More Medicare Drug Benefits Medicare Reform

1
More Medicare Drug Benefits  Medicare Reform?

• Tom Miller
• Cato Institute
• Hill Briefing

June 20, 2003
2
Overview

• Whats Wrong with the Senate Bill
• Politics Policy Lessons
• Alternatives to Digging A Deeper Hole

3
Whats Right about the Senate Medicare Bill ?
4
Whats Right, Maybe?

• Transitional Drug Coverage (2004-2006)
• Discount card
• Low-income assistance
• Indexing Drug Coverage Breakpoints
• Annual percentage increase in
• average per capita expenditures
• (for covered drugs)

5
Whats Wrong?

• Downpayment on an Expensive Entitlement, with a
  Balloon Note
• 400 Billion, 8 years
• One Mans Ceiling Is Another Mans Floor
• 36.6 Trillion
• Medicares Current Unfunded Liabilities,
  without a Drug Benefit

6
Whats Wrongwith Fiscal Meltdown?

• Higher Taxes, Slower Growth,
• Greater Intergenerational Burdens,
• Budget Crowd Out, Hollow Benefits,
• Price Controls on Drugs,
• Bigger Govt. in Health Sector
• Is the Pit Bottomless?
• Running out of time to roll back the
  demographic/health spending clock

7
Whats Wrong with Fiscal Meltdown?
8
Republicans Play Follow the Leader
"It's a very fluid situation on the substance
side of this, because no one understands what the
heck this bill says or will do." Sen. Judd
Gregg, R-N.H., said after Senate Republicans
received a detailed walk-through of the
legislation by Scully and Finance Committee staff
members. CQ Today June 17, 2003
9
Whats Wrong?

• Failure to Target Drug Benefits Where Needed
• Low Deductibles (275)
• Early-dollar Sweeteners (50 up to 4500)
• Shrinking Donut Hole of Zero Coverage
• 90 Catastrophic Coverage (starts at approx.
  5800
• in annual drug spending)
• Not much of something, but its for everyone
• Sticker shock and buyers remorse ahead?

10
Whats Wrongwith Senates Cost Sharing?

• Political incentives to fill the doughnut hole in
  future years, or force tough votes
• House bill imposes means testing at
• back end, instead of front end

11
Whats Wrongwith Crowd Out?

• Accelerate Erosion of Employer-Sponsored Drug
  Coverage
• CBO 37 percent would lose (switch) employer drug
  benefits
• Shifting costs to taxpayer
• ER retiree plans, if qualified as at least
  standard coverage, get subsidy 64.3 percent of
  national premium
• Beneficiaries who dont sign up initially get a
  later option as soon as non-Medicare coverage is
  scaled back to less than standard Part D
  coverage

12
Whats Wrong with Competition thats
Market-based In Name Only?

• Entry of new plans will be limited, particularly
  regional PPOs (lowest three bidders)
• Just the big boys can play, if theyre coaxed
  into doing so by sufficiently high payments and
  guarantees against losses
• One-way linkage of payments Traditional FFS
  eventually sets ceiling, but isnt affected by
  private plan pricing
• Risk Corridors for Risk-Averse Private Insurers
• In addition to, and after, risk adjustment
• Paid more to be less efficient
• Paid less to be more efficient

13
Whats Wrong with Competition thats
Market-based In Name Only?

• HHS Sec. can exclude plans believed to attract a
  healthier population
• Competitive Bidding should be used to determine
  subsidy levels, not who gets to offer a plan
• Market Reform cant afford another discrediting
  failure like MedicareChoice

14
Whats Wrong with Competition thats
Market-based In Name Only?

• In fact, if you think Medicare should be
  privatized, then you should oppose this bill.
  
• Sen. Ted Kennedy June 17, 2003
  Washington Post

15
Whats Wrong with Regulatory Overload
Micromanagement?

• Count the pages
• More silos, more separate payments,
• Data collection of drug prices
• A bigger version of unsustainable
• traditional Medicare means less innovation,
• lower quality, less flexibility
• Stepping down on the accelerator, eventually
  hitting the brakes, and the windshield
• Need a market-based transmission to change gears

16
Whats Wrong with Regulatory Overload
Micromanagement?

• Stand-Alone Private Drug Plans Rigged to Fallback
  to Single, Price-Taking Govt. Subcontractor
• Little risk bearing, discentives for most to play
• PBMs follow orders, survivors will capture admin
  servicing fees for profits, cost-plus thru-put
• Price controls on drugs more inevitable, much
  sooner

17
Politics Policy Lessons

• More Regulatory Complexity
• Inevitable when members dont trust market
  competition
• Cant escape politics with a defined benefit
• New regulatory boxes but
• Meet the New Boss, Same as the Old Boss

18
Politics Policy Lessons

• What Do Seniors Want?
• More, if the money is on the table
• But mostly, lower drug prices rather than complex
  insurance
• Drug assurance, not drug insurance
• Incumbents Can Run, but They Cant Hide (for
  long)

19
Alternatives Partial Fixes

• Stop at Discount Card Low-Income Cash
• Full Competitive Bidding (House) Is
• Last Battleground
• Needs to be Accelerated to 2007
• Part B FFS Premiums Float Anyway
• 100 Percent Rebates for Low Bids (Initially)
• Move the Doughnut to Front Edge

20
Alternatives Partial Fixes

• Reform Individual Medigap instead
• Across-the-board catastrophic drug, more cost
  sharing for other benefits
• Swap benefits instead of more third-party dollars
• Stall till they run out of imaginary money, or
  others actually read the bills
• Sticker shock overreaching conflicts trigger
  rollback in 2006
• End the pacifism in a one-sided intergenerational
  war
• The desired destination remains dc, but it stands
  for
• defined contribution