[Congressional Record (Bound Edition), Volume 146 (2000), Part 8]
[House]
[Pages 11826-11834]
[From the U.S. Government Publishing Office, www.gpo.gov]



                       PRESCRIPTION DRUG COVERAGE

  The SPEAKER pro tempore (Mr. Toomey). Under the Speaker's announced 
policy of January 6, 1999, the gentleman from Iowa (Mr. Ganske) is 
recognized until midnight as the designee of the majority leader.
  Mr. GANSKE. Mr. Speaker, this is a photo of William Newton, age 74, 
of Altoona, Iowa, a constituent in my district whose savings vanished 
when his late wife Waneta, whose picture he is holding, needed 
prescription drugs that cost as much as $600 per month.
  ``She had to have them. There was no choice'', Mr. Newton said. 
``It's a very serious situation and it isn't getting any better because 
drugs keep going up and up.''
  When James Weinmann of Indianola, Iowa, and his wife, Maxine, make 
their annual trip to Texas, the two take a side trip as well. They 
cross the border to Mexico and load up on prescription drugs, which are 
not covered under their Medigap policies. Their prescription drugs cost 
less than half in Mexico than what they cost in Iowa.
  Mr. Speaker, this problem is not localized to Iowa. It is everywhere. 
The problem that Dot Lamb, an 86-year-old Portland, Maine, woman who 
has hypertension, asthma, arthritis and osteoporosis has paying for her 
prescription drugs is all too common. She takes five prescription drug 
that cost over $200 total each month, over 20 percent of her monthly 
income. Medicare and her supplemental insurance do not cover 
prescription drugs.
  Mr. Speaker, I recently received this letter from a computer savvy 
senior citizen who volunteers at a hospital that I worked at before 
coming to Congress.
  ``Dear Congressman Ganske, after completing a University of Iowa 
study on Celebrex 200 milligrams for arthritis, I got a prescription 
from my M.D. and picked it up at the hospital pharmacy. My cost was 
$2.43 per pill with a volunteer discount.
  ``Later on the Internet I found the following:
  ``I can order through Pharmaworld in Geneva, Switzerland after paying 
either of two American doctors $70 for a phone consultation, these 
drugs, at a price of $1.05 per pill plus handling and shipping.
  ``I can order these drugs through a Canadian pharmacy if I use a 
doctor certified in Canada, or my doctor can order it on my behalf 
through his office for 96 cents per pill plus shipping.
  ``I can send $15 to a Texan and get a phone number at a Mexican 
pharmacy which will send it without a prescription at a price of 52 
cents per pill.''
  This constituent closes his letter to me by saying, ``I urge you, Dr. 
Ganske, to pursue the reform of medical costs and stop the outlandish 
plundering by pharmaceutical companies.''
  Well, Mr. Speaker, I want to be very clear, I am in favor of 
prescription drugs being more affordable, not just for senior citizens, 
but for all Americans.
  Let us look at the facts of the problem and then discuss some of the 
solutions.
  There is no question that prices of drugs are rising rapidly. A 
recent report found that the prices of the 50 top-selling drugs for 
seniors rose much faster than inflation. Thirty-three of

[[Page 11827]]

the 50 drugs rose at least one and a half times inflation. Half of the 
drugs rose at least twice as fast as inflation. Sixteen drugs rose at 
least three times inflation. Twenty percent of the top 50 selling drug 
for seniors rose at least five times inflation.
  The prices of some drugs are rising even faster. Furosemide, a 
generic diuretic, rose 50 percent just in 1999. Klor-con 10, a brand-
name drug, rose 43.8 percent.
  This was not a 1-year phenomena. Thirty-nine of these 50 drugs have 
been on the market for at least 6 years. The prices of three-fourths of 
this group rose at least 1.5 times inflation. Over half rose at twice 
inflation. More than 25 percent rose at three times inflation. Six 
drugs rose at over five times inflation. Lorazepam rose 27 times 
inflation and Furosemide 14 times inflation.
  Prilosec is one of the two top-selling drugs prescribed for seniors. 
The annual cost for this 20-milligram gastrointestinal drug, unless one 
has some type of drug discount, is $1,455. For a widow at 150 percent 
of poverty, that means she is living on $12,525 a year, the annual cost 
of Prilosec for acid reflux disease alone will consume more than one in 
$9 of this senior's total budget.
  What about a woman who has diabetes, hypertension and high 
cholesterol? She requires these drugs. Her drug costs would consume up 
to 18.3 percent of her income.

                              {time}  2320

  My friend from Des Moines, the Iowa Lutheran Hospital volunteer 
senior citizen, knows, as do the Weinmans from Indianola, from their 
shopping trips in New Mexico for prescription drugs, that drug prices 
are much higher in the United States than they are in other countries. 
A story from USA Today comparing U.S. drug prices to prices in Canada, 
Great Britain, and Australia for the 10 best selling drugs verifies 
that drug prices are higher here in the U.S. than they are overseas.
  For example, Prilosec is two to two-and-a-half times as expensive in 
the U.S. as it is in Canada, Britain or Australia. Prozac is two to 
two-and-three-quarter times as expensive in the United States, at $2.27 
per pill, as compared to Canada at $1.07, Britain at $1.08, and 
Australia 82 cents. Lipitor was 50 to 92 percent more expensive. 
Prevasid was as much as four times as expensive in the United States, 
at $3.13 per pill, than it was in Canada, Britain or Australia. Look, 
the drug only costs 83 cents in Australia. Only one drug, Epogen, was 
cheaper in the U.S. than in the other countries.
  Now, high drug prices have been a problem for the past decade. Two 
General Accounting Office studies from 1992 and 1994 showed the same 
results. Comparing prices for 121 drugs sold in the U.S. and Canada, 
prices for 98 were higher in the United States. Comparing 77 drugs sold 
in the U.S. and the United Kingdom, 86 percent of the drugs were priced 
higher in the United States. And three out of five were more than twice 
as high.
  Now, drug companies claim that drug prices are so high because of 
research and development costs, and I do want to say that there is 
great need for research. For example, around the world we are seeing an 
explosion of antibiotic resistant bacteria, like tuberculosis, for 
which we will need research and development for new drugs. A new report 
by the World Health Organization outlines this concern about infectious 
diseases.
  However, data from PhRMA, the pharmaceutical trade organization that 
I saw presented in Chicago about 1 month ago, showed little increase in 
research and development, especially in comparison to significant 
increases by the pharmaceutical companies in advertising and marketing. 
Since the 1997 FDA reform bill, advertising by drug companies has 
gotten so ubiquitous that the news line, Healthline, recently reported 
that consumers watch on average nine prescription drug commercials a 
day.
  Look at this chart, which shows 1998 figures for the big six drug 
companies. In every case marketing, advertising, sales, and 
administration costs exceed research and development. So, for example, 
if we look at Merck, Merck had, as a percent of revenue, 15.9 percent 
go to marketing. They only had 6.3 percent of their income go to 
research and development. Pfizer spent nearly 40 percent on marketing 
of their income and only 17.1 percent on research and development.
  In 1999, of the five companies with the highest revenues, four spent 
at least twice as much on marketing, advertising, and administration as 
they spent on research and development. Only one of the top 10 drug 
companies spent more on research and development than on marketing, 
advertising, and administration.
  Administrative costs have not increased that much. The real increase 
has been in advertising. For the manufacturers of the top 50 drugs sold 
to seniors, profit margins are more than triple the profit rates of the 
other Fortune 500 companies. So we see for pharmaceutical companies 18 
percent profit margins, we see for the other Fortune 500 companies 
profit margins of 5 percent.
  Furthermore, as recently cited in The New York Times, of the 14 most 
medically significant drugs developed in the past 25 years, 11 had 
significant government financed, government financed, research. For 
example, Taxol is a drug developed from government-funded research 
which earns its manufacturer, Bristol-Myers-Squib, millions of dollars 
each year.
  Now, Mr. Speaker, as I said at the start of this special order, I 
think the high cost of drugs is a problem for all Americans, not just 
the elderly. But many nonseniors are in employer plans and get a 
prescription drug discount. In addition, there is no doubt that the 
older one is the more likely the need for prescription drugs. So let us 
look at what type of drug coverage is available to senior citizens 
today.
  Medicare pays for drugs that are part of treatments when the senior 
citizen is a patient in a hospital or in a skilled nursing facility. 
Medicare pays doctors for drugs that cannot be self-administered by 
patients, i.e. drugs that require intramuscular or intravenous 
administration. Medicare also pays for a few other outpatient drugs, 
such as drugs to prevent rejection of organ transplants, medicine to 
prevent anemia in dialysis patients, and oral anti-cancer drugs. The 
program also covers pneumonia, Hepatitis and influenza vaccines. The 
beneficiary is responsible for 20 percent coinsurance of these drugs.
  About 90 percent of Medicare beneficiaries have some form of private 
or public coverage to supplement Medicare. But many with supplementary 
coverage have either limited or no protection against prescription drug 
costs, those drugs that one buys in a pharmacy with a prescription from 
their doctor.
  Since the early 1980s, Medicare beneficiaries in some parts of the 
country have been able to enroll in HMOs which provide prescription 
drug benefits. Medicare pays the HMOs a monthly dollar amount for each 
enrollee. Some areas, like my State, Iowa, have had such low payment 
rates that no HMOs with drug coverage are available. This is typically 
a rural problem, but some metro areas also have inequitably low 
reimbursements.
  And I should say that, parenthetically, I have led the fight to 
improve these unfair payment rates, which allow seniors living in 
Miami, for example, to get drug benefits that seniors living anywhere 
in Iowa or Nebraska or Minnesota do not. But I will return to this 
issue a little bit later in this talk.
  Employers may offer their retirees health benefits that include 
prescription drugs, but fewer employers are doing so. From 1993 to 
1997, prescription drug coverage of Medicare eligible retirees dropped 
from 63 percent to 48 percent. Beneficiaries with medigap insurance 
typically have coverage for Medicare's deductibles and coinsurance, but 
only three of the ten standard plans offer drug coverage. All three 
impose a $250 deductible.
  Plans H and I cover 50 percent of the charges up to a maximum benefit 
of $1,250. Plan J covers 50 percent of the charges up to a maximum 
benefit of $3,000. The premiums for these plans are significantly 
higher than the other

