National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 THE RISE AND FALL OF THE MEDICARE CATASTROPHIC COVERAGE ACT MAMLYN MOON* rphe Medicare Catastrophic Coverage limited to no more than two deductibles a Act, the major piece of social legisla- per year. tion in the eight-year Reagan administra- The idea of a limit on cost-sharing was tion, was repealed a year and a half later, certainly not new. Private insurance long marking one of the major legislative fail. has carried such limits, and proposals to ures in the history of the U.S. The act em- add a catastrophic cap had been consid- bodied many of the constraints faced by ered in some form by the Congress for legislation seeking to expand the role of nearly a decade. But what was new was goverrunent in an era of high deficits and a willingness by the Reagan administra- Mine tion to co i er roa4iening Medicare orthcige VeWcongffiWoonmuuzwxo T;ne unraveling of the legislation. In this pa- proposed in 1986 at a time when federal per I lay Qut the basic chronology of the budget submissions by the administra- legislation and then discuss some of the tion routinely sought reductions in Med- lessons to be learned from this experi- icare spending of at least that amount each ence. year. For example, in February 1986, while President Reagan appointed the Bowen Commission to seek long-term solutions, The Evolution of the legislation he presented to the Congress a budget that Medicare Catastrophic owes its initial would substantially increase costs to ben- political impetus to the Bowen Commis- eflciaries (OME, 1986). When the White sion-a group headed by then secretary of House agreed to support the Bowen pro- Health and Human Services Otis Bowen posal, it did so with a number of stringent and charged by President Ronald Reagan constraints attached-namely, that new to consider solutions to the problem of benefits must be self-financed by the ben- catastropluc expenses borne by those with efimanes and that the financing must come major illnesses. The Bowen report, re- from premiums rather than taxes. leased in the fall of 1986, proposed to take Despite some initial concerns, Capitol on the problem of gaps in coverage of acute Hill staff and lobbyists generally ac- care for Medicare beneficiaries. This is- cepted the framework established by the sue was the "easiest" to solve of the major Reagan administration. 'fhe idea of a flat health care access problems because it was cap on spending as a desirable means for likely to be least expensive. The other offering catastrophic protection went problems considered by the Commission, largely unchallenged, even though some the younger uninsured, and long-term in the re5m& community questioned the care, would require massive increases in effectiveness of caps (Wyozewianski, 1986; resources. Feder, Moon, Scanlon, 1987). Hill staffers The original Bowen proposal called for and interest groups such as the American a simple expansion of benefits financed Association of Retired Persons (AARP) with a flat $59 annual premium assessed began to work within the broad outlines on all Medicare enrollees. The benefit im- of the Bowen proposal. provement would consist of an annual The Democrats vowed not to be outdone $2000 limit on each beneficiary's out-of- by the Republicans in offering new leg- pocket expenses arising from hospital and islation to aid the elderly and disabled. But physician deductibles and coinsurance. In a dilemma was clearly in the making: how addition, hospital cost-sharing would be could the benefits be enhanced by the Democrats while keeping to the con- *The Urban Iwtitute, Washinoon, DC 20037. straints insisted upon by Ronald Reagan? 371 National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 372 NATIONAL TAX JOURNAL [Vol. XLM Defining the Benefits. During the spring and meeting high out-of-pocket health care of 1987, a number of possible additions to costs. the catastrophic package began to sur- Some of the initial financing proposals face. The Democrats in Congress clearly would have supplemented the flat pre- wanted to embellish upon the Bowen pro- mium with modest increases in taxes such posal, adding their own benefits to dem- as those on alcohol and cigarettes. Sug- onstrate a stronger commitment to im- gestions were also made to raise or elim- provements than that proposed by the mate the taxable maxunum on payroll White House. The catastrophic legietla- taxes used to support Medicare or to re- tion was also viewed as an opportunity to quire all state and local workers to pay take advantage of the only new legietla- HI taxes. All of these options violated the tive vehicle available. basic tenet set down by the Reagan The first additions were modest. For administration by assessing new taxes-- example, an early draft from the Ways and and ones that were not limited to the Means comnattee added expansions in a Mechem enrollee populatiorl Instead, both number of Medicare benefits, tinkering the House and Senate very quickly moved with the Bowen approach. But as the to consider adding an income-related pre- spring progressed, broader expansions mium to solve the &lemma of an expen- were considered by the House of Repre- sive program that had gone beyond a rea- sentatives. Two major additional areas of sonable flat payment and could be assessed coverage were added. First, major Medi- from each enrollee. caid expansions included relief from Med- Language