Looking Back at Big Pharma's Big Win

Passage of the Medicare Modernization Act of 2003 (MMA) meant big money for drug manufacturers. In 2006, the law created much-needed coverage for prescription medications, known as Medicare Part D. At the same time, the legislation severely limited the federal government's ability to keep Medicare drug prices down.

The MMA altered drug coverage for people with both Medicare and Medicaid, moving these dually eligible beneficiaries into Medicare Part D plans. As a result, Medicare lost drug manufacturer discounts still made available to the federal government for Medicaid. The MMA also expressly prohibited the federal government from negotiating Medicare drug prices.

In short, the nation's largest purchaser of prescription drugs -- Medicare -- was hampered from seeking the best possible prices. This created a windfall for Big Pharma and higher drug prices for the Medicare program, for beneficiaries and for taxpayers. One analysis shows that the combined profits of the largest drug manufacturers skyrocketed in the first year of Medicare Part D -- increasing by 34 percent or $76.3 billion. All told, the 11 largest drug manufacturers have pocketed over $711 billion in profits over the last 10 years.

Restore a Common Sense Cost Saver, Don't Cost Shift

The 2013 Medicare Drug Savings Act introduced today, led by Senator Rockefeller and Congressman Waxman, offers a simple solution: restore Medicare drug rebates lost in 2006. In other words, allow the Medicare program to benefit from the same discounts Medicaid receives for people with low-incomes and eliminate the windfall pharmaceutical manufacturers received.

Restoration of the Medicare drug rebates is both a common sense cost saver and a better deal for American taxpayers, whose contributions to Medicare should be spent wisely and efficiently. The plan shifts no costs to people with Medicare and maintains access to needed medicines. In fact, restoration of the Medicare rebates may translate into lower Medicare Part D premiums for older adults and people with disabilities.

Any debate about Medicare spending must start with a close look at the economic reality for the older adults and people with disabilities who depend on Medicare's guaranteed health benefits. Nearly 25 million people -- half of the Medicare population--live on annual incomes of $22,500 or less. On average, people with Medicare spend 15 percent of their total income on health care costs, three times that of non-Medicare households.

Most people with Medicare cannot afford to pay more, like David who called our helpline to find help paying for his heart medications. David lives on $1,400 per month (about $17,000 per year) and the cost of his prescriptions soared to $500 per month after a recent heart attack. After paying for his rent, food, car insurance, gas and electric bills and health care premiums, David cannot afford these extra copayments. Because David's income disqualifies him for programs that would help to cover this expense, David must make a distressing choice -- to pay the electric bill or to pay for a needed prescription?

Like David, members of Congress face a choice: to eliminate excessive pharmaceutical spending or to force people with Medicare to pay more for health care? Unlike David's stark choice, this decision should be a simple one.

Yet, there is little consensus among lawmakers on what to do about Medicare. Some policymakers are unwilling to ask questions like these: What do people with Medicare already pay for health care? Can they afford these costs? How can we improve the health care system to make it more efficient? How can we ensure access to high quality care? Instead, many members of Congress remain solely interested in cutting Medicare spending regardless of the effect on the people Medicare was created to protect. As this discussion unfolds, Congress must remember three key Medicare facts:

1. Most people with Medicare cannot afford to pay more. Half of all Medicare beneficiaries -- nearly 25 million seniors and people with disabilities -- live on annual incomes of $22,000 or less and have less than $53,000 in personal savings. And people with Medicare already contribute a significant amount towards their health care costs. On average, Medicare households spend 15% of their total household income on health care costs, three times as much as non-Medicare households.

2. Medicare is not in crisis. Recent analysis shows that Medicare costs are slowing dramatically--far below that of private health care spending. According to Peter Orzag, former Director of the Office of Management and Budget, "...health care costs have decelerated over the past few years, and Medicare costs have decelerated more than other health costs." The U.S. Department of Health and Human Services confirms that slowed growth over the last three years is "unprecedented in the history of the Medicare program." As a result of this deceleration, the Congressional Budget Office reduced its ten-year estimates on expected Medicare spending by almost $140 billion.