[[Page 11828]]

seven medigap plans because of the cost of the drug benefit.

                              {time}  2330

  This chart shows the difference in annual cost to a 65-year-old woman 
for a Medigap policy with or without a drug benefit. For a Medigap 
policy of moderate coverage, she pays about $1,320 without a drug 
benefit and she pays $1,917 for a policy with a drug benefit. For 
extensive coverage, she would pay $1,524 for a policy without drugs but 
she would pay $3,252 in premiums for insurance with drug coverage.
  Why is there such a price gap between policies that offer drug 
coverage compared to those that do not? Well, it is because the drug 
benefit is voluntary. Only those people who expect to actually use a 
significant quantity of prescriptions purchase a Medigap policy with 
drug coverage. But because only those with high costs choose that 
option, the premiums must be high to cover the costs of a high average 
expenditure for drugs.
  So what is the lesson we can learn from the current program? Adverse 
selection tends to drive up the per capita cost of coverage unless the 
Federal Treasury simply subsidizes lower premiums. The very low income 
elderly and disabled Medicare beneficiaries are also eligible for 
payments of their deductible and co-insurance by their State's Medicaid 
program.
  For these dual-eligibles, the most important service paid for by 
Medicaid is frequently the prescription drug plans offered by all 
States under their Medicaid plans.
  There are several groups of Medicare beneficiaries who have a more 
limited Medicaid protection. Qualified Medicare beneficiaries, QMBs, 
otherwise known as QMBs, have incomes below the poverty line, that is 
$8,240 for a single person, $11,060 for a couple, and they have assets 
below $4,000 for a single person and $6,000 for a couple.
  Medicaid pays their deductibles and their premiums. Specified low 
income Medicare beneficiaries, known as SLIMBs, have incomes up to 120 
percent of the poverty line and Medicaid pays their Medicare Part B 
premium.
  Qualifying individuals, one, have income between 120 and 135 percent 
of poverty. Medicaid pays only their Part B premium but not 
deductibles. And qualifying individuals, two, have income between 135 
percent and 175 percent of poverty. Medicaid pays part of their Part B 
premiums.
  Why am I going into these details? Because in a little bit I want to 
describe a way to help these people who are low income but not so low 
that they qualify for Medicaid drug benefit.
  These QMBs and SLIMBs are not entitled to Medicaid's prescription 
drug benefit unless they are also eligible to full Medicaid coverage 
under their State's Medicaid program. QI-1s and QI-2s are never 
entitled to Medicaid drug coverage.
  A 1999 Health Care Financing Administration report showed that, 
despite a variety of potential sources of coverage for prescription 
drugs, beneficiaries still pay a significant proportion of drug costs 
out of pocket and that about one-third of Medicare beneficiaries had no 
coverage at all.
  It is also important to look at the distribution of Medicare 
enrollees by total annual prescription drug expenditures. This 
information will determine, based on the cost of the benefit, how many 
Medicare beneficiaries will consider the premium cost of a voluntary 
drug benefit insurance program worked it.
  This chart from the Medicare Payment Advisory Commission, known as 
MPAC, in a report to Congress in 1999 shows that 14 percent of Medicare 
beneficiaries have no drug expenditures, 36 percent have expenditures 
of one dollar to $500 a year, 19 percent had drug expenditures from 
$500 to $1,000 a year, 12 percent from $1,000 to $1,500 a year, 14 
percent from $1,500 to $3,000 a year, and 6 percent over $3,000.
  But please note that 14 percent plus 36 percent means that 50 percent 
of Medicare beneficiaries today have less than $500 drug expenses 
annually. And if you add another 19 percent, 69 percent had drug 
expenses of less than $1,000 a year.
  As we look at plans to change Medicare to better cover the cost of 
prescription drugs, we face some difficult choices for which there is 
currently no consensus in the population or, for that matter, among 
policymakers.
  There are many questions to answer. Here are a few: Should the 
coverage be for the entire Medicare population or for low income 
seniors? Should it be comprehensive or for catastrophic? What should be 
the level of benefit cost sharing by the recipients? Will there be any 
cost controls on the cost of drugs? Should we deal with this problem 
about drug costs for the Medicare population only or should we try to 
figure out some provisions for everyone? How much money can the Federal 
Treasury devote to this subsidy? Can we really predict the cost of the 
benefit?
  Now, Mr. Speaker, the desire to add a prescription drug benefit is 
not new. It was discussed at the inception of Medicare back in 1965 and 
many times since then. The reason why adding a prescription benefit is 
such a hot issue now is that there has been an explosion in new drugs 
available, huge increases in demand for these drugs, and significant 
increase in the cost of these drugs in just the past few years. Many of 
these drugs are life-preserving, such as some of those that my own 
father takes.
  Before I discuss the Democratic and Republican proposals, I think it 
is instructive to look at what happened the last time Congress tried to 
do something about prescription drugs and Medicare. This is because the 
outcome of reform in 1988 has seared itself into the minds of the 
policymakers who were in Congress then and who are committee chairman 
now.
  The Medicare Catastrophic Coverage Act of 1988 would have phased in 
catastrophic prescription drug coverage as part of a larger package of 
benefit improvements. Under the Medicare Catastrophic Coverage Act of 
1988, catastrophic prescription drug coverage would have been available 
in 1991 for all outpatient drugs subject to a $600 deductible, 50 
percent co-insurance.
  The benefit was to be financed through a mandatory combination of an 
increase in Part B premium and a portion of the new supplemental 
premium which was to be imposed on higher income enrollees.
  It is also important to note that the Congressional Budget Office 
estimated the cost for this at $5.7 billion initially and only 6 months 
later the cost estimates had more than doubled because both the average 
number of prescriptions used by enrollees and the average price had 
risen more than previously estimated.
  This plan back in 1988 passed the House by a margin of 328-72, and 
President Reagan enthusiastically signed into law this largest 
expansion of Medicare in history. The only problem was that, once 
seniors learned their premiums were going up, they hated the bill.

