Some Experts Foresee Revolt by Elderly Over Drug Benefits
The New York Times
November 26, 2003
By GARDINER HARRIS
With good intentions and bright advisers, Congress overwhelming
passed legislation in 1988 that would insure the elderly against catastrophic
medical expenses, including crushing drug costs.
But affluent retirees quickly concluded that they were being asked
to pay for something that their employers already gave. They rose in revolt.
Congress repealed the legislation within months.
Some experts envision a similar fate for the Medicare drug benefit
that the Senate sent to President Bush's desk yesterday. The legislation
provides billions in tax incentives to discourage employers from
dropping the drug benefits that they provide to about 11 million retirees.
But if, as pessimists expect, many large employers calculate that the incentives
are not enough, millions more retirees than Congress expects will watch as
their relatively rich private drug benefits are replaced by the government's
more meager package.
They will be forced to trade in a Cadillac for a Chevrolet,
and that is a recipe for another revolt by the elderly, some experts say.
In 1988, Representative Dan Rostenkowski, chairman of the
House Ways and Means Committee, had to dash through
a Chicago gas station to avoid
a mob of frail constituents chanting "coward."
"There's a real chance of a replay of 1988," said Paul Ginsburg,
president of the Center for Studying Health System Change. "It's a real big risk that
backers of this legislation are taking."
Experts fiercely debate whether employers will react to the legislation
by dropping retiree care. The Congressional Budget Office estimates that 23
percent of employees - or 2.7 million people - who are now receiving drug
benefits from their employers will lose those benefits after the
Medicare drug program is instituted in 2006.
Richard Evans, an analyst with Bernstein Research, said that
most employers would view the Medicare legislation as a heaven-sent opportunity to
reduce expenses. The legislation offers employers tax incentives
to continue paying for retiree health expenses that amount to 28 percent of drug
costs, from $250 to $5,000 a retiree a year. But Mr. Evans estimated
that employers would save, on average, $1,000 a retiree if they refused the
tax incentives and dropped coverage.
"So the companies are going to put them into the Medicare program,"
Mr. Evans said. "That means a lot of retirees with great drug coverage now
will get worse coverage in the future."
Indeed, much of the reason for providing health coverage
to retirees was the absence of a drug benefit in the Medicare program, said Joe
Martingale of Watson Wyatt Worldwide, an employee benefits consulting firm.
"Now that Medicare has less of a gap with prescription drugs, it's a
fair question to ask if employers rethink what kind of plan makes sense now," Mr. Martingale said.
Nonetheless, he said that "a stampede toward the door is unlikely,"
and employer groups that are supportive of the Medicare legislation say they
will not suddenly abandon their retirees.
"This notion that millions of retirees will suddenly lose their drug
coverage because of this legislation is ridiculous," said Edward J. Kaleta,
chairman of the Employers' Coalition on Medicare, a group of about
60 companies that have been lobbying for a Medicare drug benefit.
"Right now, these employers are offering retiree drug coverage and
they're getting nothing for it," Mr. Kaleta said. "Under this bill, they're at least
getting some relief."
Employers have been scaling back retiree health benefits for years.
According to a study released in July, the percentage of younger Medicare
beneficiaries with employer-sponsored drug coverage dropped to
39 percent in 2000 - the last year for which figures were available - from 46
percent in 1996.
Even if employers drop their retiree coverage, many will probably wait a year
or two after 2006, experts say. That means that those injured by the
legislation will not immediately know they are hurt and will not be able
to mobilize against it, experts say.
By contrast, the well-to-do elderly knew very soon after the 1988
legislation passed that they were being required to pay substantial premiums for
a benefit that, because they had employer-sponsored coverage anyway, they were unlikely to use.
"In 1988, it was clear from the get-go who was getting hurt," said
Jonathan Gruber, a professor of economics at the Massachusetts Institute of
Technology.
Finally, this year's legislation is voluntary, and that should mute
much of the criticism that was heaped on the 1988 bill, which required the
elderly to participate and pay into the program, experts said.
Still, some advocates insisted that most elderly people would reject
the Medicare benefit regardless of employer actions because of the legislation's
patchwork structure - covering about 75 percent of drug expenses up
to $2,250 a year and then nothing until $5,100 is spent, after which the
government covers 95 percent of expenses.
"The more seniors learn about this benefit, the more unhappy they
become," said Ron Pollack, executive director for Families USA, a health care
consumer group.
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