[Congressional Record Volume 146, Number 47 (Thursday, April 13, 2000)]
[Senate]
[Pages S2650-S2653]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         VOLUNTARY MEDICARE PRESCRIPTION DRUG PLAN ACT OF 2000

  Mr. SMITH of New Hampshire. Mr. President, I would like to talk a bit 
about The Voluntary Medicare Prescription Drug Plan Act of 2000--S. 
2319.
  This bill allows seniors to enroll in a new program under Medicare 
which will provide for prescription drug coverage without increasing 
Medicare premiums or costing the Federal Government one penny.
  This is an issue about which, as you know, many seniors are very 
concerned.
  The Senate unanimously approved a sense-of-the-Senate amendment on 
the budget resolution offered by myself, Senator Allard, and Senator 
Domenici.
  This sense-of-the-Senate is very simple. First of all, under the plan 
the Senate Democrats are committed to passing this year, there are six 
basic principles.
  I agree with them all.
  No. 1, it is voluntary.
  I agree with this. If the senior doesn't want it, he or she should 
not have to take it.
  No. 2, it is accessible to all Medicare beneficiaries.
  I agree with that. A hallmark of Medicare is that all beneficiaries, 
even those in rural or underserved communities, have access to 
dependable health care. It should be accessible to everybody. The 
Smith-Allard plan is fully accessible for all beneficiaries.
  No. 3, it is designed to provide meaningful protection and bargaining 
power for Medicare beneficiaries in obtaining prescription drugs.
  A Medicare drug benefit should assist seniors with the high cost of 
drugs and protect them against excessive, out-of-pocket expenses. I 
agree with that.
  No. 4, it is affordable for all Medicare beneficiaries and for the 
Medicare program.
  It should be affordable to all beneficiaries, and it should be 
affordable to the Medicare program itself. The Smith-Allard bill is 
free. Free to all beneficiaries, free to the trust fund. If free 
qualifies as affordable, I think we are there.
  No. 5, it is administered using private sector entities and 
competitive purchasing techniques.
  The management of the prescription drug benefit should mirror the 
practices employed by private insurers. Discounts should be achieved 
through competition, not through price controls or regulation.

[[Page S2651]]