3. Health care costs are the problem. Medicare is a solution. Steadily rising health care costs are the true threat to our nation's economic health--not Medicare. In fact, Medicare is a leader in cost control, surpassing private plans in containing health care costs. Over the next ten years, Medicare costs are expected to grow 3.1% per person, compared to 5% for private health plans. Medicare is also an innovator. Medicare is the incubator for delivery system reforms advanced by the Affordable Care Act (ACA) to promote high value health care, meaning better quality care at a lower price. Lessons learned through these Medicare demonstrations will inform the transformation of our health care system overall.

Fact-Driven Solutions: Cost Savers vs. Cost Shifters

Some of the most discussed Medicare proposals would create savings for the federal government simply by shifting costs onto people with Medicare. A recent proposal introduced by Senator Hatch would raise the Medicare eligibility age from 65 to 67 years, prohibit first-dollar coverage by supplemental Medigap plans, combine the Medicare Part A and B deductibles and privatize Medicare benefits. None of these proposals address the problem of rising health care costs.

The Hatch plan fails to account for the fact that burdening people with Medicare with additional costs does nothing to rein in rising health care costs system-wide. At the same time, these plans put the health and economic security of people with Medicare at risk. Facing additional health care costs, beneficiaries with limited incomes will forgo needed health care entirely. We know this is true because of the stories we hear on our national helpline.

Marc is one of these callers, who reached out to find help paying for his prescription drugs. Marc suffers from a rare lung disease and lives on $1,600 per month in Social Security disability benefits. At the end of last year, Marc found himself in the Part D coverage gap for his prescription drugs, also known as the doughnut hole. Despite Marc's limited income, he is ineligible for assistance to cover the cost of his drugs. To save money, Marc decided which drugs were the most important and simply stopped taking the rest. He also started cutting his pain patches into halves or thirds to spread out this significant expense. Marc was left hoping that his health would hold out until he spent his way out of the doughnut hole. With a new year, Marc's drug benefit has reset, but he is preparing to ration his medicines when he falls into the coverage gap once again.

Rather than shifting costs to people like Marc, wasteful spending should be eliminated to strengthen Medicare's fiscal outlook for the long term. Restoring drug rebates to the Medicare program, allowing Medicare to negotiate drug prices directly with pharmaceutical companies and introducing a public Medicare drug benefit are examples of reforms that will create savings in the Medicare program and also drive down the price that Marc pays for his medications. Further savings can be found in Medicare by advancing and expanding the delivery system innovations made possible by health care reform.

No matter what deadline forces a dialogue about Medicare's future, the facts make one thing clear: cost shifting, in any form, is not a solution for health care savings.

Without action, on January 1^st the nation will begin to slide down what many economists call the "fiscal slope." If taxes go up for working and middle class Americans alongside drastic spending cuts, experts predict the economy will eventually slide into a recession. But this is not the only slope in the deficit negotiations. Some policymakers propose pushing middle- and high-income Medicare beneficiaries down another slippery slope by further increasing premiums based on their incomes.

An individual beneficiary living on $85,000 per year already pays higher Medicare Part B and D premiums -- which cover outpatient services and prescription drugs. Some proposals would change this calculation. Instead of simply being a matter of income, a fixed percentage of people on Medicare would pay higher premiums. An increasing share of beneficiaries would pay more over time, topping out at 25 percent of the Medicare population. This would be a significant jump from the 5 percent paying higher premiums today.

Who exactly would pay more? One analysis shows that this plan would hit middle class seniors and people with disabilities. If the plan was already in effect, then a beneficiary living on $47,000 per year would be forced to pay higher premiums. Like many other deficit reduction proposals, instead of finding cost savings in the health care system overall, this plan saves the federal government merely by shifting costs to people with Medicare.

Reasons to Reject a Further Slide Down the Means Testing Slope

If squeezing middle class retirees and people with disabilities is not reason enough to reject expanding means testing in Medicare, here are three more good reasons:

1) Wealthier seniors and people with disabilities already pay more. In 2012, 2.4 million Medicare beneficiaries (5.1 percent) will have paid the income-related premium already mandated by law. Also, higher-income households pay more for future Medicare benefits during their working lives. There is no cap on the 2.9 percent wage tax that helps to fund Medicare, and in 2013 the Medicare payroll tax will go up for wealthier earners with incomes of $200,000 for individuals and $250,000 for couples.

2) Health status determines ability to pay -- not income. Medicare coverage is not overly generous, covering about 50 percent of the average beneficiary's costs. Given these coverage gaps, health status has more to do with what someone can afford than income. In short -- the sicker you are, the more expensive your health care will be. For those who have serious, multiple and chronic illnesses, middle incomes can easily fall short and even higher incomes can start to become inadequate.