                              {time}  2340

  They even started demonstrating against it. Scenes of Gray Panthers 
hurdling themselves on to Ways and Means chairman Dan Rostenkowski's 
car were broadcast to the Nation. Angry phone calls from senior 
citizens flooded the Capitol switchboards. So the very next year this 
House voted 360 to 66 to repeal the Medicare Catastrophic Coverage Act 
of 1988, and President Bush then signed the largest cut in Medicare 
benefits in history, and this experience left scars on the political 
process that are evident in today's Democratic and Republican 
proposals.
  What was the lesson? Well, Dan Rostenkowski wrote an article for the 
Wall Street Journal on January 17 of this year that should be required 
reading for every Member of this Congress. Remember, he was the 
chairman of the Committee on Ways and Means in 1988. His most important 
point was this: The 1988 plan was financed by a premium increase for 
all Medicare beneficiaries. Rosti says in his op-ed piece, ``We adopted 
a principle universally accepted in the privates insurance industry: 
People pay premiums today for benefits they may receive tomorrow.''
  Apparently the voters did not agree with those principles. By the 
way, the title of his op-ed piece is ``Seniors

[[Page 11829]]

Won't Swallow Medicare Drug Benefits.''
  Former Ways and Means Chairman Rostenkowski does not think seniors 
have changed since 1988, and apparently the drafters of the Democratic 
and the Republican bills agree with him, because the key point the 
spokesmen for each of these bills makes to seniors is that their 
respective plans are voluntary.
  While there are shortcomings in both plans, I think before I briefly 
describe each plan let me acknowledge the hard work that some members 
have put into these bills. The House Republican plan is estimated to 
cost seniors $35 to $40 a month in 2003, with possible projected rises 
of 15 percent a year. Premiums could vary among plans. There would be 
no defined benefit plan, and insurers could offer alternatives of 
``equivalent value.'' There would be a $250 deductible, and the plan 
would then pay half of the next $2,100 in drug costs. After that 
expense, patients are on their own, until out-of-pocket expenses reach 
$6,000 a year when the government pays the rest.
  The GOP plan would pay subsidies to insurance companies for people 
with high drug costs. If subscribers did not have a choice of at least 
two private drug plans, then a ``government plan'' would be available. 
A new bureaucracy called the Medical Benefits Administration would 
oversee these private drug insurance plans.
  Under the Republican plan, the government would pay for all premiums 
and nearly all beneficiaries' share of covered drug costs for people 
with incomes under 135 percent. For people with incomes from 135 to 150 
percent of the poverty level, premium support would be phased out. It 
is assumed that drug insurers would use generic drugs to control costs.
  The cost of the GOP plan is estimated to be $37.5 billion over 5 
years, and about $150 billion over 10 years, though the Congressional 
Budget Office is having a hard time predicting costs because there is 
no standard benefit definition.
  The premiums under the Clinton plan were estimated to cost those 
seniors who sign up, remember, this is a voluntary plan, like the GOP 
plan, about $24 a month in the year 2003, rising to $51 a month in 
2010. However, the Clinton Administration now talks about adding $35 
billion in expenses for a catastrophic component like the GOP plan, 
which would make premiums higher.
  Under the Clinton plan, Medicare would pay half the cost of each 
prescription, and there would be no deductible. Maximum Federal payment 
would be $1,000 for $2,000 worth of drugs in 2003, rising to $2,500 for 
$5,000 worth of drugs in 2009.
  The government would assume the financial risk for prescription drug 
insurance, but it would hire private companies to administer benefits 
and negotiate discounts from drug manufacturers. It would aid the poor 
similar to the GOP House plan and would try to control costs by the use 
of pharmaceutical benefit managers. As pharmaceutical companies buy up 
these benefit managers, one wonders about conflicts of interest and 
whether any discounts will really occur.
  But here is a crucial point: In order to cushion the cost of the 
sicker with premiums from the healthier, both plans calculate premiums 
premised on about 80 percent participation of all those in Medicare.
  Now, the partisan attacks on the Clinton plan and on the GOP plan are 
already starting. Democrats say Republicans are putting seniors in 
HMOs, HMOs provide terrible care, and this is not fair to seniors.
  Republicans say the Democratic plan is a one-size-fits-all plan that 
is too restrictive, too confusing and puts the politicians and 
Washington bureaucrats in control. This is from a House Republican 
Conference source.
  Now, I could criticize each of these plans in depth, but I do not 
have that much time left. Suffice it to say that the details of each of 
these plans is very important as to how they would work; for that 
matter, if they would work.
  The GOP bill's legislative language just became available a few days 
ago, so I have been reading the 150 page document over the past few 
days. I believe that if you let plans design all sort of benefit 
packages, as does the GOP plan, it becomes very difficult for seniors 
to be able to compare apples to apples, to compare equivalency of plans 
in terms of value. I also think that plans can tailor benefits to 
cherry pick healthier, less expensive seniors and game the system.
  Representatives of the insurance industry seemed to share that 
opinion in a hearing before my committee. In my opinion, a defined 
benefit package would be better. I have concerns about the financial 
incentives that the House Republican bill would offer insurers to enter 
markets in which no drug plans are available. Would these incentives 
encourage insurers to hold out for more money? I have doubts that the 
private insurance industry will ever offer drug only plans.
  In testimony before my committee, Chip Kahn, President of the Health 
Insurance Association of America, testified that drug only plans will 
not work. In testimony before the Committee on Commerce on June 13, 
2000, Mr. Kahn said, ``Private drug only coverage would have to clear 
insurmountable financial regulatory and administrative hurdles simply 
to get to the markets. Assuming that it did, the pressures of ever 
increasing drug costs, the predictability of drug expenses, the 
likelihood that the people most likely to purchase this coverage will 
be the people anticipating the highest drug claims, would make drug 
only coverage virtually impossible for insurers to offer to seniors at 
an affordable premium.'' Mr. Kahn predicted that few, if any, insurers 
would offer that kind of product.
  I could similarly criticize several particulars of the Democratic 
bill, but, in the spirit of bipartisanship, I want to expand on what I 
think is the fundamental flaw in both plans, and that is what is called 
adverse risk selection.
  If the Clinton plan has comparable costs for a stop loss provision of 
catastrophic expenses, the premium costs will be comparable to the GOP 
plan. Under these bills, a person who signs up for drug insurance will 
pay about $40 per month, or roughly $500 per year. After the first $250 
out-of-pocket costs for the deductible, the enrollee would need to have 
twice $500 in drug costs, or $1,000, in order to be getting a benefit 
that is worth more than the cost of the premiums for the year.
  Put it another way: The enrollee must have $250 for the deductible, 
plus $1,000, or $1,250 in annual drug costs, in order to get half of 
the rest of his drug expenses, up to a maximum of $2,100 paid for by 
the plan.
  Who then will sign up for these plans? Well, those seniors with over 
$1,250 in annual drug expenses. Those with less than that would end up 
paying more in premiums than they are currently paying.
  Remember the MedPAC data from the last year that I showed you earlier 
in this speech? Sixty-nine percent of seniors spend less than $1,250 
per year on drug costs. Remember also that the premiums are premised on 
a 80 percent participation rate. I think it is highly doubtful that 
anywhere near 80 percent of seniors will sign up for either of these 
plans, and if only those with high drug costs sign up for these plans, 
then we know what will happen by looking at the current Medigap 
policies. Only three plans have any prescription drug coverage, and 
they are expensive because of unfavorable selection. Only 7.4 percent 
of beneficiaries enrolled in standard Medigap plans were in these drug 
coverage plans, plans H, I and J.

