Drugs and Money: Coverage Crisis Deepens
By: Source: AARP Bulletin Today Date Posted: 2003-06-23 15:24:03
The prescription drug crisis in America shows every sign of deepening this year as costs rise and coverage shrinks—not only for most Medicare beneficiaries enrolled in Medicare HMOs but also for many employees and retirees covered by work-based health plans.
In this gloomy climate, AARP is intensifying its campaign for a Medicare drug benefit, calling on President Bush to revisit the issue in his State of the Union address on Jan. 29 and to include adequate funding for a benefit in his new budget.
Tax cuts, the vanished surplus and the war on terrorism have all slashed the money available for a drug benefit.
Just a year after Bush came to office promising to make prescription drugs more affordable for older Americans, the issue has taken on a new urgency.
Tax cuts, the vanished surplus and the war on terrorism have all slashed the money available for a drug benefit. At the same time, the problems are getting worse in many segments of society.
As of Jan. 1, when health plans changed their rates, millions of enrollees are paying a lot more out of pocket for health care.
AARP's 'Rx in Medicare Now' Campaign
AARP frequently asks its members what they want from a Medicare prescription drug benefit. This is a consensus of their answers:- • Every beneficiary must have the option of affordable drug coverage under Medicare.
- • Those with the lowest incomes or highest need for medications should get help right away.
- • Those who like their present coverage must be able to keep it.
- • Congress must act urgently on this issue—doing what it can in 2002 and building up to an affordable benefit as soon as possible.
See www.aarp.org/prescriptiondrugs for more information.
Sticker shock has hit not only Medicare beneficiaries but also government workers, private-sector employees and companies whose bottom line is being radically affected by the cost of providing health benefits.
"Employers can't continue to absorb record health care premium increases and remain competitive amid the current economic slowdown," said Kate Sullivan, health policy director of the U.S. Chamber of Commerce, last September.
Increasingly, it isn't only consumer groups like AARP that would welcome a Medicare Rx benefit. So too would some of the nation's employers who see it as one way of relieving the pressure of escalating health care inflation.
As vice president of AON Consulting in Wellesley, Mass., Randy Vogenburg advises companies on their prescription drug plans. "What I'm hearing from employers," he says, "is that Medicare drug coverage would certainly help them avoid the difficult decisions they're having to make right now on whether to reduce or eliminate benefits for their own retirees."
Some companies' drug costs remain huge even after cost-saving measures. In January 1993, for example, General Motors ceased providing direct retiree health benefits for anyone who joined the company after that time. Yet GM still pays out $4 billion a year in health coverage for 500,000 current employees and 700,000 retirees who were working for it before 1993. In 2001—largely because more retirees than active workers are on its health plan—GM spent more than $1 billion of that total on prescription drugs.
"Health care is one of the highest costs in car making," says Robert Minton, GM's health care spokesman.
To sharpen the point, he adds that if any company had $4 billion a year in revenue (instead of health care expenses) it would automatically gain a place on the Fortune 500 list of top-earning companies. "That gives a sense of the magnitude of it," he says.
"This whole health issue—primarily prescription drugs because they contribute to cost increases more than any single thing—is becoming a competitive issue for manufacturers here in the United States," he adds. "It's really affecting our ability to compete on a global basis."
EMPLOYER COVERAGE DIMINISHES
About one-third of Medicare beneficiaries rely on employer-sponsored health plans for drugs.
At present, many of them say that no Medicare proposal yet advanced offers as good a deal as the plan they already have. And they often fear that they may lose retiree Rx benefits if Medicare starts offering one.
But employers' coverage is steadily declining. Only 34 percent of U.S. companies with 200 or more workers offered retiree health benefits in 2001, down from 66 percent in 1988, according to the latest bellwether survey of more than 2,700 companies conducted by the Kaiser Family Foundation research group.
Among companies still providing medical coverage for retirees, prescription drugs have had a "disproportionate impact," often accounting for half or more of the plans' cost, says the Segal Company in its recent survey of 150 such plans nationwide.
About one-third of Medicare beneficiaries rely on employer-sponsored health plans for drugs.
PREMIUMS UP, BENEFITS DOWN?