proved critical. Although the ic,are coinsurance and deductibles for the Internal Revenue Service was best low-income elderly and improvements in equipped to collect an income-related pre- financial protection of spouses of nursing milim as part of the yearly personal in- home residents. Second, drug coverage was come tax filing, all parties involved in the added to the package, in part as a way to discussion took great pains to call this a offer benefits to higher-income beneficia- premium and not a tax. It just'liappened ries who were going to be asked to pay a to be" part of the 1040 form and related greater share of the costs (see below). The to the amount of personal income taxes Senate Finance Committee proceeded more that beneficiaries owed. (In fact, the House cautiously, but its ultimate version also Waysqnd Means Committee carried this looked much like that of the House. distinction so far as to insist that the pre- The estimated costs of the Bowen pro- miilm be posed per $150 of tax liability pomd and the House bill are instructive rather than per $100 which could be of the range of costs of various proposals. translated more easily into a tax rate.) A July Congressional Budget Office study Under the Ways and Means committee (CBO, 1987) indicated that the average proposal, everyone (except those covered benefits per enrollee would be $78 for by Medicaid) would pay a basic premium. Bowen (an increase in the estimated costs The supplemental, income-related portion of the original proposal rather than an would affect no one with adjusted gross expansion in benefits) and $226 for the income of less than $6,2W, after which the House version. premium would rise steeply to a maxi- 7!ke FMAW4g Iswo- Bo"t -oo%u- wW sions substantially escalated the pro- @r7n@iu-m-)76-@-@os@-with adjusted gross jected costs of the program creating a di- income of $14,166 or more. As a conse- lemma on the financing side. While $5 per quence, Medicare enrollees with as little month might not be viewed as unduly as $20,000 in income would have paid as burdensome on the near poor, a $20 pre- much in total premiums as enrollees who mium (added to the already escalating Part were extremely wealthy This prenuum B prenuum) could result in a program that would place the highest burden (as ex- hurt those it presumably sought to help pressed by share of income) on nuddle-alm the low-income elderly who had trouble beneficiaries. Wealthier elderly families buying private supplemental insurance would pay a smaller &hare of their in- National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 No. 31 MARILYN M0614 373 comes in supplemental premiums-a re. astropbic legislation also had a greater gremve burden for those with incomes claim to the term "premluiw' since it pro- above $20,000. The justification for such posed to treat this new benefit as a vol- an awkward structure was that it pre- untary option. Beneficiaries could choose giimably would look less like means-te-st- to enroll in the catastrophic benefit or to ing to older Americans and more like a decline coverage. The actual choice turned flat (albeit in two pieces) premium. out to be less voluntary than it might ini- The Senate came at the issue quite dif- tially seem, however, since individuals ferently, assessing a higher initial flat would have to forego all of the heavily prenuura and then adding a supplemen- subsidized Part B coverage as well. tal prennum that rose much more grad The Rok of Policy Analysis. The long ually by income. The maximum income- gestation period of the catastrophic leg. related premium was set at $800 per en- islation meant that there was araple time rollee. In this sense, the financing be- and opportunity to analyze the impact of haved more like a standard surtax on the various options. Hearings were held in inopkwl ]*-*@gmoAjlg-wAb&46#W + (although it too would-become regrej3,s4ve elap -w e=r towc"omnsi comments and other above about $50,000 of adjusted gross in- options. Analysts at CBO provided de- come). (See Figure 1.) tailed simulations on both the House and The term "supplemental premium!'was Senate versions of the legislation, on the still carefully fostered to distinguish it conference report and on the final act. from a tax., The Senate version of the cat- The administration provided its own Figure 1. Additional Premiums Under Selected Catastrophic Plans by AGI, 1989 1000- Additior@W and Income-Related Flat Premiums In Dollars 800- House 600- ...................... 87FO SFO 400- ........................................ 200- I I I Bowen ........... .... I.................... ........................................................................ =.