                              {time}  2350

  Now, one way to avoid adverse risk selection in a voluntary benefit 
system would be to offer the drug benefit for one time only when a 
beneficiary enrolls in Medicare. Even with that restriction, there 
would still be some adverse selection in that some seniors already have 
high drug costs at age 65 when they enter Medicare and would be more 
likely to join such a program.
  Now, this mandatory provision is not in either plan. The authors of 
the GOP bill recognize the adverse risk selection problem and they try 
to address it by saying that if a beneficiary does not

[[Page 11830]]

sign up for the drug insurance program on initial registration for 
Medicare, then thereafter, when he or she wants to sign up for the drug 
insurance program, the premium would be ``experience-based'' and 
potentially more costly. The theory is that the threat of higher 
premiums would act as an inducement to seniors with no or low drug 
costs to sign up initially.
  Mr. Speaker, if only everyone acted with such prudence now, we would 
not be dealing with the need for this bill. Unfortunately, the low 
participation in the current voluntary Medigap programs indicates that 
unless seniors must sign up initially, a large number will not. They 
will wait until they need drugs, and then they will complain 
vociferously to Congress about their high premiums and we will be right 
back where we started. Since other seniors will have a prescription 
drug benefit, there will be enormous pressure on legislators to 
subsidize the seniors who are tardy in signing up for a drug program 
and that, of course, will significantly increase the cost of the 
program.
  Another way to control adverse risk selection is to try to devise a 
risk adjustment system. These adjustment systems are very hard to 
design and implement. It remains to be seen whether risk adjustment 
systems already on the books for other parts of Medicare are going to 
work. A similar benefit package helps control adverse risk selection. 
Consumers are able to select plans based on price and quality rather 
than benefits. If plans are allowed wide variation in benefits, some 
plans may be more likely to attract low-cost beneficiaries. The GOP 
plan has some weak community rating and guaranteed issue provisions in 
acknowledgment of this problem, but these provisions depend on 
oversight by a new Medical Benefits Administration, and the Inspector 
General already tells us how hard it is to oversee adverse risk 
selection in Medicare HMOs.
  We could, of course, mandate enrollment. That was the approach of the 
Medicare Catastrophic Coverage Act in 1988, and we saw what happened to 
that law. To say that mandatory enrollment has little appeal to 
policymakers in an election year I think is an understatement.
  Finally, we could avoid adverse selection for a voluntary benefit 
like prescription drug coverage if we just subsidized the benefits so 
much that seniors simply share very little of the cost. The benefit 
becomes cost-effective for the vast majority, regardless of health, 
because it is such a good deal. But this could lead to a $400 billion 
or $500 billion subsidy.
  It again reminds me of the article by Mr. Rostenkowski. As Rosty said 
in his op-ed piece, ``The problem was, and still is, a lack of money.'' 
Yes, we have a projected surplus, but the 10-year costs of a more 
highly subsidized drug coverage could, in my opinion, even double or 
triple the cost of both proposals.
  There are many reasons why, even in this time of plenty, that is hard 
to do. First, we have a bipartisan commitment not to use the Social 
Security surplus funds. Second, we have people in this country that 
have no insurance at all, much less drug coverage. Third, Medicare is 
closer to insolvency than it was back in 1988. Should not our first 
priority be to protect the current Medicare program?
  Well, given these constraints, what can we do to help seniors and 
others with high drug costs? I have a 10-step modest proposal for 
helping seniors and others with their drug costs.
  First, allow qualified Medicare beneficiaries, those QMBs, and 
specified low-income Medicare beneficiaries, SLIMBs, and qualifying 
individuals with an additional phaseout group up to 175 percent of 
poverty to qualify for State Medicaid drug programs. States could 
continue to use their current administrative structures and 
implementation could be done quickly. About one-third of Medicare 
beneficiaries would be eligible, especially those most in need, and the 
drug benefit would encourage those who qualify to actually sign up. A 
key feature of this program would be that the State programs are 
entitled to the best price that the manufacturer offers any purchaser 
in the United States. Judging from estimates of the bipartisan Medicare 
Commission, this expansion of benefits would probably cost about $60 
billion to $80 billion over 10 years.
  Second, Congress could fix the funding formula that puts rural States 
and certain low reimbursement urban areas at such a disadvantage in 
attracting Medicare-Plus plans that offer drug coverage.
  Third, in response to my constituents who want to purchase their 
drugs in Canada, Mexico or Europe, we could stop the Food and Drug 
Administration from intimidating seniors and others with threats of 
confiscation of their purchases. The FDA has sent notices to people 
that importing drugs is against the law. The FDA should not send 
warning notices regarding the importation of a drug without providing 
to the person involved a statement of the underlying reasons. The 
gentleman from Minnesota (Mr. Gutknecht), my colleague, has introduced 
legislation called the Drug Import Fairness Act of 1999, and Congress 
should pass that common sense legislation.
  Fourth I think we should at least fully debate the bill of the 
gentleman from Maine (Mr. Allen), the Prescription Drug Fairness for 
Seniors Act. The idea is simple. It would allow pharmacists to buy 
drugs for Medicare beneficiaries at the best price available to the 
Federal Government, typically the Veterans' Administration price, or 
the Medicaid price. It creates no new bureaucracy. There is no 
significant cost to the government. It gives Medicare beneficiaries 
negotiated lower prices, such as customers of Aetna, Cigna, and other 
private plans receive the benefit of negotiated lower prices.
  Fifth, I think we should enact full tax deductibility for the self-
insured retroactive to January 1, 2000.
  Sixth, there are 11 million children without any health insurance. 
Many of them qualify, 7 million of them qualify for Medicaid, and the 
State Children's Insurance programs. We ought to get those kids in. 
That gives them prescription drugs as well.
  Seventh, many pharmaceutical companies offer programs where they 
provide drugs free to low-income individuals. These company programs 
are to be commended, but we need to do a better job, and maybe the FDA 
could do this, of getting that information to those low-income 
beneficiaries to take advantage of those pharmaceutical companies' 
programs.
  Eighth, 16 States have pharmaceutical assistance programs targeted to 
Medicare beneficiaries. Some of these programs could serve as models 
for State grant programs. The gentleman from Florida (Mr. Bilirakis) 
has a bill that would do this. We ought to look at that. I think the 
QMB-SLIMB solution is a little quicker and more certainly implemented, 
but at least we could have a debate on that.
  Ninth, I believe that Congress should revise the FDA Reform Act of 
1997. At a minimum, drug companies should be required to fully discuss 
major potential complications of their drugs in their radio and 
television advertising.
  Tenth, finally, I think Congress should actually get signed into law 
a combination of the above in a bipartisan fashion. Yes, this approach 
is more limited than either that of President Clinton or the House GOP 
plan. But a more comprehensive drug plan should, in my opinion, be a 
part of overall Medicare reform where all of the pieces fit together so 
as to do no harm to any one part while benefiting another. It will not 
do Iowa seniors much good to have an unlimited drug benefit if they do 
not have a local hospital to go to.
  Finally, Mr. Speaker, this is a very complicated issue. I believe 
that we should follow regular order. That means a bill in the hopper, 
hearings on the bills, subcommittee markups with amendments and debate, 
full committee markups, all of the committees of jurisdiction looking 
at the bill. Regular order is not just for the members on the 
committee, it is for everyone in this House to see the process and to 
fully understand an issue. I am sorry to say that that regular order is 
not happening.
  Mr. Speaker, we are going to see a bill rushed to the floor next 
week. I

