On June 29, 1999, President Clinton proposed a plan "to modernize and strengthen Medicare for the 21st Century." The President's proposal meets three of Consumers Union's longstanding goals for the Medicare program. The proposal (1) establishes a valuable prescription drug benefit for Medicare beneficiaries; (2) puts competition to work for consumers (not just insurance companies and health plans) by establishing a standard Medicare benefit package; and (3) makes Medicare available to many people still too young to qualify by establishing a self-supporting Medicare buy-in program. These are very significant improvements to the Medicare program and we commend the Administration for the careful attention that it has taken to design a proposal that is both fiscally careful as well as favorable to beneficiaries. Eventually, we would hope that the prescription drug benefit could be expanded to include catastrophic protection for the small percent of the population with the most extreme pharmaceutical needs, and expanded to provide a cap on out-of-pocket expenditures for beneficiaries. In addition, we urge that Congress and the Administration structure the "choice" of prescription drugs so that 100 percent of those eligible elect this high-value coverage, to avoid adverse selection.

To what extent will President Clinton's Medicare proposal revitalize Medicare so that it better serves beneficiaries' health care needs? The checklist below was developed in anticipation of the Bipartisan Commission on Medicare's failed recommendation, and other forthcoming Medicare reform proposals. The checklist is a list of questions that are designed to help evaluate whether Medicare reform proposals advance or set back the interests of consumers. Below the Administration's proposal is evaluated against the checklist.

1. Does the reform proposal provide relief for people in need of prescription drugs, including caps on out-of-pocket prescription drug costs?

The failure of Medicare to cover prescription drugs has been one of its most serious weaknesses. Medicare should be reformed so that prescription drugs are in reach of all Medicare beneficiaries. Co-payments should not be so high as to present financial barriers, and coverage should be deep, and should not be limited to first-dollar coverage (e.g., with a $500 cap on prescription drug benefits). The erosion of employer-based coverage for retirees, limited benefits available through medigap (in part because of adverse selection inherent in a voluntary benefit structure) argue for a universal (non means-tested, not voluntary) prescription drug benefit.

In today's Medicare, prescription drug coverage is not universally available. Those with coverage include those who are lucky enough to have employer-provided coverage, prosperous enough to afford over-priced medigap coverage, poor enough to qualify for Medicaid, or those willing to sacrifice choice of doctor to take enroll in an HMO (and risk that the HMO my drop out of Medicare in the future).

One of the most significant contributions that the Clinton proposal makes to improve Medicare is its proposed prescription drug benefit. It represents a badly needed beginning of a prescription drug benefit. It will provide far better value-for-premium-dollar than present medigap prescription drug coverage. (Today, based on Consumer Reports' September 1998 analysis of medigap plans, a typical 75-year-old pays an additional premium of about $1,850 per year for a prescription drug benefit that is at most $1,250.)

There are two areas that require additional analysis and consideration. The President's proposed prescription drug benefit would be voluntary. To the Administration's credit, beneficiaries would be required to make a one-time decision (at the time of Medicare eligibility) about participation in this new Part D. The risk is that relatively healthy beneficiaries will opt out of prescription coverage; the program would lose their premium dollars and this could threaten the financial stability of the Part D program. Also, the program does not eliminate financial burdens on the small percent of seniors with the most severe prescription drug expenditures. An estimated 4 percent of beneficiaries have prescription drug costs exceeding $2,000 per year. This population needs more protection than is provided by a benefit that has 50 percent co-insurance and a benefit cap eventually) of $2,500. We recognize that these costs can be high.

2. Does the reform proposal cap beneficiaries' out-of-pocket costs, providing relief for those with the highest health care costs, i.e., the sickest?

Another serious benefit deficiency of Medicare is its failure to limit beneficiaries' out-of-pocket costs after maximums are reached. While medigap and Medicaid cover gaps for many, millions of moderate income Americans are at risk of devastating out-of-pocket costs. A restructuring of benefits could provide stop-loss protection while eliminating the need for medigap coverage for some.

The President's proposal does not address the need to limit beneficiaries' out-of-pocket costs. This is an area that needs further attention from the Administration and Congress.

3. Does the reform proposal establish a framework (even if not fully funded at first) for addressing the growing problem of long-term care?

Nursing home care and home care for the disabled are extremely expensive and can quickly wipe out families' savings and create financial catastrophe for families. Private long-term care insurance will not be a practical solution for most families, who simply can not afford it. Recognition of the growing long-term care problem is the first step in addressing this problem, which will only grow worse over time as the population ages.

The June 29, 1999 Administration proposal does not address the issue of long-term care. Earlier this year, however, President Clinton proposed a modest tax credit for families with long-term care costs. Though modest, it helped to open the discussion of the need to deal with this growing problem. This is an area that continues to need more attention by the Congress, even if it is considered on a separate track from the other Medicare reforms.

4. Does the reform proposal establish a framework, a beginning, for addressing the insurance needs of people who are 55-64, before they are eligible for Medicare, and begin to reduce the ranks of uninsured Americans?

Many people have existing health conditions by the time they reach 55, or develop them by the time they reach eligibility for Medicare at age 65. Ideally, Medicare coverage will be phased in to protect people in this age group (and even younger). The Bipartisan Commission seriously considered increasing the age of eligibility for Medicare; this would have resulted in growth the number of uninsured Americans.