==I@ .... ....1 1- I I I 0- 0 6 10 16 20 25 30 36 40 46 60 66 L- 00 AGI In Thousands of Dollars Sourow. Oongreasional Budget Offloo Note: For single enrollees. Assumes that individuals would either claim itemized deductions equal to one-sixth of AGI or claim the standard deductiont whichever was larger, National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 374 NATIONAL TAX JOURNAL [Vol. XLIII eatimate"f'th6 -edaif'bf the legislation. A mental premium) would be assessed mini-tempest stirred over the differences against any beneficiary whose income tax in the estimates of the drug benefit. Both liability was at least $150. Beginning in sides admitted that the data that had to 1989, such individuals would pay at the be used were old and the estimates con- rate of $22.50 per $150 in liability (effec- sequently unreliable. Nonetheless, the tively a 15 percent surtax). The maxi- CBO and OMB numbers, using essen- mum liability was set at $800 per enrol- tially the same data sources, were dra- lee; individuals with incomes of over about matically different (CBO, 1988). CBO's $40,000 would be subject to t hat maxi- numbers were less than two-thirds those mium. Couples with incomes in' excess of of OMB ($927 million in estimated costs about $70,000 would pay $1600. Esti- as compared to $1,583 million in 1991). In mates indicated that about 5 percent of fact, these differences contributed to some older persons would be subject to these of the reluctance to adopt a drag benefit maximum tax levels and about 40 percent because of the potential for error and the of all the elderly would pay at least some fears of many analysts and Members of supplemental premium. The surtax rate Congress that dru costs could rise out of would rise rapidly over time to a maxi- control over time. F mum of 28 percent in 1993. The Political Winners and Los- 'rs. Proponents of the passage of cata- The Medicare Catastrophic Coverage strophic basked in the belief that they had Act achieved a major improvement in bene- When the Medicare Catastrophic Cov- fits. For example, AARP enjoyed the ac- erage Act was passed in June of 1988, it colades concerning the considerable role was hailed as "the largest expansion of the organization had played in working Medicare since the program!s establish- with the Congress on the legislation ment in 1965" (Torres-Gil, 1989). A major (Torres-Gil, 1989). Rose Garden ceremony was held on July The biggest loser in the process, the drug 1, 1988 to celebrate its signing by Ronald industry, had managed to influence the Reagan. In private, the enthusiasm of the drug benefit positions. For example, no drafters was considerably lower-reflect- reference was made in the legislation to ing the long road of compromises neces- any type of cost controls on drugs; instead sary to enact such legislation. Candid as- the bill called for beneficiaries to pay sessments referred to the catastrophic act higher premium over time if costs ex- as the beat that could be done. ceeded expectations. Although a relative -The House and Senate bills contained latecomer to -the process, the National major differences that had to be ironed out Committee to Protect Social Security and in the spring of 1988. While the two bills Medicare (NCPSSM) had attempted to were not dramatically different, in part derail the financing scheme of the final because the Senate version of July 1987 bill. They were unsuccessful in influenc- had moved closer to that of the House, ing the passage of Catastrophic at least in there were a number of remaining con- part because their often deceptive mail cems. In general, the Senate version was campaigns were viewed more as a fund- less generous than that of the House. The raising ploy than as legitimate grass-roots final legislation was a complex combina- organizing. Opposition from other seniors tion of fill-in and new benefits. 2 groups was only beginning to get orga pub"wl@--Opawge of tlxkg- promise i@en tift M=tO -boiliggo provii;ions. Greater reliance would be The Distributional Impact on Beneficia- placed on revenue from the supplemental ries. Although the final package was in- premium than under the Senate version, tended to be cost neutral from the federal but the structure of the tax would look government's perspective, there were more like the Senate's more gradual scale clearly going to be individual winners and of premium increases. The tax (supple- losers among the beneficiaries from this National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 No. 31 MARILYN MOON 375 legislatioxl Indeed, a considerable amount protection (or whether that protftbon was of debate had centered on this issue. provided free of charge to those whose for- Table 1 displays Congressional Budget mer employers paid the costs). Such an Ofrice's estimated insurance benefits and adjustment would result in even greater costs in terms of premiums paid by the in- distinctions by level of income. come status of enrollees (CBO, 1988). The The campaign to discredit Catastrophic bottom 70 percent of Medicare enrollees had included claims that AIDS patients as ranked by their incomes would expe- would disproportionately benefit from the rience a net reduction in out-of-pocket legislation, in pait because drugs for this costs. On average, they would pay consid- population are very expensive.' What was erably less in premiums than their group not mentioned in this rumor campaign was would gain in increased protections from the sad fact that most AIDS patients who certain expenses. Higher income enrol- are sick enough to qualify for Social Se- lees, on the other hand, would face higher curity as permanently and totally dis- costs primarily because of the supplemen- abled do not live long enough to also tal premium. The table does not, how- qualify for Medicare-which has a wait- groups already had private insurance Security beneficiaries. AlDg-iWfiei@ts were Table 1 Net Change in Enrollees' out-of-Pocket Costs by Income and Poverty Status in Response to the Medicare Catastrophic Coverage Act Net Change in:a Percent of - - - - - - - - - - - - - - Enrollees Direct Premium Total in Group Costs Costs Costs By Per Capita Incom