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2003-12-07 -- New Medicare Bill Bars Extra Insurance for Drugs

New York Times, December 7, 2003

By ROBERT PEAR

WASHINGTON, Dec. 6 - Medicare beneficiaries will not be allowed to buy
insurance to cover their share of prescription drug costs under the
new Medicare bill to be signed on Monday by President Bush, the
legislation says.

Millions of Medicare beneficiaries have bought private insurance to
fill gaps in Medicare. But a little-noticed provision of the
legislation prohibits the sale of any Medigap policy that would help
pay drug costs after Jan. 1, 2006, when the new Medicare drug benefit
becomes available.

This is one of many surprises awaiting beneficiaries, who will find
big gaps in the drug benefit and might want private insurance to plug
the holes - just as they buy insurance to supplement Medicare coverage
of doctors' services and hospital care.

Congress cited two reasons for banning the sale of Medigap drug
policies. Lawmakers wanted to prevent duplication of the new Medicare
benefit. They also wanted to be sure that beneficiaries would bear
some of the cost. Health economists have long asserted that when
beneficiaries are insulated from the costs, they tend to overuse
medical services.

Gail E. Shearer, a health policy analyst at Consumers Union, said she
had mixed feelings about the prohibition.

"I don't want a return to abuses of 1970's and 80's, when lots of
confusing Medigap policies were sold to vulnerable seniors," Ms.
Shearer said. But she added: "Many seniors and disabled people will
face a huge gap in drug coverage. In a bill that's marketed as
providing choice to consumers, comprehensive drug coverage is not
really an option. That's a disappointment."

The new drug benefit would be the biggest expansion of Medicare since
creation of the program in 1965. But patients would still face
substantial costs.

Under the standard Medicare drug benefit, the beneficiary would be
responsible for a $250 deductible, 25 percent of drug costs from $251
to $2,250 and all of the next $2,850 in drug costs. Private Medigap
policies could not cover any of those costs.

A Medicare drug plan could further limit coverage by establishing a
list of preferred medicines known as a formulary. The list must
include drugs in each "therapeutic category and class" -
antihistamines, antidepressants and cholesterol-lowering agents, for
example.

But Medicare would not have to pay anything for drugs left off the
list. While patients could appeal a denial of coverage, they could not
buy private insurance to cover the costs of such drugs.

Under the standard benefit, a Medicare recipient would pay $3,600 of
the first $5,100 of drug costs. After that, Medicare would pay 95
percent of the cost of each prescription. In theory, the bill
establishes a limit of $3,600 a year on out-of-pocket costs.

But if a beneficiary bought drugs not listed on the formulary, the
bill says, those costs would not be counted toward the $3,600 limit.

Congress began regulating the Medigap market in 1990, as a way to
protect consumers, many of whom had bought duplicative policies. The
federal government and state insurance commissioners developed 10
standard policies, to replace thousands then on the market.

Three of the 10 Medigap policies cover drugs. Under the legislation,
an old policy with drug benefits could be renewed - but only by a
person who chose to forgo the new Medicare drug benefit. A person who
enrolls in the new program could not buy or renew a Medigap policy to
help defray drug costs.

Nearly 12 million retirees have drug coverage and other health
benefits from former employers. If those retirees sign up for the
Medicare benefit, the employers can help pay the beneficiaries' share
of drug costs. But those payments would not count toward the $3,600
limit on out-of-pocket spending.

Under the bill, low-income elderly people eligible for both Medicare
and Medicaid, the federal-state program for low-income people, would
receive their drugs through Medicare. Medicare drug plans will almost
certainly cover fewer drugs than Medicaid now covers, state officials
say. But the bill generally prohibits Medicaid programs from
supplementing the Medicare drug benefit.

If state officials wanted to supplement the new Medicare drug benefit,
they would have to pick up the entire cost of the extra coverage.
States would not get the discounts and rebates they now receive from
manufacturers under Medicaid.

Dr. Lynn V. Mitchell, the Medicaid director in Oklahoma, said she
expected Medicare formularies to be "more restrictive" than the drug
coverage policies of state Medicaid programs.

"If patients do not get optimal drug therapy," Dr. Mitchell said,
"costs will balloon in other areas. Patients may need more inpatient
hospital care."

House and Senate negotiators who worked on the Medicare bill
encouraged the National Association of Insurance Commissioners to
study the Medigap market, with a view to making major changes.

In a report accompanying the bill, the conference committee said
Medigap policies should be revised to provide less upfront coverage
and to require beneficiaries to pay more of the initial costs of
hospital and physician services.

"Numerous studies have demonstrated that covering deductibles and
coinsurance has led to higher Medicare spending because beneficiaries
become insensitive to costs," the report said. "Beneficiaries with
Medigap consume $1,400 more in Medicare services than beneficiaries
without supplemental coverage."

This, it said, "drives up costs for everyone - premiums of Medicare
beneficiaries without Medigap coverage and costs to taxpayers."