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Letter by AARP CEO Bill Novelli to Congress Concerning Prescription Drug Benefit in Medicare

Our research has consistently shown us that our members' enrollment decisions are influenced by the adequacy and complexity of the benefit. Chief among their concerns is the gap in coverage. Both the House and Senate made efforts to reduce the size of the "doughnut" from the original levels. However, AARP believes the remaining coverage gap is simply bad policy, is unnecessarily confusing, and will prove to be a disincentive to enrollment. The gap should be narrowed further and, ultimately, must be eliminated.

Maintaining Current Coverage

Employer plans are the single largest source of prescription drug coverage for Medicare beneficiaries, covering about 12 million people. This coverage is often more generous than that provided under either bill, which does not count such coverage when determining whether beneficiaries receive Medicare's out-of-pocket cost protection. We are alarmed by the estimate of the Congressional Budget Office (CBO) that over thirty percent of beneficiaries with coverage are estimated to lose employer coverage under these bills. Roughly four million Medicare beneficiaries would find -- in most cases -- that their drug coverage had been diminished rather than improved by the enactment of a Medicare prescription drug benefit. AARP strongly believes that a conference agreement should not result in millions of older and disabled Americans losing their employer-provided prescription drug coverage.

The final conference agreement should provide adequate incentives for employers to maintain their plans. At the very least, the conference report should minimize the bills' current incentives to drop comprehensive retiree health benefits. The conference agreement should also reject any change in the age discrimination law, such as is included in the Senate bill, that would permit more employers to drop benefits for the Medicare-eligible population. The final package should also provide protections for those retirees whose employer coverage ends because of the enactment of the drug bill.

AFFORDABILITY

Indexing

Both the House and Senate bills index benefit levels to the cost of prescription drugs. Drug costs have been rising at double-digit levels well above general inflation. Failure to contain the costs of drugs in the future means that the benefit will rapidly become more unaffordable over time. For example, the initial deductible amount in both bills is projected to rise to nearly $500 by 2013.

As you know, most older American's cost-of-living adjustments are linked to the general inflation rate and most employer provided pensions are not even adjusted for inflation. As a result, beneficiary income would fall swiftly behind a benefit indexed to drug costs.

We urge you to index the prescription drug benefit and other cost-sharing measures to a measure that is more closely related to the growth in beneficiaries' ability to pay to ensure that the coverage will remain affordable over time.

Cost Containment

The high price of prescription drugs continues to be a top concern of our members. In order to assure the continued affordability of the benefit for both beneficiaries and the Medicare program, greater efforts are needed to put downward pressure on health care costs, particularly the price of drugs.

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