Percentiles (Average Per Capita Incom) 0 to 10 ($2,881) 10.0% -237 80 -158 11 to 30 ($5,623) 20.0 -221 81 -140 31 to 50 ($8,575) 20.0 -195 89 -106 51 to 70 ($12,604) 20.0 -189 157 -32 71 to 90 ($19,579) 20.0 -171 373 203 91 to 100 ($52,291) 10.0 -161 597 436 By Povery Status Poor 12.8% -232 80 -152 Near Poorb 19.4 -226 79 -147 other 67.8 -178 268 90 All Enrollees 100.0% -194 207 13 Source: Congressional Budget office simulation. a. Direct costs are Medicare benefits under the act, assuming full iuplementation in 1988. includes only Medicare charges. b. includes those with incomes above the poverty line but below 1.5 tines the line. National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 376 NATIONAL TAX JOURNAL (Vol. XLIII very unlikely to be '%vinners" from this funds for a roll-back of the supplemental legislation. premium, there would be a shortfall in the The Beginning of the End. Much of the revenues needed. The PMA had new am- criticism that had been leveled at the munition for its campaign and Senator Catastrophic legislation did not end with Bentsen and others who had backed the its passage in 1988. The opponents-in- rollback in the supplemental premium cluding the PMA, MCPSSM, and a num- were left hanging. ber of loosely organized coalitions of se- Neither of these sets of data releases nior citizens-kept up a steady barrage of were politically motivated. Nonetheless, protest concerning the legislation and the timing proved disastrous. It sug- captured considerable media attention. The gested that the costs might be out of con- fitvorable press early in the debate seemed trol and there could be no relief from the to shift to focusing on the "losers" from supplemental premium. Thus the stage the legislation-those who would pay high was set in the spring for repeal of the taxes and presumably reap few benefits. Catastrophic legislation. Ironically, two sets of information re- The continued pressure of the mail vising some of the estimates of the reve- campaigns launched by NCPSSM and the nues and costs of catastrophic fed into the PMA, and the general negative tone of the opposition to the legislation. First came media began to take a toll. Mail poured word that the Treasury expected tax col- into Congressional offices and into the lections from the supplemental premium AARP. At one point the mail on the issue on the elderly to be higher than antici- in AARP was running 50,000 against and pated, generating a considerable build-up 30 for the legislation. Congressional of- in the Catastrophic trust fimd. Although fices reported similar staggering num- some build-up had been intended in the bers. legislation to provide a cushion for the A major turning point in the process, benefits that would come on board in later heavily reported in the media, came in the years and grow very rapidly, the amount late summer of 1989. The discontent of at indicated by the Treasury was consider- least a vocal minority was played out in ably higher. This provided fuel to the crit- town meetingi held by members of Con- ics for their claim that the new legisla- gress in their home districts. The most tion was aimed at reducing the deficit at dramatic of these was a confrontation with the expense of the elderly. Representative Dan Rostenkowski that Senator Lloyd Bentsen (D-Tex), already madi the national news. A number of el- under some pressure from has constatu- derly protestors followed Rostenkowski to ents, announced on April 20 that be would his car and blocked his departure. Cap- seek a reduction in the supplemental pre- tured on camera was an elderly woman mium to counteract the unexpected sur- pounding on the hood of the car while the plus. Other members generally took a driver attempted to move through the more cautious approach, but recognized crowd. Eventually Rostenkowski left the the considerable pressure btnlchng on the car and "fie&' from view of the camera. supplemental premium. For all the world to see, a catastrophic op- Shortly after this, a second set of num- ponent had gotten the upper hand over the bers was rel esting that the costs chairmM.2f the most committee Wn*- in-ik@41W mnumivei Ao estimated. In particular, the improve- longer mattered if these protesters rep- ments in the SNF benefit were now pro- resented only a minority of the elderly- jected by CBO to result in costs more than they were vocal, visible and seemed to be six times greater than the original esti- growing stronger day by day. mates. In addition, the new estimates of the costs of the drug benefit-using newly The Repeal available data-were about twice as high as originally estimated (CBO, 1989). Not Even before the August recess, an ear- only would there be no surplus in the bmd nest effort began to search for ways to National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 No. 31 MARILYN MOON 377 modify the Catastroplue legislation. The The House of Representatives voted for bravado of the proponents that this was a a repeal of all but the Medicaid provisions short-lived protest died away and the on October 4, 1989. The Senate was not committees began to search for a compro- yet ready to give up, however. A Hurry of mise to save at least part of the legisla- proposals and amendments led to chaotic tion. Most of the effort centered on what debate on the floor of the Senate in the benefits could be retained if the supple- waning days of the session. The high po- mental