Originally created 11/26/03

Senate approves Medicare prescription drug benefit

WASHINGTON -- The Senate gave final congressional approval Tuesday to the most sweeping changes to Medicare since its creation in 1965, including a new prescription drug benefit for 40 million older and disabled Americans. The 54-44 vote sends the bill to President Bush, who is eager to sign it into law.

Supporters said the $395 billion measure, which gives private insurers a large new role in health care for seniors, was a long overdue change for the 38-year-old Medicare program.

Drug coverage won't begin until 2006, although seniors next year will be able to purchase a drug discount card that officials said could reduce their pharmacy bills by 15 to 25 percent.

Seniors "will finally have the prescription drug coverage they need and the choices they deserve," Senate Majority Bill Frist of Tennessee said. "At the same time, it preserves traditional Medicare."

Democratic opponents complained that the bill was a giveaway to insurers and drug companies. Sen. Edward M. Kennedy, D-Mass., said it will dump seniors "in the cold arms of the HMOs."

While Frist and others called it a bipartisan vote, the tally fell largely along party lines. Forty-two Republicans, 11 Democrats and an independent backed the legislation. Nine conservative Republicans joined 35 Democrats in opposition.

The GOP-controlled House passed the bill near dawn on Saturday on a 220-215 vote, also split by party affiliation.

Senate Democratic leader Tom Daschle of South Dakota said Republicans would pay a price in coming elections because "seniors by an overwhelming margin oppose this legislation."

Republicans relished their political triumph on an issue that Democrats have long exploited in political campaigns.

Bush sees signing the bill as fulfilling both his and many lawmakers' campaign promises.

"Year after year the problems in the Medicare system were studied and debated, and yet nothing was done," Bush said Tuesday at a hospital in Las Vegas. "Some said Medicare reform could never be done. For the sake of our seniors, we got something done."

When the legislation made it through the Senate for the first time, in June, Daschle and Kennedy were part of the overwhelming 76-21 vote for the bill. But in months of closed-door negotiations, majority Republicans and two Democratic senators forged a compromise bill that most Democrats believed was skewed to favor private insurers at the expense of traditional Medicare.

"It didn't have to be this way," Kennedy said.

At its heart, the Medicare legislation was designed as a grand bargain, with the new drug coverage for all Medicare beneficiaries long sought by Democrats combined with a Republican-backed plan to give private insurance companies a vast new role in health care for the program's beneficiaries.

Under the legislation, seniors would be eligible beginning next year to purchase a Medicare-backed discount drug card at a cost estimated at $30 a year. The administration estimated the card would mean savings of between 15 percent and 25 percent off retail prices; critics argued those numbers were wildly inflated.

Beginning in 2006, the legislation would allow seniors to purchase coverage for their prescription drugs. GOP officials estimated the drug insurance premium would be $35 a month, with a $250 deductible. The coverage would pay 75 percent of costs after that until a recipient's drug costs reached $2,250. After that, there would be no drug coverage until a recipient's out-of-pocket expenses reached $3,600, or roughly $5,100 in overall prescription expenses. Above that level, insurance would pick up roughly 95 percent of costs.

The measure included subsidies for low-income seniors.

The scope of the bill went far beyond prescription drugs, though, including an additional $25 billion for rural hospitals and health care providers, a requirement for higher-income seniors to pay more for Medicare Part B coverage and billions of dollars to discourage corporations from eliminating existing coverage for their retirees once the new government program began.

The bill would satisfy other goals of conservatives, including creation of tax-preferred health savings accounts, open to individuals who purchase high-deductible health insurance policies.

Most contentious of all, the legislation would create a limited program of direct competition between traditional Medicare and private plans, beginning in 2010. Conservatives argued that would help bring down the cost of Medicare over the long run, while critics said it would privatize the program and lead to "cherry picking" of relatively healthy seniors by insurance companies and higher premiums for those seniors who remained under the government-designed benefit.

Arguments for the bill stressed that the pot of money set aside for the drug benefit would disappear in a time of budget deficits if lawmakers did not seize the opportunity now to end years of deadlock. "If we don't do this at this time, it may be years" before another opportunity comes along, said Sen. Charles Grassley, R-Iowa, an architect of the bill.

Democratic critics retorted that a bad bill would be worse than no legislation at all, despite their long-standing support for drug coverage for seniors in Medicare.

The bill's path to passage was cleared in the Senate on a pair of procedural votes, including a cliffhanger decided only when Sen. Trent Lott of Mississippi, the former Senate Republican leader, sided with the current GOP leaders. Lott voted against the overall bill.

