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Prepared Witness Testimony The House Committee on Energy and Commerce
Designing a Twenty-First Century Medicare Prescription Drug Benefit.
Subcommittee on Health
Dr. Dan Crippen
There are few things more difficult to design than a pharmaceutical benefit for Medicare beneficiaries. Many elderly have insurance coverage and access to drugs currently, but some do not. Retirees pay roughly 40% out-of-pocket for drugs-compared to 33% for the non-elderly-- and that may be too much in some cases. As with many other medical services, a relative few incur the lion's share of costs-25% of the elderly spend 65% of the total on drugs. But targeting a benefit to those most in need is very tricky and too wide a net will greatly increase federal expenditures and likely place a greater burden on our kids and grandchildren. One place to start is an examination of the current use of pharmaceuticals by the elderly as well as the source of funds for those purchases. Our public discussions are often framed in the objective of getting more drugs to the elderly without fully considering who is paying now and who will pay with a Medicare drug benefit. This first chart helps illustrate the point. Fully 75% of the elderly have some form of insurance for drugs, although that number may be declining. Perhaps more important is that those with insurance fill an average of 32 scripts a year--those with private insurance fill 30--and the uninsured fill 25 scripts a year. While this gap between insured and uninsured, 32 vs. 25, may imply that there are some elderly not receiving enough drugs, and surely some are sacrificing to pay, many elderly have access to pharmaceuticals.
The paramount issue, I would suggest, is "who should pay," both now and in the future-because much of what we are doing with virtually any drug benefit is shifting and moving spending that would occur in the absence of a benefit. Now there may be good and compelling reasons to move current funding from the elderly and their former employers to current workers and taxpayers-perhaps a more uniform benefit or basic fairness. But in so doing we need to recognize who is paying now and who will pay in the future. In this light, a pharmaceutical benefit for the elderly may be both more and less daunting. I could easily construct a benefit that would cost $900 billion over 10 years-exactly half of what will be spent even without a benefit--a cost deemed by most to be "too high." But much of that $900 billion is currently being paid by someone-it does not imply $900 billion in new spending. In fact, because most elderly are getting substantial pharmaceuticals now, some benefit designs could result in less spending overall in the nation than would occur in the absence of a benefit. But the payers will be different. Instead of the elderly paying as much of their own drug costs, current workers and taxpayers will pay more. Instead of retirees' former employers (and by implication their current workers and shareholders) paying, all taxpayers will pick up the tab. While these implications may not seem so great for current retirees and workers-surely my generation can afford to pay for drugs for our parents-the impact on future generations may be profound. This graph depicts current and future spending on existing federal programs for retirees. Currently, we devote about 8% of our economy or 40% of the federal budget to these programs today, but as my generation retires and we increase the number of beneficiaries from 40 million to 80 million we will more than double our obligations. Put another way, upwards of a fifth of what is produced in 2030--every fifth car, every firth shirt, every fifth loaf of bread--will be consumed by retirees from the resources transferred by just these three federal programs.
These programs will consume roughly what we spend on the entire federal budget today. In the extremes, to accommodate my generation's retirement, we will have to either: 1) borrow the equivalent of $1 Trillion a year; 2) virtually eliminate the rest of government, including education, defense, and all the rest; or, 3) raise taxes by something like 10% of GDP--if it were payroll taxes, something like 35% of payroll (from 15% now). This portends an historic change in government and the economy in this country. This graph is instructive on several other issues. Most important, there are only two moving parts: expenditures and the size of the economy. So you can make retirement "more affordable" only by growing the economy or reducing obligations, not by shifting costs, stuffing mattresses or creating "solvent" trust funds. We need to recognize that no matter what we do it is our kids who will finance our retirement.whether through income taxes, payroll taxes, whether we borrow from them, or we sell them a share of Microsoft out of our 401(k).
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