premium were eliminated. There litical theatre of multiple votes on con- was little serious discussion of adding ad- fusing options culminated in the accep- ditional revenue sources: the original tance of the passage of the McCain agreement to stick with a self financed Amendment to retain some of the benefits benefit package remained intact. The dif- and repeal the dreaded supplemental pre- ficulty lay in deciding which were the more miilm. The proposal was quickly sent to crucial benefits. Every one had its pro- the House for consideration on the last ponents, groups that had worked within night of the session. Members of the House, the legislative framework and who felt who literally sat with their coats on their 4 .U-,hnfl IV-02am- Aen re- That study pointecr out Me Wic@ity of e ain ibli ent. In tfi@ repackaging the program around the re- early hours of November 22, the U.S. peal of the supplemental premium. In Congress took the nearly unprecedented taking away the progressive part of the step of repealing a major piece of social financing, the package that was left needed legislation that had been so highly touted to be sensitive to who would benefit. But only one year earlier. benefits such as the Part B cap and the drag benefit required a lot help. Low and spending before offering of out'of-Pocket What Lessons for Health and Social Policy Can Be Drawn from moderate income persons might not be able Catastrophic? to "afford" to reach the Part B cap or the drug deductible. The issue of why this turn of events oc- Through this period many options were curred and what it teaches us about the proposed, but none seemed to catch the future will be debated at considerable imagination of many legislators. The length foi many years to come. But even original legislation reflected one and a half at such close range, a few lessons are years of careful negotiation; not surpris- clear-albeit sharpened by the virtue of ingly, the hasty work on a revision re- hindsight. Some of these represent con- sulted in no one proposal that satisfied clusions about why Catastrophic failed. supporters and opponents of the Medicare Others suggest what may be ahead in tax Catastrophic Care Act. The debate also and budget policy. took on a bit of the surreal since repeal 1. A Rose by Any Other Name. The would worsen the budget deficit in the supplemental premium was offered as a short ran. The controversial build-up in means of meeting the Reagan adminis- the reserves did play a role in the budget tration!s requirement that there should be deficit discussion after all; but a number no new taxes and any financing should of members commented on the irony that come from the beneficiaries themselves. eliminating a government programa would In addition, Congress and elderly orga- be scored as a worsening of the federal nizations contributed to the effort to re- deficit. Despite the lip service paid to sup- tain that nomenclature. For instance, porting the Catastrophic Act by the Bush Martin Corry, AARP's chief lobbyist, was Administration, the door to repeal was quoted as saying that the fact that the M opened when the Office of Management was involved "is simply an administra- and Budget indicated that an exception tive convenience. It just happens to be the would be granted so that repeal would not most efficient way of handling it" (Rich, count against the deficit. One of the last 1988). In fact the supplemental premium objections to repeal was thus eliminated. was to be collected by the IRS through the National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 378 NATIONAL TAX JOURNAL [Vol. XLIHII regular income tax structure and calcu- being used to hold down the deficit-al- lated on the basis of how much income tax though that was true only in the short rtm. a beneficiary owed. Not surprisingly, it was S. The Unpopularity of 'Pay as You quickly perceived to be a tax. And calling Go.' The linking of a financing mecha- it by another name seemed to be disin- nism to the new program in this highly genuous. Indeed, by not facing up to the visible way reflected the philosophy of fact that the premium was a surtax, the Congress and the administration that no backlash by seniors stemmed both from new spending should make the deficit the size of the premium and the feeling worse. This approach, sometimes termed that they had been deceived. @)ay as you go,' required that new spend- Moreover, since the litany of the Rea- ing packages must carry their own fi- gan adnumstration was that no one should nancmg. And as noted above, the cata- have to pay more in taxes--and indeed the strophic legislation went even further by trend in the 1980s was to lower the per- creating a reserve in a new trust fund so sonal income tax-this most glaring that benefits would never exceed reve- counterexample singled out the elderly. nues in the early years of the program. Terming it the "seniors tax," opponents While this approach may offer many were able to portray the financing of the political advantages in enacting legisla- legislation in a very negative light. Why tion, it clearly did not capture the imag- should they be the only group to pay new ination of the public. As mentioned above, taxes? And perhaps even more critical, at Medicare beneficiaries felt they had been a time when running a deficit meant that singled out for special tax penalties. Ob- most programs were financed by paying jections to the tax