The Administration has previously proposed a program that would allow certain people who are not yet 65 to buy into Medicare, acknowledging the very real need to address the health care challenges of this population. This proposal has been incorporated into the June 29, 1999 plan. This part of the proposal goes a long way toward addressing the needs of the population not quite old enough for Medicare. If funds allow, we urge Congress to build in additional subsidization of this buy-in for people who cannot afford to pay the premiums of $300 to $400 per month.

5. Does the reform proposal put marketplace competition to work on behalf of consumers, or is marketplace competition likely to bolster profits of companies that don't best serve consumers' needs (e.g., by denying needed care, or avoiding enrolling the sickest consumers)?

Marketplace competition usually offers consumers substantial benefits such as increased choices, lower prices, and higher quality. This can only happen in the health care system if private companies are required to play by the rules established and enforced by the government. Unfortunately, when it comes to health insurance, often competition is among insurance companies who compete for the healthiest consumers and work hard to either deny coverage to the highest risks or charge them high premiums.

The President's proposal to make Medicare more competitive and efficient, through a "competitive defined benefit" while maintaining a viable traditional program is a cornerstone of the proposal. Consumers Union has long advocated the need for a standard benefit package for Medicare, and criticized recent erosion of standard benefits by allowing managed care plans to both enrich their benefit package and benefit from the selection of relatively healthy beneficiaries. We commend the "standard benefit" package approach that puts price competition to work for consumers. To its credit, the Administration has rejected the premium support model, which had the potential (if not carefully designed) to cede a good deal of accountability from the government to the private insurance industry. Also to its credit, the proposal (and the President in his June 29, 1999 announcement statement), emphasized the need for "apples-to-apples" comparisons that are only possible with standard benefit packages.

6. Does the proposal target relief to moderate-income individuals and families - those whose income is too high to qualify for Medicaid yet too low to be able to afford medigap coverage?

It is these families that need the most help. They need protection against catastrophic costs. They need comprehensive prescription drug coverage. They need assistance with the high cost of long-term care.

The Clinton proposal calls for full subsidization of both the premium and coinsurance for beneficiaries with income below 135 percent of poverty. The proposal would also subsidize premiums for people at incomes of 135 percent to 150 percent of poverty. This low-income population is most in need of prescription drug coverage, and the subsidization provided is appropriate. If possible, additional assistance with cost-sharing for those with income between 135 and 150 percent of poverty would be valuable.

7. Does the reform proposal tap financing sources that appropriately seek revenues from those people who are able to pay?

Medicare as a social insurance program - a universal program that pools risks broadly - can be preserved while at the same time charging more to those high income beneficiaries who can afford to pay more. (The overwhelming majority of Medicare beneficiaries have moderate incomes, so there is a limit to how much money can be raised from the well-off beneficiaries). It is fair to ask higher income individuals and families to pay more, but this added contribution should not be so onerous as to discourage participation in Medicare.

The Administration reserves the largest subsidies to those with incomes below 135 percent of poverty. Most seniors have moderate incomes. While Consumers Union is prepared to support higher premiums for higher income seniors (who now often pay more than $150 per month for limited prescription drug coverage), we acknowledge that charging those with income above $100,000 raises relatively little income. (There is also a danger, in a program that is voluntary, that higher income beneficiaries, fearful of hefty premiums, would opt out of the program and undermine its broad pooling of risks and financial solvency.)

8. Does the reform proposal assure that Medicare is universal (for the covered age group) to help achieve the highest quality and highest level of political support?

The success of Medicare to date stems largely from the fact that it has been universal. Payments have been sufficient to encourage broad participation by providers. Quality of care has been high. If provider payments were cut too severely, participation and quality would erode. The well-to-do would have a strong incentive to drop out of Medicare. The political support for a program for all seniors and disabled would erode.

The President's proposal builds on the universal nature of the Medicare program. As noted above, we would hope that the details would yield close to 100 percent participation in the prescription drug program.

9. Does the reform proposal spread risks broadly?

Broad spreading of risks, coupled with universal participation, is the key to keeping average costs down. If the private sector were allowed to select the healthy, without a reduction in their payments, the solvency of the Medicare program would be severely threatened.

The Administration has not embraced the premium support model, which would have threatened the Medicare risk pool. The competition proposal in the Administration's plan appropriately creates a standard benefit package and reduces the potential for managed care plans to serve a disproportionately healthy population.

10. Does the reform proposal assure that beneficiaries have the freedom to choose their own doctor?

Freedom of choice of doctor allows consumers to exert some control over their health care destiny. This freedom is very important to many consumers, and has been one of the cornerstones of the Medicare program. Many consumers wish to maintain this freedom, even if it means higher costs for them.

By rejecting the premium support model, the Administration has helped to assure that traditional Medicare, which allows freedom of choice of doctor, will be available to all Medicare beneficiaries. The competition model is premised on supporting the traditional Medicare model, which offers beneficiaries far more freedom of choice of doctor than do Medicare HMOs.

Gail Shearer
July 1, 1999
Consumers Union's Washington, DC Office