  We are five for five.
  No. 6, it is consistent with broader Medicare reform.
  None of the plans that I know of are consistent with this principle 
because they all cost the taxpayers of America in the upwards of $40 
billion dollars. And that's just to start. The President's plan is 
looking at an additional $203 billion.
  Medicare will face the same demographic strain as Social Security 
when the baby boomer generation retires. We need to save Medicare, not 
add more of a financial burden to it.
  So, these six principles I have listed are principles I totally 
support. They are principles that the Smith-Allard plan meets.
  But we added three new principles: The plan should be revenue 
neutral; not increase Medicare beneficiary premiums; and provide full 
coverage in 2001.
  These three principles enhance and strengthen those put forth by my 
colleagues on the other side of the aisle.
  Let me briefly explain how my new legislation works:
  Medicare part A--under the old system, the current system--has a $776 
deductible.
  Medicare part B has a $100 deductible. In other words, if you go to 
the doctor, the first $100 you pay for; if you go to the hospital, the 
first $776 you pay for; the rest, Medicare pays. That is total of $876 
you will have to pay.
  My new plan would create one new deductible, combining those two 
deductibles of part A and part B into one deductible of $675, which 
would apply to all hospital costs, all doctor visits, and prescription 
drugs--50 cents on the dollar up to $5,000.
  And the prescription drug costs apply to the deductible, so every 
dollar you pay for a prescription moves you forward to meet the 
deductible.
  Once the $675 deductible is met by the Medicare recipient, Medicare 
then will pay 50 percent of the cost toward the first $5,000 worth of 
drugs the senior purchases.
  However, the senior could not purchase a Medigap plan that would pay 
for the $675 deductible. This must be paid for by the senior. But if 
you have a Medigap plan now as a senior, you will not need it.
  As a result, seniors would save about $550 under Medigap plans if 
they traded their current Medigap plan for my new prescription drug 
plan.
  Again, it is their option. It is voluntary. Seniors could even use 
their $550 in savings to pay the $675 deductible.
  If you are a senior out there, and you have part A, part B, and you 
are paying $675 toward the deductible, and you have Medigap insurance 
of $550, you now can put the $550 toward the $675 to meet your 
deductible. So you are going to have $550 in savings. You can put that 
toward the $675, and you are already two-thirds of the way there.
  But how do you get the cost savings?
  As my colleagues are aware, according to the National Bipartisan 
Commission on the Future of Medicare, the Federal Government pays about 
$1,400 more per senior if the senior owns a Medigap plan that covers 
their part A and part B deductible.
  The savings result because Medicare will not have to pay this $1,400 
per person per year out of the trust fund.
  As I mentioned, all hospital, physician, and prescription drug costs 
would count toward this $675 deductible. Once it was met, the senior 
would receive regular, above-the-deductible Medicare coverage, just as 
you get now. Or if you worked out the numbers and decided against my 
plan, then you would not have to select it; it is your choice.
  I have spoken to senior groups and health care providers, both in 
Washington as well as in my State over the past several weeks, about 
this proposal. The response has been very enthusiastic.
  Seniors want a prescription drug benefit. Doctors and nurses 
understand the importance of providing coverage for seniors because of 
the expense of prescription drugs in this country.
  It would be a victory for seniors and for health care in this country 
if we could provide this coverage to them.
  In a recent press conference, President Clinton and Senator Daschle 
outlined their goals for prescription drug coverage.
  Leaving the politics aside, the fact that elected leaders from both 
parties are looking at this issue of prescription drug coverage is good 
news for the senior citizens of America.
  I have talked with several of my Republican colleagues, and it is 
clear to me there is overwhelming support for allowing seniors to have 
this choice. The only question among us all is how we can responsibly 
structure such a program.
  I heave heard from seniors in my State about what they are looking 
for in a prescription drug plan.
  First, they are concerned about the solvency of the Medicare program. 
They want a program that does not add some huge financial burden to the 
trust fund which will be passed on to their grandchildren.
  Second, they do not want to increase the national debt, either. Yes, 
seniors are concerned about the national debt. Ask them the next time 
you speak to a seniors group.
  Third, seniors do not want new premiums. My plan requires no premium 
hike for seniors--zero.
  As I have previously stated, the guiding principles of this plan, 
which may come as a shock to some of my colleagues on the other side of 
the aisle, are the same principles as those of the President and the 
distinguished minority leader for any prescription drug plan.
  I believe the vast majority of seniors will benefit from this plan. 
In fact, every senior with a Medigap plan will definitely benefit.
  Any senior with a prescription drug expenditure of more than $15 a 
month will benefit. Today, the Medicare part A and part B deductible 
totals $876, which most seniors cover by an average $1,611 Medigap 
insurance premium.
  Let me go through some charts that will help explain how the plan 
works.
  First, it is budget neutral.
  It is ironic to see the direction in which the Medicare reform debate 
is headed.
  Do my colleagues remember what started these discussions about 
Medicare reform?
  It was the fact that the program was going broke.
  So why would we support reforms that cost the program billions more 
in spending and further increase its insolvency?
  I want to support Medicare reform that preserves the integrity of the 
program, not some sham reform that adds new financial burdens we will 
not be able to sustain.
  For those of you who are skeptical that these numbers can work, let 
me say right off that I am not an actuary. I know budgets, but these 
are vast actuarial calculations we are talking about.
  So, I wrote a letter to someone who I feel is in a unique position to 
make an unbiased assessment of this plan. His name is Guy King, and he 
was the Chief Actuary at the Health Care Financing Administration
  Here is the letter he sent me.
  I ask unanimous consent that this letter and a letter from Mark 
Litow, an actuary from the firm of Milliman and Robertson, be printed 
in the Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

                                              King Associates,

                                    Annapolis, MD, March 28, 2000.
     Hon. Bob Smith,
     U.S. Senate,
     Washington, DC.
       Dear Senator Smith: This is in response to your letter of 
     March 9, 2000 asking for my analysis of legislation you 
     intend to introduce in the Senate. The proposed legislation 
     establishes a voluntary prescription drug benefit, the 
     Medicare Prescription Drug Plan, under the Medicare program.
       Under the Medicare Prescription Drug Plan, the current Part 
     A and Part B deductibles would be replaced by a single 
     deductible of $675 which would also be applicable to the new 
     prescription drug benefit. The Medicare program would pay 
     fifty percent of the cost of prescription drugs, up to a 
     maximum of $2,500 after satisfaction of the deductible. A 
     beneficiary who chooses the Medicare Prescription Drug Plan 
     would not be allowed to purchase a Medicare supplement policy 
     that fills in the $675 deductible, so special Medicare 
     supplement policies for those who choose the option would be 
     allowed.
       The Medicare Prescription Drug Plan would be available, on 
     a voluntary basis, to any Medicare beneficiary not also 
     covered by Medicaid. The possibility of anti-selection is an 
     important consideration for a plan that is available to all 
     Medicare beneficiaries as an option. I believe that the 
     design features of the Medicare Prescription Drug Plan, as 
     outlined in your legislation, minimize the impact of anti-
     selection.