3) Means testing undermines the value of Medicare. Asking middle class or wealthy retirees and people with disabilities to pay more for Medicare chips away at the consistent, broad-based support for the program -- and for other earned benefits, like Social Security. Forcing wealthier Medicare beneficiaries to pay even more for coverage may cause some to drop Medicare entirely.

Medicare remains an overwhelmingly popular benefit, as consistently demonstrated in public opinion polls regardless of age, income level or political affiliation. American families are supportive of preserving Medicare because they know its value -- as a cornerstone of health and economic security. Further means testing would distance middle class and higher income beneficiaries from that value.

Taxes vs. Medicare Wealth-o-Meter

And there's more. Current proposals to further means test Medicare are blatantly unfair. To date, deficit reduction negotiations are running on two tracks: talk of tax reform and talk of cutting earned benefits, like Medicare. Many policymakers call for tax increases on the top 2 percent of earners. This call to action defines wealthy as those earning more than $250,000 per year.

But for Medicare, the law sets a different standard. Today a beneficiary living on $85,000 per year or more is required to pay higher Medicare premiums. Proposals to increase these income-related premiums would set the bar for what counts as wealthy even lower -- digging into the pockets of the middle class.

This glaring disparity is neither fair nor sensible. Throughout the election cycle and beyond, many policymakers vowed not to allow current tax cuts to expire -- essentially not to raise taxes -- for the middle class. A position that forces middle-income seniors and people with disabilities to pay more for Medicare is wholly inconsistent with this pledge.

More means testing in Medicare is the wrong approach to lessening our nation's deficit. It does not serve to strengthen Medicare's financial footing or rein in rising health care costs across the entire system. Instead, it extends a current practice that weakens the universality and integrity of Medicare.

And who will pay for this? The middle class.

The Washington Post article is ostensibly about proposals that would weaken Medigap coverage, forcing some people with Medicare to pay more for less health security, but in reality, the piece focuses almost exclusively on criticizing AARP. This swipe at AARP is unfair, but it is also puzzling given that AARP is one among hundreds of national organizations opposed to proposals that would reduce the nation's debt on the backs of people with Medicare.

Diminish Medigap Coverage and the Sickest Pay the Highest Price

Who is advocating for the preservation of Medigap coverage is far less concerning than the very real health and financial risks posed by proposals to diminish Medigap coverage. Proposals to increase cost sharing in Medigap plans, including, for example, imposing copays, co-insurance or deductibles and thereby eliminating "first dollar" coverage in Medigap insurance, are designed to achieve savings for the federal government merely by shifting costs to people with Medigap coverage. Most startling about these proposals is who pays the highest price.

The Kaiser Family Foundation analysis cited by the Washington Post shows that the beneficiaries who need Medigap coverage the most would be the hardest hit by eliminating first dollar coverage. A greater share of beneficiaries in fair or poor health (37 percent) and people with more hospitalizations per year (66 percent) would pay more for health care. One in five Medigap beneficiaries would experience significant cost increases -- an average of $806 per year. In the end, proposals like these amount to nothing more than a "sick tax" on people with Medigap coverage.

People with Medigap coverage living on low- and moderate-incomes would also be disproportionately harmed. One in four people with Medigap coverage and annual incomes below about $33,000 would face higher costs -- a greater share than those with higher incomes. A significant share of people with Medigap coverage live on modest incomes; two thirds (66 percent) have incomes below $40,000 per year. These beneficiaries already pay Medigap premiums ranging from $178-$220 per month, in addition to Medicare Part B and Part D premiums, to manage high, sporadic health care costs on limited incomes.

Medigap coverage ensures predictability in health care costs not afforded by the Medicare program outright. While limiting Medigap first dollar coverage might drive down premiums for some, this would come at the expense of those who need this predictability most of all.

More Medigap Cost Sharing Is the Wrong Tool for Cost Savings

Because Medigap coverage is secondary to Medicare, the only way to find federal savings through Medigap is to limit the use of health care services. Adding out-of-pocket costs to Medigap plans is designed to make people think twice about the health care they need. Limiting Medigap first dollar coverage, and other proposals that would increase cost sharing for people with Medicare, ultimately aim to force these kinds of questions: Am I really sick enough to go to the doctor? Do I really need the treatment that the doctor ordered? Should I really get that test the doctor wanted me to get?