aild the subsequent de- only 85 cents on the dollar, why should bate over it swamped discussion of the the elderly be asked to pay more than benefits. Is this a specific reaction to the $1.00 for a dollar's worth? catastrophic legislation itself, or does it 2. A Simple Tax Story but Comp le-x raise issues about this legislative ap- Benefit Story. The final legislation 'of- proach in general? It is certainly too soon fered a bewildering variety of benefits to to judge the long-term consequences of re- the elderly. Catastrophic made the al- quiring such pairing of benefits and fi- ready byzantine Medicare program even nancmg, but this episode does suggest that more complex (with the exception of hos- the financing side may get disproportion- pital benefits). Since most enrollees do not ate attention and focus much of the de- understand how benefits work under the bate on the question of gainers and losers. original program, how were they sup- Any. social legislation that seeks to help posed to interpret these changes? Addi- one group while taxing another may face tions or reforms occurred in at least seven formidable obstacles in gaining accep- identifiable areas: hospitals, skilled nurs- tance. ing facilities, home health care, a part B Moreover, the political environment of limit on copayments, hospice, respite care, the Reagan administration was to stress mammograms and drugs. Each of the that government could be financed with- benefit areas was likely to seem small and out raising taxes and that savings could often not likely to be relevant to any one be obtained by cutting fat out of the sys- beneficiary. tem. The pay as you go financing of the On the other hand, the financing mech- catastrophic legislation stands in stark anism was simple, straightforward, and contrast to that approach. Again, the un ular t zkwric f @rfeiw-. seems to have wotkod against its only The costs were immediately apparent. The major piece of social legislation. comparison with the benefits also suf- 4. Medigap Was More Popular than fered from the additional disadvantage Imagined. Although health policy ex-. that the premiums came on line before perts often cntacize Medigap programs, the most of the benefits. Again, opponents elderly seem quite satisfied. Indeed, by could truthfully say that Catas@ophic was buying multiple policies they have voted National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 No. 31 MARILYN MOON 379 with their wallets. A side effect of the those who would be asked to pay the most complexity of Medicare is that many older under the government plan were those who persons do not appreciate the share that had the beat coverage and at the lowest the public program vs. the private pro- cost through their own private arrange-, gram pays. Statements about Medicare ments. payments are forwarded to beneficiaries 5. Momentum Clouds Judge- via private insurance companies who pro- ment. While the deliberative nature of the cess the claims-and who are often the legislative history of the Catastrophic Act same companies that offer Medigap cov- meant there was ample opportunity for erage. In addition, when medigap insur- study and reflection, the process built up ers handle some of the processing for el- a momentum that made it dffficult to re- derly clients, the clients are likely to treat or change direction. The compro- believe that the private insurer is paying mises made early in the debate locked the most of the bill. players into a set of constraints that, in A substantial minority of elderly ben- hindsight, appear somewhat flawed. But eficiaries have their medigap insurance when agreement is reached at each stage paid for @x a tbkd usually an em- of 4p rocess and the principals in the - Rqoy"'e"@ tormer- enimyer or' -ene @499"Wllt I ffVMtftk 4 ready covered by medigap policies would the whole structure or question anything be worth little to such individuals. These beyond marginal changes. individuals are more likely to have rich In the case of the catastrophic legisla- benefit packages, including drug cover- tion, there were no major setbacks along age. At the same time they are the ones the way to passage that caused anyone to most likely to pay the $800 supplemental question the basic structure of either the premium. Not only would their tax bite benefits or the financing. Much of the dis- be high, but these persons could legiti- cussion centered on the various pieces and mately claim that they would benefit lit- how they could be added to the package. tle from the Catastrophic Act. Neither the attractiveness of the entire During much of the debate on the leg- bill, nor the logic of the benefit combi- islation, proponents assumed that hene- nations received major attention. There ficia.ries would be happy to have new cov- was more debate over the basic financing erage even if medigap already paid, so long approach, but it came to be viewed as a as there would be reductions in private necessary evil to fund the benefits within premiums. Instead, many of those object- the constraint of a self-financed system. ing to the Catastrophic coverage offered With the benefit of hindsight, some of claimed just the opposite-that they were the concerns listed above should have happy with the private coverage they had. raised warning signs. But earnest efforts Part of this was undoubtedly a sense of to mold a workable package are incom- sticking with current coverage