[[Page 11831]]

would advise my colleagues to be very careful. I am sure that 
television archives preserve the image of unhappy Chicago citizens 
surrounding Dan Rostenkowski's car when he visited a decade ago to 
explain why he thought the Medicare reform bill was a good bill. Let us 
continue regular order.
  Finally, I remain committed to seeing a bill signed into law. Mr. 
Speaker, let us just make sure that it is a good one.
  Mr. Speaker, this is a photo of William Newton, 74, of Altoona, Iowa, 
a constituent in my district whose savings vanished when his late wife, 
Waneta, whose picture he is holding, needed prescription drugs that 
cost as much as $600 per month.
  ``She had to have them--there was no choice,'' Newton said. ``It's a 
very serious situation and it isn't getting any better because drugs 
keep going up and up.''
  When James Weinman of Indianola, Iowa, and his wife, Maxine, make 
their annual trip to Texas, the two take a side trip as well. They 
cross the border to Mexico and load up on prescription drugs, which 
aren't covered under their Medigap policies. Their prescription drugs 
cost less than half as much in Mexico as they cost in Iowa.
  This problem isn't localized to Iowa. It's everywhere. The problem 
that Dot Lamb, an 86-year-old Portland, Maine, woman who has 
hypertension, asthma, arthritis and osteoporosis has paying for her 
prescription drugs is all too common. She takes five prescription drugs 
that cost over $200 total each month--over 20% of her monthly income. 
Medicare and her supplemental insurance do not cover prescription 
drugs.
  Mr. Speaker, I recently received this letter from a computer-savvy 
senior citizen who volunteers at a hospital I worked in before coming 
to Congress:
  ``Dear Congressman Ganske . . . after completing a University of Iowa 
study on Celebrex 200 mg. for arthritis, I got a prescription from my 
MD and picked it up at the hospital pharmacy. My cost was $2.43 per 
pill with a volunteer discount!
  ``Later on the Internet I found the following:
  a. I can order [these drugs] through a Canadian pharmacy if I use a 
doctor certified in Canada or my doctor can order it ``on my behalf'' 
through his office for 96 cents per pill, plus shipping.
  b. I can order [these drugs] through Pharmaworld, in Geneva, 
Switzerland, after paying either of two American doctors $70 for a 
phone consultation, at a price of $1.05 per pill, plus handling and 
shipping.
  c. I can send $15 to a Texan and get a phone number at a Mexican 
pharmacy which will send it without a prescription . . . at a price of 
52 cents per pill.
  This constituent closes his letter to me by saying, ``I urge you, Dr. 
Ganske, to pursue the reform of medical costs and stop the outlandish 
plundering by pharmaceutical companies.''
  Well, Mr. Speaker, I want it to be very clear. I am in favor of 
prescription drugs being more affordable, not just for senior citizens, 
but for all Americans.
  Let's look at the facts of the problem and then discuss some 
solutions.
  There is no question that prices for drugs are rising rapidly. A 
recent report found that the prices of the 50 top-selling drugs for 
seniors rose much faster than inflation. 33 of the 50 drugs rose in 
price at least one and one-half times inflation. Half of the drugs rose 
at least twice as fast as inflation. Sixteen drugs rose at least three 
times inflation and twenty percent rose at least four times the rate of 
inflation.
  The prices of some drugs are rising even faster. Furosemide, a 
generic diuretic, rose 50% in 1999. Klor-con 10, a brand name drug, 
rose 43.8%.
  This was not a one-year phenomenon. 39 of these fifty drugs have been 
on the market for at least 6 years. The prices of three-fourths of this 
group rose at least 1.5 times inflation, over half rose at twice 
inflation, more than 25% increased at three times inflation and six 
drugs at over five times inflation. Lorazepam rose 27 times inflation 
and furosemide 14 times inflation!
  Prilosec is one of the two top-selling drugs prescribed for seniors. 
The annual cost for this 20-milligram gastrointestinal drug, unless you 
have some type of drug discount, is $1,455. For a widow at 150% of 
poverty ($12,525 income per year), the annual cost of Prilosec alone 
will consume more than one in nine dollars of the senior's total 
budget. (chart)
  My friend from Des Moines, the Iowa Lutheran Hospital volunteer 
senior citizen, as do the Weinman's from Indianola from their shopping 
trips in Mexico for prescription drugs, knows that drug prices are much 
higher in the United States than they are in other countries.
  A story from USA Today comparing U.S. drug prices to prices in 
Canada, Great Britain, and Australia for the test best-selling drugs, 
verifies that drug prices are higher here in the U.S. than overseas. 
For example, Prilosec is two to two-and-one-half times as expensive in 
the U.S.; Prozac was two to two-and-three-quarters as expensive; 
Lipitor was 50 to 92% more expensive; and Prevacid was as much as four 
times more expensive. Only one drug, Epogen, was cheaper in the U.S. 
than in other countries.
  High drug prices have been a problem for the past decade. Two GAO 
studies, from 1992 and 1994, showed the same results. Comparing prices 
for 121 drugs sold in the U.S. and Canada, prices for 98 of the drugs 
were higher in the U.S. Comparing 77 drugs sold in the U.S. and the 
United Kingdom, 86% of the drugs were priced higher in the U.S. and 
three out of five were more than twice as high.
  The drug companies claim that drug prices are so high because of 
research and development costs. And, I do want to say that there is 
great need for research. For example, around the world we are seeing an 
explosion of antibiotic resistant bacteria, like tuberculosis, for 
which we will need research and development for new drugs. A new report 
by the World Health Organization outlines this concern about infectious 
diseases.
  However, data from PhRMA, the pharmaceutical trade organization, that 
I saw presented in Chicago about one month ago, showed little increase 
in R&D, especially in comparison to significant increases in 
advertising and marketing by the pharmaceutical companies. Since the 
1997 FDA reform bill, advertising by drug companies has gotten so 
ubiquitous that Healthline recently reported that consumers watch, on 
average, nine prescription drug commercials a day!
  Look at this chart which shows 1998 figures for the big drug 
companies. In every case, marketing, advertising, sales, and 
administrative costs exceed research and development costs. In 1999, 
four of the five companies with the highest revenues spent at least 
twice as much on marketing, advertising and administration as they 
spent on research and development. Only one of the top ten drug 
companies spent more on R&D than on marketing, advertising, and 
administration. Administration costs haven't increased much--the real 
increase has been in advertising.
  For the manufacturers of the top 50 drugs sold to seniors, profit 
margins are more than triple the profit rates of other Fortune 500 
companies. The drug manufacturers have a profit rate of 18% compared to 
approximately 5% for other Fortune 500 companies. Furthermore, as 
recently cited in the New York Times, of the 14 most medically 
significant drugs developed in the past 25 years, 11 had significant 
government financed research. For example, Taxol is a drug developed 
from government funded research which earns its manufacturer, Bristol-
Myers-Squib, millions of dollars each year.
  As I said at the start of this Special Orders speech, I think the 
high cost of drugs is a problem for all Americans, not just the 
elderly, but many non-seniors are in employer plans and get a 
prescription drug discount. In addition, there is no doubt that the 
older one is, the more likely the need for prescription drugs. So let 
us look at what type of drug coverage is available to senior citizens 
today.
  Medicare pays for drugs that are part of treatment when the senior 
citizen is a patient in a hospital or skilled nursing facility. 
Medicare pays doctors for drugs that cannot be ``self-administered'' by 
patients, i.e. drugs that require intramuscular or intravenous 
administration. Medicare also pays for a few other outpatient drugs 
such as drugs to prevent rejection of organ transplants, medicine to 
prevent anemia in dialysis patients, and oral anti-cancer drugs. The 
program also covers pneumonia, hepatitis, and influenza vaccines. The 
beneficiary is responsible for 20% of the coinsurance for these drugs.
  About 90% of Medicare beneficiaries have some form of private or 
public coverage to supplement Medicare, but many with supplementary 
coverage have either limited or no protection against prescription drug 
costs, those drugs one buys in a pharmacy with a prescription from your 
doctor.
  Since the early 1980's Medicare beneficiaries in some parts of the 
country have been able to enroll in HMOs which provide prescription 
drug benefits. Medicare pays the HMOs a monthly dollar amount for each 
enrollee. Some areas like Iowa have had such low payment rates that no 
HMOs with drug coverage are available. This is typically a rural 
problem, but some metro areas also have inequitably low reimbursements.
  Parenthetically, I have led the fight to improve these unfair payment 
rates which allow seniors living in Miami, for example, to get drug 
benefits that seniors living anywhere in

