How a Medicare drug benefit requires some tough choices

From the June 2000 ACP-ASIM Observer, copyright © 2000 by the American College of Physicians-American Society of Internal Medicine.

By Robert B. Doherty

Ask Americans why they have such distaste for the ways of Washington, and the answer usually boils down to two words: politics and politicians. All too often, it is said, politicians cast their votes based on what serves their own political ambitions, not the public interest.

Politics certainly does influence much of what goes on in Washington, sometimes leading politicians to cast votes based on expediency rather than what is right. But blaming failed government on too much politics-and too many politicians-oversimplifies what is really going on. Even when politicians are aligned in favor of doing something that everyone agrees is in the public interest, creating a plan of action can prove extraordinarily difficult.

A good example is the issue of Medicare coverage of prescription drugs. The politics of the issue is clear: By a large majority, the public favors expanding Medicare to cover prescription drugs. And while some issues like gun control face a strong and vocal minority, there is no equivalent to the National Rifle Association opposing a Medicare prescription drug benefit.

So why hasn't Congress passed a Medicare prescription drug bill? The truth is that lawmakers are struggling with how to implement-and pay for-such a plan.

Means testing

A key question that is far from being resolved is whether or not a new drug benefit should be limited to lower-income beneficiaries, or means-tested. President Clinton and Democrats in Congress argue that it should not. Republicans say that it should.

Which viewpoint best reflects the public interest? The Democrats argue that one of Medicare's strengths is that it is not viewed as a welfare program. The government made a covenant with the elderly that anyone over the age of 65 would be covered without regard to income. History has shown that programs that cover only the poor-Medicaid is a good example-do not enjoy the degree of public support (and financing) as Medicare. Why, then, would we want to start eroding Medicare's promise-and public support-by means-testing a Medicare drug benefit?

The Republicans counter this argument by noting that lower-income beneficiaries are the least likely to have prescription drug benefits now through a Medigap plan. These Medicare beneficiaries are the mostly likely to have to bear unacceptably high out-of-pocket costs if they get sick and need costly medicines. Because a prescription drug benefit will be very costly, the Republicans argue, doesn't it make sense to provide coverage first to those who can least afford medications on their own?

Both arguments point out that there is no simple way to define the public interest in this matter. ACP-ASIM has stated that Congress should enact a Medicare prescription drug benefit, but that the highest priority should be to help lower-income beneficiaries. In our view, this wouldn't necessarily mean cutting off benefits to those with more means, but requiring them to pay higher premiums or giving them less generous benefits.

Paying for coverage

Lawmakers also question how to finance a prescription drug benefit without diverting money from other important programs, including existing Medicare benefits.

The easy answer is that no hard choices are required, because the country is enjoying the fruits of a huge budget surplus. Just direct some of that surplus to covering prescription drugs, the thinking goes, and the benefit can be financed without squeezing other programs.

But the hard-and more realistic-answer is that covering prescription drugs will put a strain on other programs. There are three ways to finance an expansion of Medicare benefits: increase payroll taxes, require beneficiaries to pay a premium, or finance the benefit out of general revenue from the treasury.

The current Medicare program is a combination of all three: payroll taxes are used to finance the Part A (hospital) trust fund, while Medicare Part B (physician and other services) gets 70% of its funding from general revenue and 30% from premiums. Congress has ruled out increasing payroll taxes to pay for prescription drugs, so any new benefit would have to be financed out of premiums and general revenue.

The money that would come out of general revenue would directly compete with all other federal programs funded by the U.S. treasury, including physician services covered under Medicare Part B. Put another way, a dollar spent on prescription drug coverage is a dollar that is not available to the National Institutes of Health, the Veterans Administration, parks, tax cuts-or Medicare physician services.

Sure, the surplus will make it easier to pay for prescription drugs without triggering big cuts in other programs. But should the surplus disappear-and the entitlement to drug coverage remain-it is inevitable that financing for this new benefit will compete with existing Medicare benefits.

Keep in mind that a good part of the budget surplus is due to cuts made by the Balanced Budget Act of 1997 in payments to teaching hospitals, physicians and other "providers". Many politicians acknowledge that those cuts went too far, and if Congress restores some or all of those cuts, there will be less money to finance prescription drugs. ACP-ASIM has urged Congress to create a financing mechanism for prescription drugs that would not require cuts in other programs. But creating such funding will not be easy.

Tough choices

Other difficult choices must be considered. For instance, is it better to administer a Medicare benefit by subsidizing the purchase of coverage by private plans? Or is it more efficient to have the government administer it? How should the rising costs of prescription drugs be controlled? Through government price controls? Or by formularies administered by private managed care companies with little or no accountability for their decisions?

Washington is rightly criticized for allowing the public interest to take a back seat to politics. With this issue, however, the problem isn't a conflict between the public interest and political expedience. Agreement has been elusive because it is extremely difficult to provide a benefit that will be fair to everyone. It is also difficult to pay for it in a way that won't inevitably divert funding from other needed programs, no matter how big today's surplus appears to be.

Robert B. Doherty is ACP—ASIM's Senior Vice President for Governmental Affairs and Public Policy.

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