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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
Mr. Eric Olsen
Mr. Chairman and members of the Subcommittee, my name is Erik Olsen. I am a member of AARP's Board of Directors and a Medicare beneficiary. On behalf of the organization and our 35 million members, I want to thank you for convening this hearing and for including us in your discussions about how to design a much needed prescription drug benefit for Medicare beneficiaries. Members of this Subcommittee have noted many times before that, given the prominence of drug therapies in the practice of medicine, if Medicare was designed today - rather than in 1965 - not including a prescription drug benefit would be as absurd as not covering doctor visits or hospital stays. The focus of this hearing, therefore, is very important -- rather than questioning whether to add prescription drug coverage to Medicare, the issue before us is how to do so. Enacting a meaningful and affordable prescription drug benefit for beneficiaries remains a priority for AARP, our members and their families. The addition of a prescription drug benefit is central to a 21st century Medicare program. I am pleased to discuss AARP's recommendations and share with you some recent findings of what our members tell us they need in terms of Medicare prescription drug coverage. AARP members and their families are looking to you for leadership this year in making a prescription drug benefit in Medicare a reality. Older and disabled Americans continue to face double-digit increases in drug spending and fewer options for coverage through employers or managed care. Thus, while modern medicine increasingly relies on drug therapies, the benefits of these prescription drugs elude more Medicare beneficiaries every day. The lack of drug coverage threatens access to needed medications for many older Americans. Furthermore, the lack of a drug benefit in Medicare today poses "a perfect storm" scenario for the future: · Changing Demographics - The retirement of the "baby boom" generation will nearly double the number of Medicare beneficiaries in the program. As people are living longer, they become more likely to develop chronic conditions treated with medications. Medicare must be prepared to handle the unique health care needs of a growing number of older Americans who reach not only age 65, but age 85, or even 100 - and also a growing number of disabled individuals. · Increased Reliance on Drugs - Prescription drug use increases not only with age but also with the prevalence of chronic and acute health problems. Nearly 90% of Medicare beneficiaries filled at least one prescription in 1999. · Higher Drug Spending - Prescription drug costs among the Medicare population are rising rapidly. Total spending for prescription drugs is increasing at an annual rate of around 12 percent. By 2002, average annual out-of-pocket prescription drug spending by Medicare beneficiaries reached $860. This trend is projected to continue in the near future due to limits on drug coverage and other factors, including the continued introduction of new, high-priced drugs and potential increases in demand stemming from direct-to-consumer advertising. · Higher Prices - While the majority of the increase in drug spending is due to greater utilization and shifting from older, lower cost drugs to newer, higher cost drugs, increasing drug prices are still an important component. Between 1993 and 2001, prices for all prescription drugs rose at more than triple the rate of inflation. Prices of brand name prescription drugs have been rising at three and a half times the rate of inflation. · Declining Coverage - Most Medicare beneficiaries have some form of supplemental drug coverage, but access to these benefits is declining. Employer-based retiree health coverage is eroding. Managed care plans in Medicare have scaled back their drug benefits. The cost of private coverage is increasingly unaffordable. State programs provide only a limited safety net. About 40% of Medicare beneficiaries lack prescription drug coverage at some point in the year; most of these beneficiaries lack coverage for the entire year. · Impact on States, Private Sector, and Public Policies - Increasing drug costs combined with the surging older population are already taking a toll on state budgets, private sector offerings and public policies. Medicaid spending on prescription drugs increased at an average annual rate of nearly 20% between 1998 and 2001. Medicare HMOs covering prescription drugs have reduced their benefit - more than 4 in 10 enrollees have a drug benefit cap of $750 or less. Until we achieve affordable and sustainable drug coverage in Medicare, pressures for other cost-reducing measures - re-importation, price controls, litigation - will only increase. Pressures will continue to squeeze not only public programs, but also businesses that will drop or restructure drug coverage. Therefore, the need for a Medicare drug benefit for all beneficiaries will only continue to grow. Congress must act this year to provide Medicare beneficiaries with relief from the devastating costs of prescription drugs. Our country cannot afford to wait any longer. What Older Americans Need in a Drug Benefit Design - Our members tell us that a Medicare prescription drug benefit should be: · Universal - All Medicare beneficiaries need access to affordable, meaningful prescription drug coverage - whether they choose to stay in the traditional fee-for-service option or participate in managed care or any other coverage option. · Stable - Medicare beneficiaries need stable and dependable drug coverage that they can rely on from year to year. Current prescription drug options are not reliable. For example, the share of large employers offering retiree health benefits is on the decline -- 24 percent of employers with 200 or more employees offered health coverage to their Medicare-age retirees in 2001 compared to 31 percent in 1997. In addition, beneficiaries who have drug coverage through Medicare HMOs cannot depend on having this coverage from year to year, as plans can change benefits on an annual basis or even terminate their participation in Medicare. For example, 50 percent of Medicare beneficiaries nationwide had access to a Medicare+Choice plan with prescription drug coverage in 2002 compared to 65 percent in 1999. Of the Medicare+Choice plans providing a drug benefit, 51 percent only covered generic drugs in 2002 compared to 18 percent in 2001. · Catastrophic Coverage - Medicare beneficiaries need protection from extraordinary out-of-pocket costs. · Low Income Assistance - A Medicare drug benefit should provide low-income beneficiaries with additional assistance. · Not Disruptive - A Medicare drug benefit should not create more incentives for employers to drop current retiree coverage or disadvantage beneficiaries in the traditional Medicare program. Over the course of the last two years, AARP has conducted research asking our members and the general public about the attractiveness of benefit design options. An attractive benefit is necessary in order to generate the high level of participation needed (i.e., the necessary risk pool) for a workable Medicare benefit. We have the learned the following thus far: · Medicare beneficiaries are willing to pay their fair share for a meaningful prescription drug benefit, but the premium and coinsurance must be reasonable. We know, for instance, that beneficiaries would not be likely to enroll