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The Medicare Prescription Drug Benefit:
The Fast and the Furious

by Emily Friedman

First published in Hospitals & Health Networks OnLine, December 5, 2006

Medicare Part D was passed in December 2003 and implemented in late 2005. It has now been a year since enrollment began. How have things gone--both good and bad--and what might we expect in the future?

The Medicare prescription drug benefit, officially known as Medicare Part D, was the most salient part of the Medicare Modernization Act (MMA), which was passed in 2003. Part D is about to mark the first anniversary of its full implementation.

Hidden Agendas and Flawed Concepts

No one--I hope--would argue that relief from the cost of outpatient prescription drugs wasn't needed; this was one of the flaws of the original 1965 Medicare legislation, which also excluded coverage of most vision, dental and hearing services. As gerontologist Robert Butler, M.D., later observed, "Medicare is a great program for people under the age of 50."

So the need was there. Unfortunately, MMA was not exactly a landmark statute in the annals of good health policy-making. It was extremely complex--many senators and members of Congress later confessed that they had not read all (or, in some cases, any) of its more than 700 pages--and it included several peculiar provisions.

Among these were a prohibition on Medicare's negotiating with pharmaceutical firms for lower prices, thus guaranteeing a very costly program, and government payments to private employers to keep them from dropping retiree health benefits. Beneficiaries would no longer be allowed to purchase Medicare supplemental policies that included prescription drug coverage; the pharmaceutical benefit would have to be separate. In an effort to get beneficiaries to sign up as soon as possible, financial penalties were imposed on those who missed the deadline and wished to sign up later--an odd feature for a voluntary program.

And although the program would pay most of the first $2,250 of prescription drug costs, a coverage gap, colloquially known as the "doughnut hole," forces beneficiaries to pay 100 percent of the cost of drugs between $2,250 and $5,100. Congress found it necessary to configure the benefit in this weird way because they were told by the Bush administration that the program could not exceed $400 billion over 10 years; that was what had been budgeted. Well, as it turns out, the Centers for Medicare & Medicaid Services (CMS) officials knew at the time that it would cost a great deal more; the CMS chief actuary, who knew the truth, was ordered not to inform Congress that the real cost would be $534 billion. A 2005 report by the Congressional Budget Office estimated the cost at $849 billion. The current estimate is around $700 billion, but obviously, no one knows for sure.

The law also contained many incentives for Medicare beneficiaries to join private health insurance plans, rather than sticking with traditional Medicare and purchasing separate "stand-alone" drug coverage. This was by design; the hidden agenda of the statute was privatization of Medicare by herding beneficiaries into private plans. President Bush had previously sought to force beneficiaries to join private plans if they wanted drug coverage. That flopped, so Congress contented itself with rigging the market. The law allows private plans to negotiate for lower drug prices, but not Medicare itself, and allows the plans to cover the "doughnut hole." Private plans can offer broader coverage and lower premiums than Medicare is allowed. The bias is not subtle.

A Rush to Implement

The program was to begin implementation in 2005, which gave the government less than two years to put into place a very complicated, multifaceted program. To say that the launch was less than stellar is an understatement. Information provided to beneficiaries by Medicare representatives was incorrect more than half the time, and private insurer representatives' accuracy ranged from 20 percent to 60 percent, according to the Government Accountability Office. Booklets mailed to beneficiaries contained glaring errors. The Medicare Web site was difficult to use. Information on the prices of drugs in different plans was largely unavailable.

And the number of choices was overwhelming--hundreds of them, from comprehensive HMOs offering lavish coverage to bare-bones "stand-alones." Premiums differed. Information about what was actually covered was inadequate and often misleading. Whether a product was a "stand-alone" or a full private insurance plan was not exactly clear, to put it mildly. The truth about the "doughnut hole" was often conveniently withheld. Many beneficiaries were completely mystified. A USA Today poll in October 2005 found that 61 percent of beneficiaries did not understand the benefit; an Associated Press poll in January 2006 found that true of two-thirds of beneficiaries.

Private insurers pulled out all the stops trying to sign people up. United Healthcare partnered with the AARP to be its "preferred" drug plan, although AARP members were not informed of this "special relationship." AARP spokesman Mark Carter said of the obvious conflict of interest in an organization purporting to objectively represent seniors making a deal with a private insurer, "We try to be objective and at the same time not turn away business." Yeah, and it was just a coincidence that when the MMA legislation was in danger of not passing, AARP gave it a ringing endorsement.