[[Page 11832]]

Iowa or Nebraska or Minnesota don't. But I'll return to this issue 
later.
  Employers may offer their retirees health benefits that include 
prescription drugs but fewer are doing so. From 1993-1997, prescription 
drug coverage of Medicare-eligible retirees dropped from 63% to 48%.
  Beneficiaries with Medigap insurance typically have coverage for 
Medicare's deductibles and coinsurance, but only three of the ten 
standard plans offer drug coverage. All three impose a $250 deductible. 
Plans H and I cover 50% of the charges up to a maximum benefit of 
$1,250. Plan J covers 50% of the charges up to a maximum benefit of 
3,000. The premiums for these plans are significantly higher than the 
other seven Medigap plans because of the cost of the drug benefit.
  This chart shows the difference in annual cost to a 65-year-old woman 
for a Medigap policy with or without a drug benefit. For a Medigap 
policy of moderate coverage, she pays $1,320 without a drug benefit and 
$1,917 for a policy with a drug benefit. For extensive coverage, she 
would pay $1,524 for insurance without drugs and $3,252 for insurance 
with drug coverage.
  Why is there such a price gap? Because the drugs benefit is 
voluntary. Only those persons who expect to actually use a significant 
quantity of prescriptions purchase a Medigap policy with drug coverage. 
But, because only those with high costs choose that option, the 
premiums must be high to cover the costs of a high average expenditure 
for drugs. What is the lesson we can learn from the current program? 
Adverse selection tends to drive up the per capita cost of coverage--
unless the Federal treasury simply subsidizes lower premiums.
  The very low-income elderly and disabled Medicare beneficiaries are 
also eligible for payments of their deductibles and coinsurance by 
their state's Medicaid program. For these ``dual eligibles,'' the most 
important service paid for entirely by Medicaid is frequently the 
prescription drug plans offered by all states under their Medicaid 
plans.
  There are several groups of Medicare beneficiaries who have more 
limited Medicaid protection:
  Qualified Medicare Beneficiaries (QMBs) have incomes below the 
poverty line ($8,240 single, $11,060 couple) and assets below $4,000 
single/$6,000 couple. Medicaid pays their deductible and premiums.
  Specified Low-Income Medicare Beneficiaries (SLIMBs) have incomes up 
to 120% of the poverty line and Medicaid pays their Medicare Part B 
premium.
  Qualifying Individuals (QI-1) have income between 120% and 135% of 
poverty. Medicaid pays only their Part B premium, but not deductibles.
  Qualifying Individuals (QI-2) have income between 135% of 174% of 
poverty. Medicaid pays part of the Part B premiums.
  QMBs and SLIMBs are not entitled to Medicaid's prescription drug 
benefit unless they are also eligible for full Medicaid coverage under 
their state's Medicaid program. QI-1s and QI-2s are never entitled to 
Medicaid drug coverage.
  A 1999 HCFA report showed that, despite a variety of potential 
sources of coverage for prescription drug costs, beneficiaries still 
pay a significant proportion of drug costs out-of-pocket and about one-
third of Medicare beneficiaries had no coverage at all.
  It is also important to look at the distribution of Medicare 
enrollees by total annual prescription drug expenditure. This 
information will determine, based on the cost of the benefit, how many 
Medicare beneficiaries will consider the premium cost of a 
``voluntary'' drug benefit insurance policy ``worth it.''
  This chart from the Medicare Payment Advisory Commission (MedPAC) 
report to Congress shows that in 1999, 14% of those in Medicare had no 
drug expenditures and 36% had expenditures of $1 to $500. 19% had drug 
expenditures from $500 to $1,000, 12% from $1,000 to $1,500, 14% from 
$1,500 to $3,000 and 6% over $3,000.
  Please note that 50% of those in Medicare had drug expenditures of 
less than $500 per year, and 69% had drug expenses less than $1,000 per 
year.
  As we look at plans to change Medicare to better cover the cost of 
prescription drugs, we face some difficult choices for which there is 
currently no public consensus or, for that matter, among policy makers.
  There are many questions to answer. Here are a few: First, should 
coverage be extended to the entire Medicare population or targeted 
toward the elderly widow who isn't so poor that she's in Medicaid but 
is having to choose between her rent, food, and drugs? Should the 
benefit be comprehensive or catastrophic? Should the drug benefit be 
defined? What is the right level of beneficiary cost-sharing? Should 
the subsidies be given to the beneficiaries or directly to the 
insurers? How much money can the Federal Treasury devote to this 
subsidy? Can we really predict the future cost of the benefit?
  The desire to add a prescription drug benefit is not new. It was 
discussed at the inception of Medicare back in 1965 and many times 
since. The reason why adding a prescription benefit is such a ``hot'' 
issue is that here has been an explosion in new drugs available, huge 
increases in demand for these drugs, and significant increase in the 
cost of these drugs in just the past few years. Many of these drugs are 
life-preserving as with those that my own father takes.
  Before I discuss the Democratic and Republican proposals, I think it 
is instructive to look at what happened the last time Congress tried to 
do something about prescription drugs in Medicare. This is because the 
outcome of reform in 1988 has seared itself into the minds of the 
policy makers who were in Congress then and are committee chairs now. 
The Medicare Catastrophic Coverage Act of 1988 (MCCA) would have phased 
in catastrophic prescription drug coverage as part of a larger package 
of benefit improvements.
  Under MCCA, catastrophic prescription drug coverage would have been 
available in 1991 for all outpatient drugs, subject to a $600 
deductible and 50% coinsurance. The benefit was to be financed through 
a mandatory combination of an increase in the Part B premium and a 
portion of the new supplemental premium which was to be imposed on 
higher income enrollees. It is also important to note that CBO 
estimated the cost at $5.7 billion. Only six months later the cost 
estimates had more than doubled because both the average number of 
prescriptions used by enrollees and the average price had risen more 
than previously estimated.
  The plan passed the House by a margin of 328 to 72 and President 
Reagan enthusiastically signed into law this largest expansion of 
Medicare in history.
  The only problem was that once seniors learned their premiums were 
going up, they hated the bill! They even started demonstrating against 
it. Scenes of Gray Panthers hurtling themselves onto Ways and Means 
Chairman Dan Rostenkowski's car were broadcast to the nation. Angry 
phone calls from senior citizens flooded the Capitol switchboards.
  So, the very next year the House voted 360 to 66 to repeal the 
Medical Catastrophic Coverage Act of 1988 and President Bush then 
signed the largest cut in Medicare benefits in history.
  This experience left scars on the political process that are evident 
in today's Democratic and Republican proposals. What was the lesson? 
Well, Dan Rostenkowski wrote an article for the Wall Street Journal on 
January 17 this year that should be required reading for every member 
of this Congress. His most important point was this:
  The 1988 plan was financed by a premium increase for all Medicare 
beneficiaries. Rosty says in this op-ed piece, ``We adopted a principle 
universally accepted in the private insurance industry. People pay 
premiums today for benefits they may receive tomorrow.'' Apparently the 
voters didn't agree with those principles. By the way, the title of his 
op-ed piece is Seniors Won't Swallow Medicare Drug Benefits. Former 
Ways and Means Chairman Rostenkowski doesn't think seniors have changed 
since 1988.
  Apparently, the drafters of the Democratic and Republican bills agree 
with him because the key point of the spokesman for each of these bills 
makes to seniors is that their respective plans are voluntary.
  There are shortcomings in both plans but before I briefly describe 
each plan, let me acknowledge the hard work that some members have put 
into these bills. The House Republican plan is estimated to cost 
seniors $35 to $40 a month in 2003 with possible projected rises of 15% 
a year. Premiums could vary among plans. There would be no defined 
benefit plan and insurers could offer alternatives of ``equivalent 
value.'' There would be a $250 deductible and the plan would then pay 
half of the next $2,100 in drug costs. After that expense, patients are 
on their own until out-of-pocket expenses reach $6,000 a year, when the 
government pays the rest.
  The GOP plan would pay subsidies to insurance companies for people 
with high drug costs. If subscribers didn't have a choice of at least 
two private drug plans then a ``government'' plan would be available. A 
new bureaucracy called the Medical Benefits Administration would 
oversee these private drug insurance plans.
  Under the Republican plan, the government would pay for all the 
premium and nearly all the beneficiary's share of covered drug costs 
for people with incomes under 135%. For people with incomes from 135% 
to 150% of the