Major provisions of Medicare legislation

Details of the Medicare bill to provide older Americans a prescription drug benefit and overhaul the government-run health care program for 40 million older and disabled Americans:


In 2004 and 2005, older Americans would be able to buy a discount card for $30 a year that the Bush administration estimates would yield savings of 15 percent or more off the cost of drugs. Low-income elderly people would get an annual subsidy of $600 to defray costs further.


Beginning in 2006, Medicare beneficiaries could sign up for a stand-alone drug plan or join a private health plan that offered drug coverage. They would be charged an estimated premium of $35 per month, or $420 per year. After meeting a $250 deductible, insurance would pay 75 percent of drug costs up to $2,250.

-Coverage gap:

There would be no coverage for drug costs between $2,250 and $5,100.

-Catastrophic coverage:

When drug costs reach $5,100, insurance would cover 95 percent of drug costs or require a modest co-payment.

-Low-income subsidies:

The premium, deductible and coverage gap would be waived for people earning up to $12,123 a year. To qualify for the subsidy, seniors could have no more than $6,000 in assets, other than a house. The subsidies would be phased out between $12,123 and roughly $13,500 in yearly income.

-Retiree coverage:

Tax-free subsidies, perhaps worth as much as $70 billion, would be provided to employers who maintain drug coverage for retirees once Medicare drug benefit begins in 2006.



By law, Medicare beneficiaries pay 25 percent of the Part B premium and the government pays the rest. Individuals with incomes greater than $80,000 would pay a larger premium. The size of their premium would increase on a sliding scale, topping out at 80 percent for people with incomes over $200,000.


It would rise from $100 to $110 in 2005 and thereafter be indexed to the growth in Part B spending.


-Role of private companies:

Private firms would administer the drug benefit on a regional basis. The bill would provide $12 billion in subsidies to private insurers that choose to offer basic health insurance. Those include preferred provider organizations (PPOs), which encourage use of certain doctors but allow patients to go elsewhere if they pay extra, and private fee-for-service plans, which allow patients to see any doctor.

Beginning in 2010, traditional Medicare also would face competition from private plans in six metropolitan areas in which at least two private plans enroll at least 25 percent of Medicare beneficiaries. For those who remain in traditional Medicare, premium increases would be capped at 5 percent a year and waived for low-income seniors. The competition would last six years.

The government would provide drug coverage in any region that does not have at least one stand-alone drug plan and one private health plan.

-Rural health:

Would spend about $25 billion to increase payments to rural hospitals and doctors, among others.

-Generic drugs:

The bill would speed generic drugs to the market by limiting ability of pharmaceutical companies to block cheaper equivalents.

-Drug importation from Canada:

The bill would maintain the ban on importing prescription drugs. It would allow such drugs from Canada, but only if the Health and Human Services Department certifies safety, something it has declined to do. The legislation would authorize a study of safety issues.

-Hospital payments:

The bill would allow hospitals to avoid future cuts in payments by submitting quality data to the federal agency that runs the Medicare program. At the same time, it would increase payments through Medicaid to hospitals that serve a large number of disadvantaged patients.

The bill would impose an 18-month pause in development of new specialty hospitals and limit expansion of existing ones.

-Physician payments:

The bill would block planned cuts in physician payments in 2004 and 2005 and instead provide a 1.5 percent increase.

-New benefits:

The bill would cover an initial doctor's appointment for new Medicare beneficiaries and screening for diabetes and cardiovascular disease. It would provide benefits for coordinated care for people with chronic illnesses, and would increase payments for doctors administering mammograms in hope that more are given.

-Health-related tax savings accounts ealth Savings Accounts):

The bill would allow people with high-deductible health insurance policies - at least $1,000 a year for individuals, $2,000 for couples - to shelter income from taxes. Individuals younger than 65, employers or family members would make pretax contributions equal to the deductible, up to a maximum of $2,600 a year for individuals and $5,150 for families. After 65 years of age, earnings and distribution also would be tax-free, provided the money is used for health expenses, including insurance premiums, prescription drugs and long-term care. Otherwise, a 10 percent penalty would apply.

-Home health care:

The bill would cut payments to home health agencies, but not require co-payments from patients.

-Cost containment:

When general revenues constitute 45 percent of Medicare spending, Congress and the administration would have to review Medicare's finances.

Sources: Staff to Medicare bill negotiators.


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