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

Congress and the Administration now have the opportunity to make one of the most important changes to Medicare since the enactment of the program - the addition of prescription drug coverage. We appreciate the efforts made thus far by both the House and Senate in passing their respective bills. Much has been accomplished. Both bills would provide a voluntary prescription drug benefit, with equal drug benefit subsidies, to all beneficiaries, and include assistance for low-income beneficiaries and those with high drug costs, as well as improvements in chronic care and prevention. But more still needs to be done before final legislation should be enacted.

As the conference commences, we believe there is an opportunity to produce a better bill than the ones passed by either house. To realize that potential, we urge you to correct serious problems that exist in both bills so that the final conference report is one that garners broad bipartisan support. We know that legislation of this scope can never fully satisfy every interested party. Nevertheless, there are a number of fundamental issues -- primarily the program structure and the adequacy and affordability of the benefit package -- that must be fixed before AARP and its members could support the final conference agreement.

STRUCTURE

Premium Support

The House bill establishes a new competitive structure that would require traditional Medicare to compete against private plans without the flexibility that private plans have to control costs. The Senate bill does not include this provision.

Starting in 2010, fee-for-service premiums would no longer be based solely on Part B spending. The Medicare Part B premium would be adjusted in a region based on the average of all Medicare spending -- fee-for-service and private plan bids -- in that region. If traditional Medicare costs more than the average of all plan costs, then the Part B premium will be increased to make up the difference.

This will lead to an inherently unfair system: Medicare+Choice experience strongly suggests that private plans will enroll younger and healthier beneficiaries, leaving older and sicker individuals to drive up traditional Medicare spending rates. In addition, private plans could undercut bids in some years, eating short-term losses in order to increase market share, and then raise rates in later years to make up the difference. The fee-for-service Medicare program cannot do that, as its costs are largely determined by statutory coverage policies, payment formulas, and utilization rates that are controlled by physicians.

The result would inevitably be higher costs for those who want to stay in the traditional program. In fact, the CMS actuary estimates that this could increase fee-for-service premiums by up to 25 percent.

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