[[Page S2652]]

       As you requested, I performed an analysis of the proposed 
     legislation. This analysis is based on Medicare and 
     prescription drug data that I obtained from the Health Care 
     Financing Administration (HCFA). My analysis indicates that 
     the Medicare prescription Drug Plan, as described above, 
     would be cost-neutral to the Medicare program if it were made 
     available on a voluntary basis to all beneficiaries except 
     those also covered by Medicaid.
       If you should have any questions regarding my analysis, 
     please don't hesitate to call.
           Sincerely,
     Roland E. (Guy) King, F.S.A., M.A.A.A.
                                  ____



                                   Milliman & Robertson, Inc.,

                                   Brookfield, WI, March 29, 2000.
     Hon. Senator Robert C. Smith,
     Dirksen Building, Washington, DC.
     Re: Medicare Alternative Including Prescription Drug 
         Coverage.
       Dear Senator Smith: At your request, we have analyzed the 
     impact of creating a new option for the Medicare population 
     that would provide coverage for prescription drugs. This 
     option would allow most non-Medicaid aged and disabled 
     Medicare beneficiaries, including those who are 
     institutionalized but not covered under Medicaid and those 
     with end stage renal disease (ESRD), a choice between 
     traditional Medicare coverage and a new form of Medicare 
     coverage referred to as the Prescription Plan. If the 
     individual chooses the prescription plan, the deductible 
     applies across all benefits (Part A, Part B, and drugs). 
     Coinsurance still remains as currently exists under Parts A 
     and B after deductibles, although the Part A extended benefit 
     is available as an option, and prescription drugs have their 
     own coinsurance levels as specified. If the individual 
     chooses to remain under traditional Medicare, no prescription 
     drug coverage is available.
       The key components of the Prescription Plan option are:
       The Prescription Plan has an aggregate deductible of $675 
     for the year 2000 across all benefits. Coinsurance for Parts 
     A and B above the deductible are consistent with Medicare 
     today, except as noted in the following bullet. Coinsurance 
     for drugs is 50/50 on the next $5,000 above the deductible, 
     with no coverage thereafter, so that the plan's maximum 
     prescription drug benefit is $2,500.
       Individuals have the option to pay an additional premium to 
     Medicare under the Prescription Plan of $21 per year ($1.75 
     per month) that would provide full coverage of hospital 
     claims for days 61 to 90 plus Lifetime Reserve Days. 
     Currently, Medicare only covers a portion of the cost for 
     days 61 to 90 and Lifetime Reserve Days.
       People can purchase a new Medicare Supplement plan to cover 
     their out-of-pocket costs above the deductible. Under this 
     scenario, premiums for the current Plan F (which exclude 
     prescription drugs) are expected to decrease by roughly $550 
     per year on average. Coverage below the aggregate deductible 
     is not permitted.
       People choosing to be covered under traditional Medicare 
     will have exactly the same benefits they have today under 
     Medicare. We believe the choice of current Medicare versus 
     the Prescription Plan is reasonably balanced so that a 
     relatively equal mix of healthy and less healthy individuals 
     will select current Medicare and the Prescription Plan. 
     Therefore, we do not anticipate significant amounts of 
     adverse selection with this choice.
       The offering of Prescription Plan along side traditional 
     Medicare is estimated to be revenue neutral to Medicare. In 
     other words, the Prescription Plan allows individuals access 
     to prescription drug coverage at no additional cost to the 
     Federal Government. Election of the option results in no 
     change to the Part A and/or Part B premium, as applicable.
       This system allows individuals two opportunities to change 
     options. The first is at their initial time of eligibility 
     for this program. The second is at the beginning of any year 
     that is at least four years after their initial option. In 
     both cases, the move can be made without evidence of 
     insurability.
       Estimates of the aggregate deductible are based on our best 
     set of assumptions. A wide range of reasonable assumptions 
     exist that could either increase or decrease these values.
       A number of data sources and assumptions have been used in 
     our analysis. These include:
       The benefit design is applicable to the non-Medicaid aged, 
     disabled, and ESRD populations. The only population not 
     covered under this plan is that covered by Medicaid.
       We estimate the Prescription Plan will result in an 
     aggregate decrease in utilization of approximately 5%. 
     However, we expect that the utilization savings will occur if 
     and only if the aggregate deductible cannot be covered under 
     any supplemental insurance plan.
       We have assumed no price discounts on prescription drugs.
       We have assumed that the choice between current Medicare 
     and the Prescription Plan is fairly equal. The reason is that 
     the higher deductible for Part B services will attract 
     healthier people under the Prescription Plan, while the drug 
     benefit will attract less healthy individuals. Given the 
     magnitude of the Part B benefit and the drug benefit included 
     in the Prescription Plan, we are unable to discern a tendency 
     for people in a certain health status to have a greater 
     inclination for current Medicare or the Prescription Plan 
     than would people in a different health status.
       All estimates above are based on calendar year 2000 levels, 
     and should be properly adjusted for healthcare inflation in 
     years beyond 2000. We have not made any adjustments for the 
     new Hospital Outpatient Prospective Payment System which is 
     expected to take effect in early calendar year 2000. Our 
     analysis is based on the current Medicare payment system in 
     Part B services. Since Part B services and prescription drugs 
     would now be included, the trend rate applied to the 
     deductible in future years is critical to controlling the 
     cost of Medicare.
       Cost and distributions of costs are based on the 1999 
     Milliman & Robertson, Inc. Health Cost Guidelines Ages 65 and 
     Over. These Guidelines are based on an extensive analysis of 
     various data sets, including Medicare data.
       The following caveats apply to our estimates:
       1. The values included are estimates only. Actual results 
     may be better or worse than anticipated and could vary from 
     anticipated results. Thus, actual experience should be 
     monitored closely and revisions made as necessary to maintain 
     revenue neutrality and other objectives.
       2. This letter assumes the reader is familiar with the 
     Medicare program and should be reviewed in its entirety. 
     Since our conclusions reflect assumptions specific to the 
     Medicare program, they may not be appropriate from other 
     situations. This letter is intended for distribution for all 
     who request, and therefore should be used in its entirety. 
     The results and assumptions may be misinterpreted if taken 
     out of context. As such, portions of this letter should not 
     be excerpted.
       3. The opinions in this letter are those of the author and 
     do not necessarily reflect the options of others in Milliman 
     & Robertson, Inc. (M&R). M&R does not take any position on 
     specific health care reform proposals. There is uncertainty 
     associated with some assumption underlying this analysis. 
     Changes in the assumptions may have a material impact on this 
     proposal. Actual experience may vary from the results 
     projected in this letter.
       This letter is a revision of an earlier letter dated 
     September 22, 1999. The assumptions supporting that document 
     were tested independently by Guy King of King Associates. The 
     changes made to that analysis are relatively modest, but we 
     have not as yet asked Guy King for his comments on these 
     changes. A copy of Mr. King's work to date was attached to 
     our September 22, 1999 letter.
       If you have any questions or need additional information, 
     please call.
           Sincerely,
                                             Mark E. Litow, F.S.A,
                                               Consulting Actuary.