But it is providers -- not beneficiaries -- who order health care services and treatments, and it is providers -- not beneficiaries -- who determine if a health care treatment or service is needed. Evidence shows that forcing these decisions through increased cost sharing leads beneficiaries to forgo needed care. Beneficiaries are most likely to skip doctor's visits, and going out without this primary care is shown to increase more costly visits to the emergency room and hospital stays. Not only is this trend not in the best interest of beneficiaries, it may contribute to greater costs for the Medicare program over the long haul.

Proposals to limit Medigap first dollar coverage and others that would increase cost sharing for people with Medicare pose significant risks to seniors and people with disabilities. These crude cost shifting measures are not the right tool for finding savings in the health care system and in Medicare.

A version of this post originally appeared on www.medicarerights.org

No Cuts to Medicare Benefits Means No Cost Shifting

What do we mean by no Medicare benefit cuts? Of course, we mean just that -- there should be no cuts to the benefits that people with Medicare need in order to access the health care they need. But we also mean that we should not increase the cost of health care for the 49 million seniors and people with disabilities who rely on Medicare. Many of the most discussed Medicare proposals would create savings for the federal government merely by shifting added health care costs onto people with Medicare and thereby forcing them to pay more for less.

One such proposal would raise the Medicare eligibility age from 65 to 67. One analysis demonstrates that two-thirds (66 percent) of 65- and 66-year olds would pay more for health coverage if the Medicare eligibility age was increased in this way. Additionally, employers and states would all pay more to cover 65- and 66-year olds without access to Medicare. In short, raising the Medicare age of eligibility is an across the board benefit cut paid for by people with Medicare, employers, and states. Only the federal government saves.

Most people with Medicare are in no position to pay more for their health care. Half of people with Medicare live on annual incomes of $22,000 or less--just under 200% of the federal poverty level. And half have $53,000 or less in personal savings. Health care costs are a significant expense for Medicare beneficiaries, regardless of income. Medicare households spend 15 percent of their total expenses on health care compared to 5 percent among non-Medicare households.

For Oliver, a Medicare beneficiary who called our helpline from Atlanta, Medicare already costs too much. Oliver lives on $1,400 per month or $17,000 per year, almost entirely from Social Security benefits. His heart condition recently worsened and now Oliver's out-of-pocket costs amount to more than $300 per month -- over 20 percent of his monthly income. Oliver's income is too high to qualify for public assistance to help with these costs. So, he relies on community programs -- like a local transportation service to doctor's appointments -- to make ends meet. Some months, Oliver skips his heart medications to pay for other bills, like his rent or electricity.

Oliver is not alone. The average Medicare household spends $4,500 on health care each year. Costs increase with age and health care needs. In the last five years of life, the average person with Medicare spends almost $37,000 on health care -- just over two times Oliver's income. Nearly half of Americans die with less than $10,000 in the bank; with little savings to his name, Oliver could be among them.

Eliminate Wasteful Spending and Build on What Works

Instead of shifting more costs to people like Oliver, policymakers should look to solutions designed to lower rising health care costs. Solutions that make the health care system more efficient and eliminate wasteful spending mean big savings for the Medicare program. For example, allowing the federal government to negotiate drug prices with pharmaceutical companies in the Medicare program is one deficit reduction option that would eliminate significant waste in the health care system.

The federal government already negotiates with pharmaceutical companies for drug rebates in the Medicaid program. Up until the creation of Medicare Part D -- Medicare prescription drug coverage offered by private plans -- these Medicaid rebates applied to those dually eligible for the Medicare and Medicaid program. A 2011 report by the House Committee on Oversight and Government Reform found that the cost of the top 100 drugs for dually eligible beneficiaries was 30 percent higher under Medicare than it would have been were Medicaid rebates still applicable.

If we restore these rebates for dually eligible beneficiaries and other low-income Medicare beneficiaries, the federal government would save up to $135 billion over 10 years. If we allow the federal government to negotiate Medicare drug prices for all 32 million beneficiaries with a Part D drug plan, the government could save up to $156 billion over 10 years.

