Opposition Letter to the House Regarding HR 4954 (Medicare Modernization and Prescription Drug Act of 2002)

· H.R. 4954 relies on voluntary participation by a reluctant insurance industry and has a flawed design. A voluntary Medicare prescription drug program is likely to attract seniors with the highest spending on prescription drugs. When those with higher expenses enroll, insurers will increase premiums. The medigap market exemplifies the flaw of this design: premiums often exceed the maximum value.

· H.R. 4954 relies on voluntary participation of Medicare beneficiaries, while offering little or no savings to millions of potential enrollees. We estimate that the "break even" point for beneficiaries - the point at which they would pay less in premiums and out-of-pocket costs under the new program - is $775. Millions of eligible people may have expenses of less than this amount -- and these people are less likely to enroll than those with more prescriptions. Consequently, because most participants would have expenses that exceed $775, insurance companies would need to increase premiums well beyond the $33 to $35 per month estimated by the legislation's sponsors.

· H.R. 4954 lacks crucial cost-cutting steps that are needed to prevent the legislation from being a blank check for the pharmaceutical industry and a spiraling unsustainable cost to the federal budget. We believe that Congress must incorporate several crucial cost-cutting steps into a Medicare bill: Congress should close loop-holes that delay the introduction of lower-cost generics; the federal government should use its marketplace power to negotiate steep discounts from manufacturers; the bill should educate beneficiaries about generics and encourage their use; and the bill should encourage and fund both state and federal study and education (of consumers, employers, and state governments) of the cost-effectiveness of alternative pharmaceuticals.

· H.R. 4954 provides skimpy benefits and very little relief against out-of-pocket costs. A beneficiary with total prescription drugs expenditures of $500 would pay $720 for new premiums and uncovered expenses (assuming the monthly premium is $35). A beneficiary with expenditures of $1,000 would pay $820 for new premiums and uncovered expenditures. A more comprehensive analysis of the impact of H.R. 4954 on out-of-pocket costs is available at our website.