  Mr. SMITH of New Hampshire. There it is, folks. It's revenue neutral.
  Let me talk about the premium issue, because this I believe is the 
most explosive political side of this.
  Seniors watch their budgets closely. If you try to sock them with a 
new premium, they will not be happy.
  Let me remind my colleagues what happened the last time we tried to 
slap new premiums on seniors.
  This picture is an incident that occurred when seniors who were angry 
with the enactment of the so-called Catastrophic Act assaulted 
Congressman Rostenkowski's car.
  Congressman Rostenkowski wrote the legislation which increased 
premiums on certain seniors.
  It would be a grave mistake to interpret seniors' desire for 
prescription drug coverage as a call for new higher premiums.
  It would also be a huge mistake to think that there is any need for 
such premiums.
  Let me show you how my plan compares with the Administration's plan 
as far as premiums and benefits.
  This chart shows that the Clinton plan's benefits do not even start 
until 2003, and the benefits are not fully effective until 2009.
  These premiums are just the new added government premiums. They do 
not count other premiums such as Medigap.
  I ask unanimous consent that this chart be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

------------------------------------------------------------------------
                                      Monthly premiums   Maximum annual
                                     ------------------  benefits (50%)
                Year                                   -----------------
                                      Clinton   Smith-            Smith-
                                                Allard  Clinton   Allard
------------------------------------------------------------------------
2001................................        0        0        0   $5,000
2002................................        0        0        0    5,000
2003................................      $26        0   $2,000    5,000
2004................................       30        0    2,500    5,000
2005................................       34        0    3,000    5,000
2006................................       38        0    3,500    5,000
2007................................       42        0    4,000    5,000
2008................................       46        0    4,500    5,000
2009................................       51        0    5,000    5,000
------------------------------------------------------------------------