[[Page 11833]]

poverty level, premium support would be phased out. It is assumed that 
drug insurers would use generic drugs to control costs.
  The cost of the GOP plan is estimated to be $37.5 billion over five 
years and about $150 billion over ten years, though the Congressional 
Budget Office is having a hard time predicting costs because there is 
no standard benefit definition.
  The premiums under the Clinton Plan were estimated to cost those 
seniors who sign up, remember this is a voluntary plan like the GOP 
plan, $24 a month in 2003, rising to $51 a month in 2010. However, the 
Clinton Administration now talks about adding $35 billion in expenses 
for a catastrophic component like the GOP plan, which would make 
premiums higher.
  Under the Clinton Plan, Medicare would pay half of the cost of each 
prescription and there would be no deductible. Maximum federal payment 
would be $1,000 (for $2,000 worth of drugs) in 2003, rising to $2,500 
(for $5,000 worth of drugs) in 2009.
  The government would assume the financial risk for prescription drug 
insurance, but it would hire private companies to administer benefits 
and negotiate discounts from drug manufacturers. It would aid the poor 
similarly to the GOP House bill and would try to control costs by the 
use of pharmaceutical benefit managers (PBMs). (As pharmaceutical 
companies buy up these PBMs one wonders about conflicts of interest and 
whether any discounts will really occur.)
  Here is a crucial point. In order to cushion the costs of the sicker 
with premiums from the healthier, both plans calculate premiums 
premised on about 80% participation of all those in Medicare.
  The partisan attacks on the Clinton plan and on the GOP plan are 
already starting. Democrats say, ``Republicans are putting seniors in 
HMOs. HMOs provide terrible care and this isn't fair to seniors.'' 
Republicans say, ``The Democratic plan is a one-size-fits all plan that 
is too restrictive and puts politicians and Washington bureaucrats in 
control.''
  I could criticize each in depth, but don't have that much time 
tonight. Suffice it is to say that the details of each of these plans 
is very important as to how they would work, for that matter, if they 
would actually work. The GOP bill's legislative language just became 
available Thursday and so I have been reading this 150-page document 
over the past few days.
  I believe that if you let plans design all sorts of benefit packages, 
as does the GOP plan, it becomes very difficult for seniors to be able 
to compare apples to apples, to compare equivalency of plans in terms 
of value. I also think that plans can tailor benefits to cherry-pick 
healthier, less expensive seniors and game the system. Representatives 
of the insurance industry seemed to share that opinion in a hearing 
before my committee. In my opinion, a defined benefit package would be 
better.
  I have concerns about the financial incentives that the House 
Republican bill would offer insurers to enter markets in which no drug 
plans were available. Would these incentives encourage insurers to hold 
out for more money?
  I have doubts that the private insurance industry will ever offer 
drug-only plans. In testimony before my committee, Chip Kahn, President 
of the Health Insurance Association of America, testified that drug-
only plans will not work.
  In testimony before the Commerce Committee on June 13, 2000, Mr. Kahn 
said, ``Private drug-only coverage would have to clear insurmountable 
financial regulatory, and administrative hurdles simply to get to 
market. Assuming that it did, the pressures of ever-increasing drug 
costs, the predictability of drug expenses, and the likelihood that the 
people most likely to purchase this coverage will be the people 
anticipating the highest drug claims would make drug-only coverage 
virtually impossible for insurers to offer a plan to seniors at an 
affordable premium.''
  Mr. Kahn predicted that few, if any, insurers would offer this type 
of product.
  I could similarly criticize several particulars of the Democratic 
bill but, in the spirit of bipartisanship, I want to expand on what I 
think is the fundamental flaw of both plans and that is what is called 
``adverse risk selection.''
  If the Clinton Plan has comparable costs for a stop-loss provision of 
catastrophic expenses, the premium costs will be comparable to the GOP 
plan. Under these bills, a person who signs up for drug insurance will 
pay about $40 per month, or roughly $500 per year. After first $250 
out-of-pocket drug costs (deductible), the enrollee would need to have 
twice $500 in drug costs ($1,000) in order to be getting a benefit that 
is worth more than the cost of the premiums for the year. Put another 
way, the enrollee must have $250 plus $1,000, or $1,250, in annual drug 
costs in order to get half of the rest of his drug expenses, up to a 
maximum of $2,100, paid for by the plan.
  Who will then sign up for these plans? Those seniors with over $1,250 
in annual drug expenses. Those with less would end up paying more in 
premiums than they are currently paying. Remember the MedPAC data from 
last year that I showed you earlier in this speech? 69% of seniors 
spend less than $1,250 per year on drug costs.
  Remember also that the premiums are premised on an 80% participation 
rate. I think it highly doubtful that anywhere near 80% of seniors will 
sign up for either of these plans. And if only those with high drug 
costs sign up for these plans, then we know what will happen by looking 
at the current Medigap policies. Only three plans have any prescription 
drug coverage, and they are expensive because of unfavorable selection. 
Only 7.4% of beneficiaries enrolled in standard Medigap plans were in 
these drug coverage plans (plans H, I, and J).
  One way to avoid adverse risk selection in a voluntary benefit system 
would be to offer the drug benefit for one time only when a beneficiary 
enrolls in Medicare. Even with this restriction, there would still be 
some adverse selection in that some seniors already have high drug 
costs at age 65 and would be more likely to join such a program. This 
provision is not in either plan.
  The authors of the GOP bill recognize the adverse risk selection 
problem. They try to address it by saying that if a beneficiary doesn't 
sign up for the drug insurance program on initial registration for 
Medicare, then, thereafter when he or she wants to sign up for the drug 
insurance program, the premium would be ``experienced based'' and 
potentially more costly. The theory is that the threat of higher 
premiums would act as an inducement for seniors with no or low drug 
costs to sign up initially.
  If everyone had already acted with such prudence, we wouldn't be 
dealing with this bill. Unfortunately, the low participation in the 
current voluntary Medigap programs indicates that unless seniors must 
sign up initially, a large number won't. They'll wait until they need 
drugs, and then complain vociferously to Congress about their high 
premiums and we'll be back where we started. Since other seniors will 
have a prescription drug benefit, there will be enormous pressure on 
legislators to further subsidize the seniors who are tardy in signing 
up for a drug program. This, of course, will significantly increase the 
cost of the program.
  Another way to control adverse risk selection is to try to devise a 
risk-adjustment system. These adjustment systems are very hard to 
design and implement. It remains to be seen whether risk-adjustment 
systems already on the books for other parts of Medicare are really 
going to work.
  A similar benefit package helps control adverse risk selection. 
Consumers are able to select plans based on price and quality, rather 
than benefits. If plans are allowed wide variation in benefits, some 
plans may be more likely to attract low-cost beneficiaries. The GOP 
plan has some weak community rating and guaranteed issue provisions in 
acknowledgment of this problem, but these provisions depend on 
oversight by the new Medical Benefits Administration and the Inspector 
General already tells us how hard it is to oversee adverse risk 
selection in Medicare HMOs.
  One sure way to avoid adverse risk selection would be to mandate 
enrollment. This of course was the approach of the Medicare 
Catastrophic Coverage Act of 1988 and we saw what happened to that law. 
To say that mandatory enrollment has little appeal to policy makers in 
an election year is an understatement.
  Finally, we could avoid adverse selection for a ``voluntary'' benefit 
like prescription drug coverage if we subsidize the benefit so much 
that seniors simply share very little of the cost. The benefit then 
becomes cost-effective for the vast majority to participate, regardless 
of health, because it is such a good deal.
  But a $400 or $500 billion subsidy reminds me again of the article by 
Mr. Rostenkowski. As Rosty says in his op-ed piece. ``The problem was, 
and still is, a lack of money.'' Yes, we have a projected surplus, but 
the ten-year costs of more highly subsidized drug coverage could, in my 
opinion, easily double or even triple the projected costs of both 
proposals.
  There are several reasons why, even in this time of plenty, this is 
very difficult to do. First, we have made a bipartisan commitment not 
to use Social Security surplus funds. Second, there are people who have 
no health insurance at all, much less prescription drug coverage. 
Should we expand coverage for some while the totally unprotected group 
grows? Third, Medicare is closer to insolvency than it was back in 
1988. Shouldn't our first priority be to protect the current Medicare 
program?
  Given these constraints, what can we do to help seniors and others 
with high drug costs?

