The Presidentís Medicare reform proposal and recent proposals introduced by Congress provide opportunities to examine whether Medicare should be reformed and whether the federal government should provide prescription drug coverage. There are no absolute answers to these questions, and any legislation adopted should balance the competing concerns about the sustainability of Medicare, federal obligations to provide health care, and the hardships faced by some beneficiaries.

Opponents of the outpatient prescription drug benefit argue that the Medicare program is likely to become insolvent in the future and that a drug benefit will exacerbate this problem. By 2040, the number of Americans age 65 and older will double, and the number of workers paying into Medicare and Social Security related to the number of beneficiaries will fall by one-third.

A bill that provides a Medicare outpatient prescription benefit should address the extent and scope of federal obligations to provide health care. In 1965, President Johnson signed the Medicare program to provide accessible quality health care to seniors. Although Medicare does not cover outpatient prescription drugs, it does provide payment for inpatient prescription drugs and other costly treatments such as injections, electrical stimulation, infusion pumps, skilled nursing facilities, and hospice care. Should Congress add outpatient prescription drugs to this list? The prescription benefit could reduce our overall health care costs by providing seniors with access to medication early in the disease process, rather than at later stages of disease when medical intervention is more expensive. If this benefit is added, should other Medicare services be eliminated or reduced? If so, how would the elimination or reduction of covered services impact Medicare beneficiaries?

A comprehensive bill, rather than a stand-alone bill like S. 1480, appears to better address Medicare solvency and federal obligations by reforming the Medicare program as a whole and off-setting the prescription drug benefit by reducing coverage in other areas. In lieu of adopting full-scale legislation that provides drug benefits to all Medicare beneficiaries, Congress could consider a pilot program that offers select outpatient prescription drugs, which would provide Congress with an ample opportunity to measure the associated costs. Additionally, tax credits for prescription drug costs and/or incentives for employers to offer retirees drug coverage, such as a component of Presidentís Clintonís proposal, may provide possible alternatives.