that seemed patible with stepping back and reviewing adequate. Part of the objection was to the bill in an objective way. The analyses subsidizing others. Mnally, many benefi- provided by the Congressional Budget Of- ciaries expressed the sentiment that their fice probably came closest to such an own plan was likely to be more efficient. overview, but the CBO numbers seemed While all the evidence on the efficiency of to mostly help shape variations in the fi- Medicare vs. Medigap runs in just the nancing package. Even those long mem- other direction, many, if not most, bene- oranda did, not carefully consider how the ficiaries remain unconvinced. The 1980s package would look to the ultimate au- rhetoric of government as fraught with dience: the Medicare beneficiaries. fraud, waste and abuse surely contrib- The lack of serious objection to the uted to this belief. framework adopted from the Bowen Com- Thus, the package of benefits was of- mission and the gradual addition of nu- fering improved security to beneficiaries merous small benefits resulted in a piece who believed they already had reasonable of legislation with no clear central focus. coverage against these circumstances. And Even its name-Catastrophic-evoked National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 380 NATIONAL TAX JOURNAL [Vol. XLIII images of long-term care benefits which no distinctions by economic status or other were not key elements. In a sense the characteristics. Catastrophic Act was a Christmas tree bill Catastrophic is likely the first salvo in to which ornaments had been added. The a long and perhaps bitter debate over a problem was that there were more orna- changing view of older persons. Perhaps ments than tree. A critical reassessment one of the greatest twfical n-ti@es of the of the bill at a key moment might not have legislation stemmed from how dramatic avoided problems with the legislation, but the change in treatment of beneficiaries might have forced proponents to answer would have been. It is one thing to grad- the basic question of "is it worth it?" ually introduce income related pre * Significantly, the proposals considered for Medicare and quite another to have the at the end of the debate were not offered first step be an $800 maximum premium by the key committee leaders who had tied to a benefit with an actuarial value been responsible for the original legisla- of $250. tion. It was the careful working of the 7. The State of Policy Analysis in De- committee structure that crafted Cata- cision-Making. As noted above, the Cat- strophic, and the general discontent of astrophic legislation was subjected to a other members that led to its undoing. great deal of analysis by researchers and When the pressure to repeal Cata- policy analysts. No one can claim that the strophic began to mount, many of the legislation was repealed because the Con- supporters of the legislation were hard- gress moved with haste and without ex- pressed to argue that this was a well-in- pert advice. Why then weren't we more tegrated package. Momentum did, how- prepared for the firestorm of criticism ever, keep them from reevaluating the leveled at Catasitiophic? In part, the an- situation for some time. swer reflects the fact that policy analysts 6. A Changed View of the El- and policy makers worked together to derly. Part of the significance of the Cat- convince themselves that the legislation astrophic Act stemmed from the new at- made sense. It fit the needs that study titude toward Amenas elderly. No longer demonstrated were there. Unfortunately, do members of Congress view persons over the general public was not involved in the 65 as a homogenous group in need of pub- debate and the perceptions of need did not hc support. Rather, the financing mech- correspond to the analysis. Is the answer anism represents a formal acknowledge- then that catastrophic was good pohey but ment of the disparities in economic status bad politics? of the elderly. The most affluent of the el- To some extent a good case can be made derly are viewed as taxpayers rather than that the Catastrophic legislation provided as deserving beneficiaries of expanded real benefits for a majority of older Amer- programs. This major change in attitude icans and filled important gaps in the stands in stark contrast to the views ex- Medicare program. The simplification of pressed when Medicare was first passed Part A hospital benefits, the introduction in 1965. The issue of any means testing of drug and respite benefits-even if quite of Medicare was finessed by arguments limited, and the major-and underesfi- that nearly all the elderly needed the mated-increase in the skilled nursing health benefits and were too poor to buy benefit would have meant major improve- them on their own (Marmor, 1972). ments in the health care coverage of older Not ready yet to subscribe to this view, persons, even to many who already_.had 01 i - -- ha"ordft TmL-rueanitae f would begin to differentiate among the these benefits was not communicated well elderly. Either because beneficiaries do not to beneficiaries. As discussed above, the believe such claims-or perhaps because benefits were complicated and various in- of an understanding about their implica- terest groups helped distort the story. tions-older persons have sought to have But it is also too easy to simply argue Medicare remain a universal program with that older persons were