  Mr. SMITH of New Hampshire. This chart shows all the premiums seniors

[[Page S2653]]

would pay. As you can see the drug premium is nothing. If a senior has 
Medigap, premiums substantially decrease from current law under Smith-
Allard. Under the administration plan, they stay the same--averaging 
$230.75 per month. So, if you compare all premiums, a senior would save 
an average of $96.83 per month.
  I ask unanimous consent that this chart be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                            MONTHLY PREMIUMS
------------------------------------------------------------------------
                                                                Smith-
                                                    Clinton     Allard
------------------------------------------------------------------------
Drugs...........................................      $51.00           0
Part B..........................................       45.50       45.50
Medigap.........................................      134.25       88.42
                                                 -----------------------
      Total.....................................      230.75      133.92
                                                 =======================
Smith-Allard Premium Savings....................  ..........       96.83
------------------------------------------------------------------------

  Mr. SMITH of New Hampshire. Some might say this is not much money. 
But let's take a look.
  What could a senior do with $96.83 each month?
  You can see that this is a lot of money when you think of how it 
would impact other expenses seniors have.
  These numbers come from the Bureau of Labor Statistics Consumer 
Expenditure Surveys.
  Finally, Mr. President, we will look at annual deductibles.
  Smith-Allard combines the hospital, medical, and drug benefits into a 
single deductible.
  Because seniors spend an average of $670 per year, they would just 
about reach the full hospital and medical deductible with just drug 
expenses.
  Under the Clinton plan, drugs don't count toward the deductible, so 
even though seniors would have a 50 percent drug benefit, they would 
not be paying down their deductible.
  I have talked about this plan with seniors, and they understand this 
concept. They love it.
  I ask unanimous consent that these charts be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                              Smith-Allard

       Saves seniors $96.83 in monthly premiums.
       What could a senior do with $96.83 each month?


                           prescription drugs

       Seniors average $55 per month on drugs.
       The premium savings alone would pay for all their drugs 
     twice.


                                  food

       Seniors spend $235 per month on groceries. Premium savings 
     pay for nearly half.
       Seniors spend $99 per month going out to eat. Premiums 
     savings pay for nearly all dining out.


                             entertainment

       Seniors spend $87 per month on entertainment. Premium 
     savings pay for all entertainment.


                                 taxes

       Seniors spend $93 per month on Federal, State, and other 
     taxes. Premium savings pay for all taxes.
                                  ____


                           ANNUAL DEDUCTIBLES
------------------------------------------------------------------------
                                        Clinton        Smith-Allard
------------------------------------------------------------------------
Part A................................     $776
Part B................................      100  $675 combined.
Drugs.................................        0
      Total deductibles...............      876  675
------------------------------------------------------------------------

  Mr. SMITH of New Hampshire. Let me just conclude speaking on this 
bill by saying that the benefits in this plan are delivered by private 
companies and regional entities, such as pharmaceutical benefit 
managers. These entities would negotiate with large drug companies and 
provide the drugs to Medicare seniors.
  In addition, according to the actuaries who reviewed the legislation, 
there will be no adverse selection. Both the healthy and the sick will 
have an incentive to choose this plan. Everybody is in.
  There are many different methods of providing prescription drug 
coverage for seniors, but I urge my colleagues--I plead with my 
colleagues--to look to the revenue-neutral methods that fund this 
benefit by the elimination of waste in the present system. I urge my 
colleagues to resist the temptation to raise Medicare premiums on the 
people who can least afford it.
  I have vivid memories of seniors rocking Mr. Rostenkowski's car a few 
years ago when he decided to raise Medicare premiums. Let's look at it 
more specifically. The House's fiscal year 2001 budget--this is 
important--sets $40 billion aside for prescription drugs.
  In the Senate, we are expected to do a budget that is going to set 
aside $20 billion now for prescription drugs, and $20 billion later.
  We don't need either under my plan. We don't need any more money. We 
don't need $20 billion. We don't need $40 billion. We don't need $2 
billion.
  Let's use the money for debt reduction or tax credits for the 
uninsured rather than providing for prescription drugs. Let's use my 
revenue-neutral prescription plan instead.
  I urge my colleagues to take a look at this approach. It provides 
prescription drugs in a way that will meet seniors' needs without 
hiking their premiums or adding more burden to the Federal treasury.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. Under the previous order, the Senator from 
Nevada, Mr. Reid, is recognized to speak for up to 20 minutes.

                          ____________________