[[Page 11834]]

Here's a 10-step modest proposal for helping seniors and others with 
their drug costs:
  1.  Allow Qualified Medicare Beneficiaries (QMBs), Specified Low 
Income Medicare Beneficiaries (SLIMBs) and Qualifying Individual (QI-
1&2) with an additional phase-out group to 175% of poverty to qualify 
for state Medicaid drug programs. States could continue to use their 
current administrative structures and implementation could be done 
quickly. About a third of Medicare beneficiaries would be eligible, 
especially those most in need, and the drug benefit would encourage 
those who qualify to sign up. A key feature of this program would be 
that the State programs are entitled to the best price that the 
manufacturer offers to any purchaser in the United States. Judging from 
estimates of the Bipartisan Medicare Commission, this expansion of 
benefits would probably cost about $60-80 billion over ten years.
  2. Congress should fix the funding formula (the Annual Adjusted Per 
Capita Cost--AAPCC) that puts rural states and certain low-
reimbursement urban areas at such a disadvantage in attracting 
Medicare-Plus plans that offer drug coverage. The GOP plan increases 
the floor to $450, but this increase is grossly inadequate. Testimony 
from the executive director of the American Association of Health Plans 
indicates that Medicare HMOs are leaving markets where the payment is 
already $550. We should raise the floor to a minimum of $600 per month 
per beneficiary, and not do an across-the-board increase in payment 
which would disproportionately increase reimbursement to areas with 
AAPCCs already over $780.
  3. In response to my constituents who want to purchase their drugs in 
Canada, Mexico, or Europe, we should stop the Food and Drug 
Administration from intimidating seniors and others with threats of 
confiscation of their purchases. The FDA has sent notices to people 
that importing drugs is against the law. The FDA should not send a 
warning notice regarding the importation of a drug without providing to 
the person involved a statement of the underlying reasons for the 
notice. Mr. Gutknecht, my colleague from Minnesota, has introduced 
legislation called the ``Drug Import Fairness Act of 1999'', H.R. 3240, 
and Congress should pass this common sense provision.
  4. Congress should at least fully debate Congressman Tom Allen's 
bill, the Prescription Drug Fairness for Seniors Act, H.R. 664. The 
idea is simple. It would allow pharmacists to buy drugs for Medicare 
beneficiaries at the best prices available to the federal government, 
typically the Veterans Administration price or the Medicaid price. It 
creates no new bureaucracy. There is no significant cost to the 
government. It gives Medicare beneficiaries negotiated lower prices, 
just as customers of Aetna, Cigna and other private plans receive the 
benefit of negotiated lower prices.
  5. Congress should enact full tax deductibility retroactive to 
January 1, 2000, for the self-insured. It isn't just seniors that have 
medical expenses. 40 million Americans have no insurance at all, much 
less prescription drug coverage. We should devote at least $40 billion 
over ten years to this problem.
  6. There are 11 million children without any health insurance and, of 
course, no prescription drug coverage. Roughly 7 million of these kids 
already qualify for Medicaid or the State Child Health Insurance 
Program which do provide prescription drug services. These children 
should be enrolled. This requires a commitment on the part of the 
federal government to find these individuals and get them signed up. We 
need to streamline the system to help these states.
  7. Many pharmaceutical companies do have programs where they provide 
drugs to low income individuals free of charge. These company programs 
are to be commended but most people who meet the company requirements 
don't know about these programs. Both physicians and patients need to 
be better educated to take advantage of free or discontinued drugs.
  8. Currently 16 states have pharmaceutical assistance programs 
targeted to Medicare beneficiaries. Some of these programs could serve 
as models for state grant program options Congressmen Mike Bilirakis  
and Collin Peterson have introduced H.R. 2925, the Medicare Beneficiary 
Prescription Drug Assistance and Stop-loss Protection Act of 1999 which 
encourages states to expand their drug assistance programs with federal 
matching funds and assistance to beneficiaries up to 200% of poverty. I 
think QMB, SLMB solution would work quicker and more certainly, but 
this option deserves a more complete debate than it has received.
  9. I believe that Congress should revise the FDA Reform Act of 1997 
and restrict direct marketing to consumers by the pharmaceutical 
companies. There is no question that seniors are being bombarded with 
ads on the latest, greatest new drug with very little data on 
contraindications, alternatives, and potential complications, much less 
cost. At a minimum, drug companies should be required to fully discuss 
their major potential complications of these drugs in their radio and 
T.V. advertising.
  10. Finally, I think Congress could actually get signed into law a 
combination of the above in a bipartisan fashion. Yes, this approach is 
more limited than either the Clinton plan or the House GOP plan. 
However, a more comprehensive drug plan should, in my opinion, be a 
part of over-all Medicare reform where all the pieces fit together so 
as to do no harm to one part while benefiting another. It won't do Iowa 
seniors much good to have an unlimited drug benefit if they don't have 
a local hospital to go to.
  This prescription drug issue is complicated. As I said at the 
beginning of this speech, there is little consensus yet on some of the 
most important provisions. Furthermore, a reform like this truly should 
be a bipartisan effort, with more than just a few members of the other 
party signed on to a bill.
  For a long time, in its wisdom, Congress has gone through ``regular 
order'' in legislating. This means a bill with all its details dropped 
in the bin and made public. Hearings on the bill's particulars, 
comparisons of language and the implications of legislative language. 
Subcommittee mark-ups with amendments and debate. Full committee mark-
ups with amendments and debate. All committees of jurisdiction weighing 
in and marking up the bill. Rules that allow full debate on the floor.
  ``Regular order'' isn't just for the members of the committees of 
jurisdiction, it is really for the other members so that they can watch 
and learn and make sure that an issue is fully vetted before they vote 
on it.
  I am sorry to say that on this very important issue, ``regular 
order'' is not being followed and for political reasons a bill is being 
rushed to the floor. I would advise my colleagues to be very careful. I 
am sure that television archives preserve the image of unhappy Chicago 
senior citizens surrounding Dan Rostenkowski's car when he visited a 
decade ago to explain why he thought the Medicare reform bill then was 
a good deal. That tape is a warning to any politician who deviates from 
``regular order'' and doesn't pay attention to the lessons of the past.
  As for me, I will find it very difficult to vote for a bill of this 
magnitude that doesn't go through regular order. That means a chance to 
improve it in the Commerce Committee. Regardless of what happens in the 
next week, I remain committed to seeing a bill signed into law. Let's 
just make sure that it is a good one.

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