misinformed or National Tax Journal, Vol. 43, no. 3, (September, 1990), pp. 371-81 No. 31 NLARILYN MOON 381 uninformed. In other areas, analysts and ments beneficiaries would pay for physician and other gem ce-s and a - B was alsobenefit withto a s6oo initial drug policy makers ignored information that deductible. Part expanded include mam- should have signaled problems. For years, -ography screening, and a small respite benefit. older persons have demonstrated how qmnicauy, elderly beneficiaries would receive lower much they like and are satisfied with the actuarial benefits from the legislation than the dis. abled in general and end-stage remal disease (ESRD) private supplemental policies that have patients in particular. Such beneficiaries use more grown up around Medicare. Displacing health care semm and hence are more likely to hit coverage that these policies now provide the Part B cap and to benefit from the elimination of was not popular, and analysts could have hospital -Pam-ts and extra deductibles. Groups like the PMA could have more con-ectly cited such differ- anticipated that fact. In addition, we have to fuel Opposition to Catastrophic-although long known that universal programs en- ences groups lack the negative emotional reaction that these joy much greater popularity in the United people have to AIDS sufferers. 40ne of the early compromise packages that seemed States than do means-tested ones. The politically promising kept only the original hospital dramatic shift in the financing of Medi- improvementa and the Part B cap-an approach dos- care was meaningful beyond the dollar est to the original Bowen proposal_and a few of the value of the burden of the supplemental other less costly add-ons. The package was originally . ramill. rn-it h! rec@m a r:g le in ig.iiipi Means Committee. But supported by the_ Ways andNo oWftt6Wb3nne' "Wo Yal*Mtfler angere m-a'riy .fit. -vumrw@" ld largely go to the higher income beneficia- senior citizens. Fair or not, this was re- ries who would Ww be getting the tax relief from sented by many-even by those older per- eliminating the supplemental prennum helped sink sons who would have paid low prer ,aiUMS. that idea. REFERENCES ENDNOTES Congressional Budget Office. 1987. "A Comparison of Selected tatestrophic Bills." Mmeo, July 30, 'Other groups also added their own analysis and Congressional Budget Office. 1988. "The Medicare polls to the debate. The Villers and Retirement Re- Catastrophic Coverage Act of 1988." Staff Working search Foundations funded a study of the impacts of Paper, August 1. various catastrophic caps (Feder, Moon, Scanlon, 1987). Congressional Budget Office. 1989. "Background Ma- AARP funded internal analyses Namer, 1987). The tenal on the Catastrophic Drug Insurance Pro- major opponents of catastrophic were the drug com- gram." Mimeo, July panies and their trade Association, the Pharmaceu- Feder, Judith, Marilyn Moon and William Scanlon. tical Manufacturers Association. These groups en- 1987. '?Aedicam Reform: Nibbling at Catastrophic gaged in an education" campaign that was largely Costs." Health Affairs (Winter), pp. 5-19. aimed at swaying public opinion and did not rely Marmor, Theodore. 1972. The Politics of Medicare. heavily on the facts. Reputedly, the PMA spent over Chicago: Aldine Publishing Company. $3 million dollars on its campaign (Rich, 1989). For Office of Management and Budget. 1986. Budget of example, PMA mailings to senior citizens urged them the United States Governnwnt. F71987. Washing- to protest the potential cost of the drug benefit for ton: U.S.G.P.O. AIDS patients (PMA, 1987). Opinion Research Corporation. 1987. "AmericanaAt- A number of groups also attempted to poll individ- titudes Towards Catastrophic Health Costs." Mi- uals, particularly the elderly, to guage their support meo. for the legislation. The AARP conducted a series of Pharmaceutical Manufacturers Association. 1987. polls beginning in April of 1987 to help bolder sup- Conwpondence. port for catastrophic and identify which benefits Rich, Spencer. 1988. "Provisions of 'Catastrophie In- seemed of most value (ORC, 1987) None of these early suralnee Act." Washington Post. July 1, p. A21. polls concentrated on the fina ing options, however, Torres-Gil, Fernando. 1989. "The Politics of Cata- and in general they had a hard time offering infor- strophic and Long-Term Care Coverage." Journal mation on all the elements in the benefit packages of Aging & Social Policy Vol. 1, pp. 61-86. under consideration. Varner, Theresa. 1987. "Catastrophic Health Care 'Only one of the benefits, Part A hospitalization, Costs for Older Americans: The Issue and Its fin- did much to simplify the program. Beneficiaries were plications for Policy Development." Public Policy to get 365 days of coverage and only be liable for one Institute Papers, American Association of Retired deductible per year The skilled nurmng benefit (SNF) Persons, June. was made much more generous and hospice benefits Wyszewianaki, Leon. 1986.'Tlnancially Catastrophic and home health care benefits were to be expanded and High-Cost Cases: Definitions, Distinctions, and modestly. On the Part B side, the two major benefits their hnplications for Policy Formation." Inquiry, were a limit on the amount of deductibles and copay- 23 (Winter), pp. 382-394.
Pages to are hidden for
"THE RISE AND FALL OF THE MEDICARE CATASTROPHIC COVERAGE"Please download to view full document