Not to be outdone, Humana partnered with Wal-Mart and sent buses all around the country to recruit seniors; PacifiCare ran ads featuring Fred and Ethel from the I Love Lucy program. Most health plan advertising did not disclose that the product was full HMO membership, not stand-alone coverage. Private plans made special deals with pharmacy chains to get their offerings promoted. Goodies abounded; plans offered free gym memberships, discounted vision services and acupuncture coverage. Part D regulations prohibit door-to-door solicitation or use of cash inducements, but health plans engaged in both.

United Healthcare and Humana ended up with the lion's share of the enrollees. Surprise, surprise.

Meanwhile, 6 million low-income, ill beneficiaries known as "dual eligibles" because they had both Medicare and Medicaid coverage became the focus of a tug-of-war between the states and the feds. The states wanted the feds to pay for these beneficiaries' Part D coverage; the feds wanted the reverse. Eventually this population was automatically enrolled in Part D, but states were required to repay the federal government for much of the cost. That is still a bone of contention.

On the front lines, there were also major problems. Glitches in the Medicare computer system prevented pharmacies from getting timely information on beneficiaries' status, so prescriptions were not always filled or beneficiaries had to pay out of pocket. At least 19 states had to step in and pay for needed prescription drugs for beneficiaries who had coverage, but could not prove it. Eventually CMS ordered private insurers to provide a 60-day supply of needed medications to beneficiaries who had signed up until things could be sorted out.

In addition, with the coming of Part D, some pharmaceutical firms ended their programs of providing free or subsidized products to low-income people, leaving some of those people with no immediate means of obtaining medications.

In August, CMS mistakenly sent refund checks to 230,000 Medicare beneficiaries to reimburse them for their Part D premiums. When the error was recognized, CMS asked the beneficiaries to send the money back. That provoked a firestorm, and CMS relented and let the beneficiaries keep the money. And despite repeated efforts to address the problem, 50,000 beneficiaries who chose to have their Part D premiums deducted from their Social Security checks are still being billed the wrong amount.

To its credit, the Bush administration admitted that the launch had been rocky and sought to address some of the problems.

Needless to say, critics--Democrats, consumer groups and sometimes conservatives--were relentless. Many people were angry; some were downright furious. Those on the right complained about the cost of the program. Democrats condemned the inept implementation and the "doughnut hole." Consumer groups carped about almost everything. Lawsuits were filed and largely dismissed.

The press was also less than kind. The Kansas City Star editorialized, "It is hard to believe that even the federal government could have done such a terrible job in launching the new Medicare drug benefit." The Binghamton Press & Sun-Bulletin noted, "Medicare D might well go down as 'D for Disaster.'" Even the conservative Salt Lake Tribune condemned Part D as "a government-sponsored scheme to direct your business to one of dozens of private insurance plans that are supposed to be available in your area, which probably cover some of the medications you need and which might, if you are both lucky and good, actually save you money over the old system…. [The Bush administration] should be expected to take the blame for mixing up the worst possible combination of public and private functions to produce a mess greater than either the government or the business sector could have produced on its own."

Who's on First?

The deadline for enrollment for 2006 came on May 15. Even before then, CMS was claiming large numbers of people had joined the program; these "progress reports" were required by law. Unfortunately, CMS chose to trumpet the total number of seniors with drug benefits, most of whom already had them, and failed to mention that the 6 million "dual eligibles" had been automatically enrolled. Its January 2006 report announced that 24 million people were already in the program--pretty good, given that most enrollment had begun only two weeks earlier. In the fine print, the report admitted that only 3.6 million people had signed up for Part D.

These misleading reports--which were released monthly--led to more carping by critics and demands from Democrats for hearings.

How do things stand today? Of course, it depends on to whom you talk, but CMS reported in June, after the signup deadline, that 11.5 million people had enrolled. In August, CMS announced that 24.7 million seniors had prescription drug coverage, but at least half did not obtain it through Part D. That left some 11 million without drug coverage, many of whom were thought to be low-income and/or healthy persons not taking prescription medications.

In September of this year, two competing estimates concerning the "doughnut hole" were released: The Democrats said 7 million people had entered it; the Republicans said 3 million.