The result, it predicted, "is likely to be a significant erosion in privately sponsored retiree health coverage, either through retiree health plan terminations or major changes to plan offerings."
This shrinkage will affect future retirees more than present ones. But the aftershocks of Sept. 11 and the slipping of the economy into recession add to everyone's uncertainty. The news of Polaroid's filing for bankruptcy last October—and immediately cutting off health insurance to its 6,000 retirees—sent more than a few nervous tremors through the retired population.
As health care inflation continues its upward spiral—with prescription drug costs alone expected to rise between 11 and 18 percent this year according to different estimates— something has had to give.
COST SHIFTING ON THE RISE
The most common response of health plans is to raise premiums and/or reduce benefits—in other words, transfer more of the burden to the consumer, a practice known as cost shifting.
Premiums are up across the board, in both the private and public sectors. The Federal Employees Health Benefits Program, which covers some 9 million federal workers, retirees and dependents and is often seen as a barometer of health cost trends, has increased premiums by an average 13.3 percent this year. The new rates are almost 50 percent higher than five years ago.
Among Medicare HMOs, the average monthly premium rose even more steeply—by 50 percent—from $22 last year to $33 in 2002, according to Medicare statistics.
The number of HMOs offering zero premiums—which first attracted many Medicare beneficiaries to them only a few years ago—is shrinking rapidly, whereas some premiums have shot up to as high as $90 and $150 a month.
In trying to cut their prescription drug costs, both private-and public-sector plans have resorted to a number of strategies.
Over the past few years, the most common has been a switch to the "three-tier" payment system, where enrollees are charged different copayments for different categories of drugs. A typical example: $5 to $10 for generics, $15 for a "preferred" brand name (the brand for which the plan can negotiate the best discount) and $25 for other brand names. Some plans penalize brand choice more heavily, charging from $40 to $75 in copays for a 30-day supply.
Another cost shift requires enrollees to pay a percentage of the cost of the drug instead of a flat copay. Coinsurance of 50 percent or higher is not uncommon. Most plans now offer price incentives to persuade people to choose generics rather than more expensive brand name drugs.
General Motors retirees, for example, can obtain generics for a flat $5 copay. Moreover the company has embarked on an intensive education campaign to promote the use of generics, at least in part to counteract the impact of the drug manufacturers' heavy advertising of brand names. "For our retirees on a fixed income," says GM's director of pharmacy services, Cynthia Kirman, this policy "can provide more value and maintain quality."
It also saves the company money. In the case of five drugs that have recently been granted patent extensions, GM could have saved "close to $200 million over three years if they had already become available as generics," Kirman says.
With only about half of current drugs available in generic form, the trend toward more expensive copays for brand names pushes up the out-of-pocket costs of many beneficiaries.
Even more restrictive, for some, is the emergence in 2002 of many more plans covering only generic drugs.
More than 1.2 million Medicare beneficiaries—three times as many as last year—now have this limited coverage, though some plans say they will consider covering brand names in cases of "medical necessity."
POLITICAL PROSPECTS
Such strategies can only work for so long, analysts say. But the prospect of Congress passing any Medicare drug benefit in the coming session—let alone one that would be more attractive to Medicare beneficiaries than past proposals—still appears remote.
"Until Congress makes some decisions it's hard for the private sector to make decisions," says AON's Vogenberg. "You're left with doing stopgap things. Post-September 11 there's been little leadership on this issue. But it's such an important issue, it needs to be addressed and resolved."
One event that will dominate political deliberations this year, and perhaps persuade lawmakers to focus again on urgent items on the domestic agenda, is the November mid-term election.
The Bush administration is already doing its utmost to bring out its promised Medicare drug discount card, which has been delayed by legal issues since September. Medicare chief Thomas Scully has said he hopes the card will be available by spring.
Both he and Health and Human Services Secretary Tommy Thompson insist that the card is no substitute for a prescription drug benefit.
Democrats, who dismiss the card as providing little real help to beneficiaries, nevertheless fear that Republican candidates will use it as evidence of "something done" on prescription drugs in the coming electoral battle for control of Congress.
"The political environment on Capitol Hill is going to be difficult this year," says John Rother, AARP's director of policy. "But Congress needs to address these needs without further delay. And that will require a very strong message from AARP members all over the country."
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