Clinton Seeks Medicare Drug Coverage; Fight Looms (Update4)
Bloomberg News
June 29, 1999, 2:57 p.m. ET
Clinton Seeks Medicare Drug Coverage; Fight Looms (Update4)
(Adds comments from analyst Loss.)
Washington, June 29 (Bloomberg) -- President Bill Clinton
today is proposing a 10-year $118 billion plan designed to help
the nation's elderly pay for prescription drugs, and his aides
said it won't lead to controls on prices.
The proposal -- which has little chance of congressional
passage ahead of next year's elections -- seeks to do three
things: make Medicare more efficient and competitive, modernize
the system, and extend its solvency until 2027 by using savings
measures and spending $794 billion of the federal budget surplus
over the next decade.
Drugmakers have said a prescription benefit could be a step
toward government price controls on prescription drugs. The
Pharmaceutical Research and Manufacturers of America, which
lobbies for major drug companies like Merck & Co., Pfizer Inc.,
Bristol Myers Squibb Co., has voiced preference for having
private health insurers offer drug coverage to Medicare patients.
Clinton's aides say his plan would help seniors, not hurt
drugmakers. ''We have explicitly and categorically rejected price
controls,'' said Gene Sperling, chairman of Clinton's National
Economic Council. ''Presumably the drug companies are able to
make sales to Blue Cross/Blue Shield and others at a profit. We
just want to put Medicare on a level playing field.''
'Dismal Swamp'
Earlier efforts to extend Medicare coverage to prescription
benefits foundered on cost concerns. ''About 10 years ago,
Congress decided to mandate a one-size-fits-all drug coverage
program for all seniors,'' House Speaker Dennis Hastert and
Senate Republican Leader Trent Lott said in a joint statement.
''Because so many seniors already had better drug coverage
through supplemental sources than what government provided,
seniors forced Congress to repeal the measure the very next
year,'' the two top congressional Republicans said, adding that
they'll study Clinton's plan and work toward a bipartisan
solution.
Others voiced skepticism. The plan is likely to ''quickly
roll into the dismal swamp'' as Congress focuses on other big
issues such as Social Security reform and tax cuts, said Ira
Loss, senior vice president of Washington Analysis, an equities
research firm specializing in U.S. regulations and legislation.
Part of the problem is that Clinton dropped a plan to charge
higher premiums to the wealthiest patients, making the plan less
viable financially, Loss said.
Clinton aides say the program could be a good deal for
seniors on Medicare who currently pay about $600 a year, on
average, for prescription medication. Under the plan, Medicare
recipients would be given the option to pay between $24 to $44 a
month to get the U.S. government to reimburse them up to $2,500
for their prescriptions.
Bulk Rates
They would also enjoy an average discount of about 10
percent on what they have been paying for the drugs as Medicare
moves to take advantage of volume discounts from drug companies,
said Chris Jennings, Clinton's deputy domestic policy adviser.
Currently, insurance companies use prescription benefit
managers, or PBMs, to negotiate bulk rates and other discounts on
drugs with pharmaceutical companies. The Clinton plan envisions
the same thing, on a smaller scale, for Medicare. The Health Care
Financing Administration, the part of the Department of Health
and Human Services that runs Medicare, wouldn't seek to negotiate
Medicare-wide discounts, Sperling said.
''We're talking about at the regional level allowing PBMs to
get discounts,'' said Sperling. ''We're not talking about letting
HCFA barge in for the Medicare policy as a whole.''
Managed care providers and hospitals would also see
competition heat up under the Clinton plan by setting defined
Medicare benefits which fee-for-service or managed care
operations could compete to provide. That competitive pricing
could save the U.S. government $25 billion over 10 years,
according to White House figures.
'Mixed Bag'
Many seniors joined managed care operations because they
cover prescription drug costs. Under Clinton's plan, fee-for-
service providers and health maintenance organizations would be
free to offer comparable services at competitive prices and
Medicare beneficiaries would be free to choose their plan.
Clinton's plan also would give beneficiaries 75 cents of
every dollar they save in choosing lower cost plans that offer
the same basic Medicare benefits but don't necessarily provide
extra benefits.
The other 25 cents of those savings would go back to the
federal government providing an estimated $8 billion in savings
over 10 years, starting in 2003.
The plan would be a ''mixed bag'' for health maintenance
organizations, said Barbara Dreyfuss, a health analyst for
Prudential Securities. Drug coverage now is ''the single largest
item that attracts people'' to stay in managed care, she said.
Yet managed care companies that have pharmacy benefit managers
''obviously could get into Medicare drug benefits'' and boost
profits, Dreyfuss said.
Larger Battle
Merck & Co., the largest U.S. drug maker, and Rite Aid
Corp., the No. 3 drugstore chain, run their own pharmacy benefit
units. Express Scripts Inc. is one of the largest independent
pharmacy benefit managers.
Drug companies, meanwhile, would face a price squeeze in
years to come, Dreyfuss said.
The battle over Medicare part of a larger battle over how to
spend the $3.7 trillion budget surplus anticipated over the next
15 years. Clinton wants to pay off the national debt by 2015 and
use money saved in interest payments to shore up Medicare and
Social Security.
Republicans, for their part, favor tax cuts. How big they
will be, and who will receive them, will likely color any debate
on Social Security or Medicare ahead of the 2000 congressional
and presidential elections.
Clinton is trying to re-energize his domestic agenda after
an impeachment vote in the House of Representatives and more
recently, the war in Yugoslavia. Republicans, who control both
houses of Congress, likely won't hand Clinton a domestic policy
victory before next year's presidential elections, analysts say.
Voter Pressure
Still, Clinton aides stress that the Medicare system faces
huge pressures after 2010, when the first of about 77 million
baby boomers become eligible for coverage and it is in the
interest of both parties to address the problem.
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 congressional
commission on Medicare.
What's more, the issue may be one that resonates with
voters. About 57 percent of U.S. citizens surveyed said they feel
both Social Security and Medicare need major changes or a
complete overhaul, according to a USA Today/CNN/Gallup poll
released today.
The early returns also indicate voters have more confidence
in Clinton to fix the federal pension and health care systems
than the congressional Republicans by a margin of 50 to 42
percent, the poll said. On Medicare reforms alone, those surveyed
had more confidence in Clinton than the Republicans in Congress
by a 55 to 38 percent margin, it said. The poll had a margin of
error of plus or minus 3 percentage points.
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