in a prescription drug plan with a premium of $50 a month. Our research suggests that a $35 a month premium is nearing the maximum amount that the public indicates it is willing to pay for a stand alone drug benefit, although willingness to pay any premium is highly dependent on the cost of the plan's other components. · While the amount of the beneficiary premium drives the equation, our members also look at the program design features in combination with one another. This means it is difficult to assess a single component of a package. For example, some beneficiaries might look more favorably on a higher level of coinsurance if the premium was lower, or vice versa. In a poll conducted last year for AARP, of 885 individuals age 45 and over, only one-third of those 65 and over said they would be likely to participate in a prescription drug plan that included: a $35 monthly premium, 50% coinsurance, a $200 annual deductible, and a $4000 stop loss. · Most Medicare beneficiaries are concerned about the unpredictability of health care costs and want to know what they will pay out-of-pocket. This makes real catastrophic stop-loss protection that limits out-of-pocket costs an important component of any package. Our members have indicated that a $6,000 catastrophic stop-loss is viewed as too high - since most believe they will never reach a cap at that level - and even a $4,000 cap is not viewed as providing adequate benefit protection. · Public reaction to gaps in drug coverage ("donut holes") is highly emotional and deeply negative. Thus, any proposals containing such provisions, regardless of the cost of the other components, have always been very poorly rated in our research. · Discount cards with discounts in the 10-25% range are viewed as not providing much assistance, particularly because this level of discount is available from other sources, such as current buying clubs or pharmacy chains. In addition, members question the price to which any discount will apply. Increasing the discount to a 30-35% range somewhat improves overall reaction. Our findings thus far indicate - not only beneficiary preference - but also what is necessary to create a benefit that is attractive enough to yield a broad risk pool and to build a strong and viable program. We will continue to seek the views of AARP members and future members on specific design packages and we would be happy to work with this Committee as proposals are developed. Additional Policy Considerations in Designing a Drug Benefit Adequate Financing - The first step in designing a Medicare drug benefit will be to ensure that enough money is available in the budget to accomplish this goal. We recognize that to design the kind of prescription drug coverage that beneficiaries will find meaningful requires a sizeable commitment of federal dollars. We also recognize that budget constraints are greater than last year. But while the budget situation changes from year to year, the situation facing millions of older and disabled persons who cannot afford the drugs they need continues to worsen, and constitutes a health care and financial emergency that must be addressed. The House and Senate budget resolutions now in conference allocate $400 billion over ten years for prescription drugs, program reforms, and provider givebacks. As we all learned from last year's debate, more than $400 billion will ultimately be needed to design a Medicare prescription drug benefit that will attract enough beneficiaries. AARP has urged the budget conferees to allocate the full $400 billion for a prescription drug benefit and we further believe that Congress will need to revisit the budget amount in order to facilitate the enactment of a workable benefit design. Any Medicare reforms or provider givebacks will require additional funding. Cost Containment - We recognize that strong and effective cost containment measures are a necessary part of a Medicare prescription drug benefit. In order for a drug benefit to be sustainable over the long run, mechanisms must be in place to control the rising costs of prescription drugs. AARP actively supports solid cost containment methods as long as patient safety and well-being is not compromised and access to prescription drugs is not impeded. We also support the responsible promotion of generic drugs as one effective cost containment tool. Chronic Care - Improving how chronic care services are provided in Medicare is another major challenge facing the Medicare program of the 21 century. The inclusion of a prescription drug benefit in Medicare would greatly advance efforts to address this challenge, because high quality treatment of many chronic conditions is inextricably linked to prescription drug therapy. Millions of beneficiaries who suffer from chronic conditions must have access to such state-of-the-art drug therapies if they are to receive high quality chronic care. Further, in order for Medicare to ensure high quality care and quality improvement, it must have access to prescription drug claims and utilization data. Having such data would permit providers and QIOs to link information on prescription drug use with hospital and claims from other care settings, thereby facilitating disease management and similar strategies that help to address the needs of individuals with chronic conditions. In the long run, such efforts should not only help to improve care, but may also reduce unnecessary hospitalizations or nursing home stays. Quality and Safety - A Medicare prescription drug benefit should also be designed and administered in a way to promote higher quality and safe use of pharmaceuticals. This can be accomplished, for example, through discount cards that track pharmaceutical purchases and are connected to electronic systems that flag potential problems for the physician or pharmacist. Structural Reforms - Some policy makers have urged that prescription drug coverage not be undertaken without fundamental changes in Medicare. AARP believes that there is room for some improvements in Medicare. The addition of a prescription drug benefit is one example. Better delivery of care to chronically ill beneficiaries is another necessary improvement. Any changes to Medicare, however, need to improve the program and its ability to provide affordable health care to older and disabled Americans. We would not support reforms that put the traditional fee-for-service program, upon which millions of beneficiaries rely, at a disadvantage. AARP believes we should strengthen Medicare for the decades ahead. We must acknowledge the fundamental importance of this program to older Americans who have come to rely upon and value the health coverage it provides. Medicare is a great success story in a health care system where tens of millions of Americans remain uninsured. We advocate sensible improvements to strengthen Medicare, as long as they include prescription drug coverage and ensure that the program remains the solid rock of health care upon which more than 40 million Americans rely. Conclusion - Our members believe that Congress should work to achieve the goal of an affordable Medicare drug benefit this year. We understand the challenges in designing a proposal for a responsible Medicare drug benefit that can take us through the 21st century. We pledge that we will provide assistance in every way we can to work with Members on both sides of the aisle to adopt a meaningful and broadly supported Medicare prescription drug benefit.
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