Clinton Decision Near on Medicare Plan Including Drug Coverage
Bloomberg News
June 3, 1999, 4:56 p.m. ET
Clinton Decision Near on Medicare Plan Including Drug Coverage
Washington, June 3 (Bloomberg) -- President Bill Clinton is
close to making final decisions on a sweeping Medicare reform
bill that would allow senior citizens to pay far less for
prescription drugs than they do now, administration officials
said.
No final decisions have been made on the plan, and officials
are still arguing over costs, even on items likely to be included
in the package, according to administration aides involved in the
deliberations.
Still, the emerging blueprint envisions sweeping change to
the primary health-care system for some 40 million elderly and
disabled Americans who rely on the federally funded program for
their health-care coverage.
It sets the stage for a battle on Capitol Hill, where
Republicans have their own ideas about how to reform the system.
No agreement is likely until after the 2000 elections.
The hallmark of the Clinton plan will be a prescription drug
benefit for senior citizens; the current Medicare plan offers
virtually no coverage for costly drugs and medicines, for which
Medicare recipients pay, on average, about $600 per year.
At a meeting this week on the Medicare plan, Clinton told
aides he is focusing on providing the prescription benefit; a key
remaining question is how much it will cost, administration
officials familiar with the meeting said.
Worries About Cost
A plan proposed by Sen. Edward Kennedy, a Massachusetts
Democrat, would provide prescription drug coverage for all
Medicare recipients. The Clinton administration is working off
that plan, the aides said, although fears of excessive cost are
forcing them to look for ways to save money.
Republicans have charged that the Kennedy plan would cost
more than $16 billion a year now, and far more in the future,
when more retirees swell the Medicare rolls. Kennedy has not
provided an overall cost estimate for his plan.
Still, administration officials said Kennedy's expansive
plan is emerging as a front-runner over other more restrictive
proposals, like one from Senator John Breaux, a Louisiana
Democrat, that would cover prescription costs only for Medicare's
poorest recipients.
The key, aides said, is finding a way to make Kennedy's
concept more affordable -- even though Kennedy's plan, if made
into law, would allow the Medicare program to receive drug price
discounts comparable to what other large buyers of prescription
drugs receive.
The administration is considering modifying Kennedy's plan
to make patients pay higher deductibles or co-payments, the
officials said.
Negotiated Rates
Other components of the evolving Clinton plan would allow
the Medicare program to cut costs by negotiating payment rates
with hospitals, doctors, HMOs and other private insurers.
Medicare currently reimburses doctors, hospitals and health-care
providers on a fixed-fee basis that is adjusted annually for
inflation.
Ever since first mentioning Medicare reform in his State of
the Union address in January, Clinton has insisted that 15
percent of future budget surpluses should be set aside to shore
up the program; Republicans have dismissed this as a gimmick but
offered few proposals of their own.
Medicare is in need of reform because the aging Baby Boomer
population is expected to put huge pressures on the system after
2010, when the first of some 77 million Boomers become eligible
for coverage.
If Congress and the administration fail to act, Medicare
costs would grow to 28 percent of the federal budget by 2030 from
12 percent now, according to estimates by a special commission on
Medicare chaired by Breaux.
The Medicare drug benefit debate may drive down shares in
pharmaceutical companies, industry analysts and investors said.
However, they see virtually no chance that the Republican-
controlled Congress and Clinton will forge an agreement on
creating a drug benefit or other major Medicare reforms before he
leaves office in January 2001.
Campaign Issue
That's because the Democrats see the drug benefit as an
issue to campaign on in the year 2000 presidential and
congressional elections.
''Clinton will propose a very generous package that he knows
Republicans will not agree to. Nothing will happen,'' said Norm
Fidel, an analyst and money manager of nearly $1 billion in
health-care stocks at Alliance Capital Management.
Still, ''Just having the market think about this hurts the
stocks even if things don't happen,'' Fidel said.
Paige Hansen, a health policy analyst in Lehman Brothers'
Washington office, rated the chances of Congress passing a
massive Clinton Medicare package as ''extremely slim.''
''Time is an issue, and funding is another major issue,''
she said. ''It will be very difficult to find any way to pay for
this.''
Pharmacy Benefit Managers
Like the Democratic legislation introduced by Kennedy and
Democratic Representative Fortney ''Pete'' Stark of California,
the Clinton proposal would likely rely on pharmacy benefit
managers to negotiate discounted drug prices and administer the
benefit through pharmacies or mail order houses.
Discounts negotiated by pharmacy benefit managers can run as
high as 20 to 27 percent off the cost of prescription drugs,
according to a 1997 General Accounting Office report on the
effect of pharmacy benefit managers on federal employee drug
costs.
The drug industry opposes the creation of a Medicare
prescription drug benefit, worried that it would depress prices
and eat into their profits.
The Clinton proposal will also likely draw opposition from
hospitals and other health providers over an initiative that
would allow Medicare to negotiate reimbursement rates.
With Medicare accounting for about one fifth of U.S. health-
care spending, its bargaining power under the Clinton proposal
could further drive down payments to hospitals and other
providers.
Medicare's domination of certain markets would be
overwhelming. ''It makes Microsoft look like a pauper,'' said Tom
Scully, president of the Federation of American Health Systems,
which represents publicly traded hospitals such as Columbia/HCA
Healthcare Corp. and Tenet Healthcare Corp.
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