House Passes Prescription Drugs Benefits Bill

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How Medicare Recipients Fare Under Each,
States May See Relief from Rising Medicaid Bills

(RIVERWOODS, ILL., June 28, 2002) – With the passage of the Medicare Modernization & Prescription Drug Act of 2002 (H.R. 4954) by the Republican-led House of Representatives on June 28, the pressure now is on the Democratic-led Senate to move on its own proposed bill. Ultimately, however, the true pressure is on both parties to eventually come to agreement on a final bill if there is to be any hope of enacting a law on prescription drug benefits this year, according to CCH INCORPORATED (CCH), a leading provider of healthcare law information and software (

"Both the emerging Senate bill and the more conservative bill passed by the House are proposing the biggest changes to Medicare since the program’s inception in 1965, with a massive change in prescription drug coverage for some 40 million elderly and disabled Americans covered under the program,” said Edward Bryant, JD, healthcare analyst for CCH. “Passage of a Medicare-funded prescription drug benefit also could provide welcome relief to cash-strapped states currently picking up this tab for millions of low-income seniors under Medicaid."

However, the bills currently are miles apart, and significant compromise would be required for a final bill to pass. Below, CCH provides analysis of the bills and how seniors would benefit under each.

Apples and Oranges: Comparing the Bills

The House bill would cost $350 billion over 10 years, with $310 billion going to provide prescription drug benefits. Another $40 billion is earmarked for increasing payments to physicians, hospitals and other Medicare providers.

Under the House bill, private insurance companies are expected to administer the plan with the government subsidizing 67 percent of the plan’s operation. Seniors would pay a monthly premium of $33, based on insurance company estimates, under the House bill, and the bill calls for a $250 annual deductible. The Medicare program would then pay 80 percent of the costs up to the first $1,000 spent on prescription drugs and 50 percent on the next $1,000. Seniors would be responsible for picking up costs after that up to $3,700 – the proposed cap on out-of-pocket costs. Medicare would pick up any amount a senior spent annually on prescription drugs beyond this cap.

Meanwhile, Senate Democrats introduced their own proposal in mid-June and are expected to bring it to the Senate floor later this summer, assuming it can gain enough support.

With an expected cost of $700 to $800 billion over 10 years, the Democrats’ Medicare Rx Drug Benefit and Discount Act focuses exclusively on prescription drug benefits with no Medicare reform component.

Under the Senate bill, seniors would pay a fixed $25 monthly premium with a $100 deductible. After that, Medicare would pay 80 percent of the cost. The annual cap on out-of-pocket expenses under the Democrats’ bill would be $2,000. Under an earlier version of the Senate bill, Medicare would have picked up all the costs after the $100 deductible, except for a $40 co-pay for each brand name prescription and a $10 co-pay for each generic one.

“Essentially, the Senate bill proposes to spend more than double the amount outlined by the House. Most seniors obviously would benefit by this added spending, but how much depends on the individual’s particular circumstances and how much they spend on prescription drugs,” said Bryant.

Determining How Much Seniors Benefit

According to figures from the Congressional Budget Office, the average senior will spend $3,059 on prescription drugs in 2005. Using the $3,059 average senior prescription drug spending amount, following is a comparison of how seniors would benefit under the Republican and the Democratic plans.

Republican Plan
$33 monthly premium over 12 months$396Annual deductible$25020% co-payment for first $251 to 1,000$15050% co-payment from $1,001 to $2,000$500100% payment from $2,001 to 3,059$1,059Total recipient expense$2,355 Total prescription drug cost$3,059Less recipient expense$2,355Amount recipient saves or Medicare funds$704

Democratic Plan
$25 monthly premium over 12 months$300Annual deductible$10020% co-payment for $101 to $3,059$592Total recipient expense$992 Total prescription drug cost$3,059Less recipient expense$992Amount recipient saves or Medicare funds$2,067

The $3,059 annual drug cost puts the average senior in what opponents are calling the “gap” in the Republican plan: Specifically, the $2,001 to $3,700 range where the House bill calls for seniors to pick up 100 percent of the costs for their prescription drugs.

"The gap is one of the most controversial areas of the House bill. From a federal funding perspective, it significantly lowers government costs. But Democrats and seniors organizations argue a prescription drug benefit with this gap isn’t much of a benefit, as most seniors will still have to shoulder the majority of the costs," said Bryant.

Helping Low-Income Seniors

Both the House Republican bill and Senate Democratic bill propose additional assistance to help low-income beneficiaries at or near the federal poverty line.

Under the Republican bill, those with incomes of up to 150 percent of the federal poverty line would not be required to pay a deductible, but would be required to contribute $2 to $5 per medication. Those individuals with incomes from 150 percent to 175 percent of the poverty line would be required to pay based on a sliding scale.

In the Democrats’ plan, recipients with incomes of up to 150 percent of the poverty line would pay no premium or co-insurance. As with the Republican plan, those with incomes from 150 percent to 175 percent of the poverty line would be required to contribute based on a sliding scale.

Using the 2002 poverty line of $8,860, which will increase by 2005 when the prescription drug program is to take effect, the difference in costs for a senior with an annual income below 150 percent of the poverty line ($13,290) and having an average of $3,059 in prescription drug expenses would be:

Republican Plan
Monthly Premium$0Annual deductible$0Co-payment for first $2,000$0100% payment from $2,001 to 3,059$1,059Total not covered by Medicare$1,059 Total prescription drug cost$3,059Less not covered by Medicare*$1,059Amount Medicare funds$2,000
* Low-income seniors also would be required to pay $2 to $5 per medication, not factored into above example.

Democratic Plan
Monthly Premium$0Annual deductible$100Co-payment$0Total not covered by Medicare$100 Total prescription drug cost$3,059Less not covered by Medicare$100Amount Medicare funds$2,959

State Relief In Sight?

Under the current system, the federal government fully funds Medicare for the elderly and disabled. However, it only funds about one-half of the Medicaid program for the poor. The rest of Medicaid costs are borne by the states and counties, and funding prescription drugs for seniors is one of the growing areas of Medicaid costs. In fact, according to a study by Families USA, a consumer advocacy group, the cost of the 50 prescription drugs most frequently used by seniors rose nearly three times the rate of inflation last year.

"By creating a prescription drug benefit under Medicare, some of the drug costs for as many as 10 million seniors and disabled now covered under the state Medicaid programs could be shifted to Medicare, significantly alleviating budget pressures at the state level," said Bryant.

However, states would need to be patient. For example, under the House bill, Medicare would become the primary program for prescription drugs for low-income seniors and the disabled. But Medicare’s primary status phases in, not becoming fully in effect until 2014.

For more than 50 years, CCH INCORPORATED has regularly tracked, reported, explained and analyzed health and entitlement law for healthcare providers, insurers, attorneys and consumers. CCH is the premier provider of Medicare and Medicaid information. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH Health group site can be accessed at


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