Despite all the turmoil, the fighting, the problematic launch and ongoing problems, most Medicare beneficiaries who joined Part D seem relatively content. In July, the Kaiser Family Foundation reported that 80 percent of beneficiaries were satisfied with their coverage, although 34 percent had encountered problems. A September survey by the Medicare Rx Education Network found 82 percent of beneficiaries satisfied with their plans, although 25 percent had not saved any money through Part D and 29 percent found it "frustrating." A Wall Street Journal/Harris Interactive poll in November found that 70 percent of respondents had reduced prescription drug costs and 82 percent did not find their plans difficult to use.

What Now?

The bottom line on Part D's first year is not complicated. Millions of people now have coverage for prescription drugs for which they previously had to pay out of pocket, and most are enjoying cost savings. The attempt to privatize Medicare through enrolling most beneficiaries in private plans has not succeeded so far. And just about everyone has learned valuable lessons about how to implement a complex program in a short time frame--and how not to.

What can we expect now? CMS announced several changes for the next enrollment period, which began on Nov. 15. In an effort to cut down on the avalanche of competing plans, private insurers will be limited to offering only two products each. Private insurers will still be allowed to partner with other organizations such as pharmacies, but marketing materials must state that "other pharmacies/physicians/providers are available in our network." In type large enough to read, I hope.

CMS also stated that the average Part D premium will remain at $24 for 2007, a claim immediately disputed by California Congressman Henry Waxman (D), who said premiums would rise by 13.2 percent. In November, the consumer advocacy group Families USA released a report claiming that premiums for plans that cover "doughnut hole" costs will rise by 87 percent. CMS responded that the report was "distorted and incomplete."

Looking down the road a bit farther, one consequence of Part D could well be a further erosion of retiree health benefits, which are already in virtual free fall. Some employers have told retirees that if they enroll in the program, they will lose all employer-sponsored health benefits. These include Boeing, General Motors, Caterpillar, Verizon and AT&T. Furthermore, should government payments to employers to keep them offering retiree benefits dry up, we can expect that even more companies will simply stop offering those benefits. As it is, only 35 percent of large employers do, and most report that they plan to reduce or eliminate them in the future.

And, as always, there are the politics involved. Most polls indicated that Part D was not a huge issue in the just-completed election. That doesn't mean it will be flying below anyone's radar. The Democrats won control of both the House and the Senate. Given that the new House speaker, Nancy Pelosi (D-Calif.), attended a rally at which AARP members burned their membership cards in protest of AARP's support of MMA, we can expect more scrutiny of the program and investigation of some of its more interesting features. Furthermore, Pete Stark (D-Calif.) will now chair the House health subcommittee. He has said he wants to create a government-run prescription drug plan within Medicare, a program he likes a lot. Ted Kennedy will chair the Senate health committee, and he likes traditional Medicare a lot, too.

Democrats are already on the record as wanting to allow Medicare to negotiate lower drug prices for its beneficiaries. They have also criticized CMS for the new 2007 Medicare beneficiary handbook, which they say is heavily biased toward private health plans as opposed to traditional Medicare--a slant that should surprise exactly no one.

But the Bush Administration isn't going anywhere, and this will hardly be a veto-proof Congress; even Stark admits that much of what might be accomplished will be "tinkering." We can also expect that House and Senate Republicans will be as vocal in expressing their views about Part D as the Democrats were when they were out of power.

What Have We Learned?

We have learned a great deal from Part D's first year. I will mention only six key lessons:

  1. The policy process is messy and loaded with hidden agendas; more honesty and public disclosure would help.
  2. Implementing large, complex, expensive programs takes time and should not be rushed, no matter the political situation.
  3. Oversight of new programs should be competent, sincere, timely and free of political bias.
  4. When things go wrong, problems should be recognized and addressed; denial only causes more harm.
  5. Accurate data collection and reporting, and honest analysis thereof, are essential for improvement.
  6. The oldest lesson of all: The devil is in the details.

The question is: Can we keep the political rhetoric down to a dull roar and do what is necessary to improve this program, or will we just be treated to more squabbling, accusations, misinformation and stonewalling, at least until the 2008 election is over?

I dunno. Stay tuned.

First published in Hospitals & Health Networks OnLine, December 5, 2006

© Emily Friedman 2006

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