AHIP Coverage (May/June 2008)
From the Regulators
Reining In Medicare Drug Costs a Challenge
By April Fulton
Legislation that President Bush proposed earlier this year is prompting a new urgency in Congress to address the growing costs of the Medicare prescription drug program, but an agreement on how to control those costs is far from certain as both parties battle to reshape the benefit. The 2003 law that created the federal prescription drug benefit program includes this requirement: If the Medicare trustees estimate that the cost of the Medicare program becomes “excessive,” the president must propose and Congress must consider proposals to address it.
The law defines “excessive” as the point at which the program is projected to exceed 45 percent of general-fund revenues for two years in a row. In both 2006 and 2007, Medicare trustees estimated the 45 percent “trigger” would be reached by 2013. As required, President Bush proposed a “trigger” bill in February to rein in drug spending.
Senate Budget Committee Ranking Member Judd Gregg, R-N.H., who introduced the legislation on behalf of the president, said: “Our children and grandchildren do not deserve to have their quality of life hampered by this burden of $34 trillion in unfunded Medicare promises. I urge Congress to consider this reasonable proposal and for the Senate leadership to grant it a final vote as the House is required to do. We should not have to wait for any more warnings—the message is clear. Now is the time for Congress to take action on Medicare, and all unsustainable entitlement programs.”
But Democrats have indicated that they do not see Bush’s proposal as the last word. “I am required by law to introduce the White House’s legislation on Medicare today,” said Senate Finance Committee Chairman Max Baucus, D-Mont., in the Congressional Record on Feb. 25. “But I’m compelled by my commitment to America’s seniors to insist on better solutions.”
Baucus said he is working on a broad reform bill that would increase access to preventive benefits, improve quality of care, and address what he sees as overpayments in the Medicare Advantage program. A spokeswoman for Baucus says the senator “continues to work with Sen. [Charles] Grassley and others on a Medicare bill that will really improve the program and its service to seniors”; he was expected to introduce a bill following the mid-March congressional break.
Ideological Battles Loom
The significance of the “trigger” provision was downplayed at the time the Medicare drug law was enacted by Democrats looking to claim a bipartisan victory, but conservatives applauded it.
“The long-term impact of the increasing draw-downs on general revenue funds to cover Medicare benefits will mean huge tax increases, especially after the baby boomers begin to retire in 2011,” wrote Robert Moffit and Alison Acosta Fraser, of the Heritage Foundation, in a February “Web Memo” published shortly before Bush officially offered the bill. “The [2003 Medicare] law provides a rare opportunity for the president and Congress to deal directly with entitlement crisis in a responsible bipartisan fashion,” the memo says.
But the Center on Budget and Policy Priorities says the trigger actually may make it harder to address Medicare’s funding problems. “Unfortunately, the 45 percent limit misdefines the basic challenge facing Medicare—which is how much the program is projected to cost and whether its costs fit within the overall U.S. budget, not what share of Medicare’s costs are covered by a particular revenue source,” the Center’s James Horney and Richard Kogan wrote in a Feb. 15 report.
Horney and Kogan argue that the 45 percent trigger is arbitrary and poses no more of a problem than the fact that defense, veterans’ benefits, education, and most other federal programs come from general revenues. They caution that “satisfying the 45 percent limit by shifting Medicare financing away from general revenues and toward payroll taxes would do nothing to address growing health-care costs or the overall federal budget program.”
The Center says the trigger essentially shuts down the possibility of rolling back Bush’s tax cuts or cracking down on tax fraud as a way to close the Medicare financing gap but instead permits Congress to increase payroll taxes and cut health services and provider reimbursement.
The Details
Bush’s trigger proposal would increase drug benefit premiums for higher-income beneficiaries, cap certain medical malpractice lawsuit damages, and require health providers to implement electronic records. It would reduce the federal subsidy of the Medicare Part D premium for single seniors earning more than $82,000 a year and for couples making more than $164,000 annually. This provision, also included in the president’s FY09 budget, is projected to save $3.2 billion over five years.
Another provision would revive efforts to rein in medical liability costs by limiting non-economic damages such as pain and suffering to $250,000, regardless of the number of health care providers involved in the suit. It would also raise the burden of proof for punitive damages, requiring plaintiffs to show “clear and convincing evidence” of malicious intent to injure or deliberate failure to avoid unnecessary injury, and limits total punitive damages to either $250,000 or twice the amount of economic damages, according to a summary released by Gregg’s office. This section would also curb product liability lawsuits for products approved by the Food and Drug Administration unless the product was deemed out of compliance or was approved via fraudulent means, such as bribing a government official.
The health information technology section would encourage the Department of Health and Human Services to propose improvements for health care outcomes and provide more consumer information about the cost and quality of health care. Specifically, the proposal would offer incentives to encourage providers to 1) use electronic medical records, 2) provide pricing information to allow consumers to compare costs, and 3) improve care.
“In time, these principles will reduce the growth in spending by increasing provider efficiency and helping beneficiaries to be more informed consumers,” Gregg’s summary says.
Congressional Reaction
Aside from implementing electronic health records, many congressional Democrats oppose most components of Bush’s bill as non-starters, opening up ideological battles they have fought for years.
“The trigger was created as a political ploy to foster a panic that Medicare is unsustainable,” said House Ways and Means Health Subcommittee Chairman Pete Stark, D-Calif., shortly after the president’s bill was introduced. But Republicans see the bill as a way to force a debate about budget priorities, and they are confident that they would come out ahead with a message of fiscal restraint in light of the strained economy.
House Minority Whip Roy Blunt, R-Mo., told CongressDaily in March: “The Democrats have a couple of choices. They can just act like it doesn’t matter how much we spend on Medicare. They can shut the trigger off. Or they could try to ignore it.”
He said Republicans would force a vote on the bill in September if the House does not vote on a Medicare spending bill by July 30. “We’re OK with any of those politically.”
April Fulton is a freelance writer in Washington, D.C., and a regular columnist for AHIP Coverage.