Eliminating wasteful spending by the federal government on prescription drugs may not solve all of Oliver's problems, but his struggle to afford high health care costs and still make ends meet, a reality shared by millions of other people with Medicare, poses a critical question -- so long as the federal government grossly overpays pharmaceutical companies for drugs, what is the justification for balancing the deficit on the backs of people with Medicare? Instead of shifting costs to people with Medicare, we should be talking about cutting wasteful spending so that we can invest in expanding programs that help those with low-incomes afford Medicare. Let's have that conversation, so that Oliver can get the health care he needs.

Yet, the more important conversations about Medicare are not always featured on the nightly news. In Ohio, where a woman asks her husband: Will your mother need to move in with us if she cannot afford her hospital bills? In Wisconsin, where an 85-year-old man ponders: My prescriptions are just too expensive this month, should I skip some of my pills or let the heating bill go unpaid? In Florida, where a wife worries about her husband who has cancer: What will happen if we cannot afford the tests the doctor orders this month?

For the almost 25 million Medicare beneficiaries who live on incomes of $22,000 or less, conversations like these are commonplace. We know this is true, because we counsel nearly 15,000 people with Medicare on our helpline each year. Most of our calls are from those who simply cannot afford their health care costs.

Proposals That Fail: Forcing People to Pay More for Less Health Security

We believe that Medicare proposals should be tested by two measures. First, does the plan force people with Medicare to pay more? And second, does it address the real problem -- rising health care costs overall? Despite pervasive economic insecurity among Medicare families and widespread agreement about the need to control health care spending, the most discussed Medicare proposals fail on both counts.

The privatization scheme championed by Congressman Ryan (former candidate for vice president) and passed by the House of Representatives, is one example of this. Under the Ryan Plan, people with Medicare would receive a voucher to purchase private health insurance or traditional Medicare. Because these vouchers would not keep pace with rising health care costs, beneficiaries would be forced to pay more, no matter what coverage they choose. While this election cycle focused almost exclusively on voucher plans, other lesser known ideas would also come at the expense of people with Medicare.

Raising the Medicare eligibility age is one such plan. One analysis found that increasing the Medicare eligibility age from 65 to 67 would force five million 65- and 66-year-olds to find coverage elsewhere, and 66 percent of these seniors would pay more. Even worse, some near retirees with modest incomes who are not quite eligible for Medicaid and yet unable to afford insurance would be without coverage entirely.

Significantly restructuring Medicare cost sharing is another proposal worth noting. Proposals to redesign the Medicare benefit would streamline deductibles, standardize coinsurance rates, and implement an out-of-pocket spending cap. While simplifying Medicare is a worthy goal, a recent study finds that redesigning benefits in this way would increase costs for almost three-fourths (71 percent) of beneficiaries.

Similar proposals would prohibit or limit first dollar coverage in Medigap plans -- a widely used form of supplemental coverage to Medicare. Proposals to undo first dollar benefits would increase cost sharing for one in five people with Medigap. Most startling about these plans is who will be the hardest hit -- the sickest Medigap beneficiaries, who will pay the highest price.

Taken separately or in combination, what people must understand about cost sharing, coverage and redesign proposals is this: cost savings to the federal government will be achieved by forcing people with Medicare to pay more; just how much more will depend on the seldom-discussed and hard-to-explain details embedded in these proposals.

Health Care Costs Are the Problem -- Medicare Is a Solution

Unlike cost shifting, building efficiencies in Medicare and pursuing delivery system reforms are promising solutions that can reduce health care spending without causing harm. The Affordable Care Act (ACA) affords many opportunities to test these innovations. Examples include lowering reimbursements rates for hospitals with high readmission rates and establishing provider teams, known as Accountable Care Organizations (ACOs), with financial incentives to keep costs down and better coordinate care.

Medicare is the testing ground for many of these reforms. Thanks to the ACA, Medicare will lead the market in providing better quality care at a lower price. Already, Medicare does a better job than private plans at controlling health care costs. Over the next ten years, Medicare costs are expected to rise 3.1 percent per person per year compared to 5 percent for private health plans. Medicare, after all, is not a problem, it is a solution.

The results of this election will undoubtedly affect which Medicare proposals are taken up for consideration. Many who weighed in on this election, from pundits to policymakers, would do well to listen in on the Medicare conversations happening at kitchen tables nationwide as they sort through proposals. No matter the results, our message to decision makers trolling for Medicare savings is simple: instead of cost shifting to people with Medicare, find cost savings by looking to Medicare as a solution.

Resources: Deficit Reduction & Medicare