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Medicare Reform
Will policymakers agree on prescription-drug benefits?

             awmakers are considering the most significant

             changes to Medicare — the federal health-

             insurance program for the elderly and disabled

             — since it was established in 1965. If they reach

an agreement, Medicare’s 41 million beneficiaries will be able

to obtain prescription-drug coverage through private health-

insurance plans. Private insurers also will likely play an ex-

panded role delivering health services to seniors. But Repub-
licans and Democrats remain far apart. Republicans want to

inject market competition into the Medicare system, con-
                                                                              THIS ISSUE
                                                                                 THE ISSUES ......................675
vinced it is the only way to control rising program costs.                I
                                                                                 CHRONOLOGY ..................683
Democrats want to protect Medicare’s core fee-for-service                        BACKGROUND ..................684
program and its principle of equal benefits for all. The                         CURRENT SITUATION ..........688
negotiations are shaping up to be the most significant                           AT ISSUE ..........................689
health-policy debate in years.                                                   OUTLOOK ........................691
                                                                                 BIBLIOGRAPHY ..................693
                                                                                 THE NEXT STEP ................694

                          Aug. 22, 2003 • Volume 13, No. 28 • Pages 673-696



   MEDICARE REFORM                                                                               T

                                                                                              CQ Researcher

                                                                                                              Aug. 22, 2003
         THE ISSUES                                     SIDEBARS AND GRAPHICS                               Volume 13, No. 28

         • Will adding Medicare                         Medicare Could Go Broke
675      drug coverage help most
                                              676       in 2026
                                                                                                     MANAGING EDITOR: Thomas J. Colin

         seniors?                                       Medicare could be out of                 ASSISTANT MANAGING EDITOR: Kathy Koch
         • Are private insurance                        money in 23 years.                             ASSOCIATE EDITOR: Kenneth Jost
         companies that stand to                        Spending on Rx Drugs                          STAFF WRITERS: Mary H. Cooper,
         play a bigger role in                677       Likely to Increase                                         David Masci
         Medicare willing to admin-                     By 2006, seniors will be                  CONTRIBUTING WRITERS: Rachel S. Cox,
         ister benefits?                                spending 36 percent more                      Sarah Glazer, David Hosansky,
         • Can the traditional                          on prescriptions.                              Patrick Marshall, Jane Tanner
         Medicare system compete                                                                    PRODUCTION EDITOR: Olu B. Davis
         with private health plans?                     How Much Competition
                                              678       Is Enough?                                ASSISTANT EDITOR: Benton Ives-Halperin
         BACKGROUND                                     Negotiators want to inject
                                                        competition into Medicare.
         Evolution of Medicare
684      Depression-era sentiment             680       Uninsured Americans
                                                        Pay More for Drugs
         began shifting toward gov-                     Seniors without drug coverage
         ernment social safety nets.                    spend at least 30 percent more.                           A Division of
                                                                                                           Congressional Quarterly Inc.
         Final Battles
686      Organized labor began                681       Discriminating Against
                                                        the Rich?
                                                                                                SENIOR VICE PRESIDENT/GENERAL MANAGER:
                                                                                                             John A. Jenkins
         pushing for national health                    Should Congress restrict
         insurance in the 1950s.                        Medicare for wealthier                DIRECTOR, LIBRARY PUBLISHING: Kathryn C. Suárez
                                                        seniors?                                      DIRECTOR, EDITORIAL OPERATIONS:
         Benefits Added
686      Although Congress has                683       Chronology
                                                                                                                Ann Davies
                                                                                                     CIRCULATION MANAGER: Nina Tristani
                                                        Key events since 1912.
         added benefits, Medicare
         is still an outmoded plan.                     Glossary of Medicare                         CONGRESSIONAL QUARTERLY INC.
                                              685       Terms                                             CHAIRMAN: Andrew Barnes
                                                        How to tell Part A from Part
         CURRENT SITUATION                              B.                                            VICE CHAIRMAN: Andrew P. Corty
                                                                                               PRESIDENT AND PUBLISHER: Robert W. Merry
         Conference Hurdles
688      Major compromises must               689       At Issue
                                                        Will pending Medicare pro-            Copyright © 2003 CQ Press, a division of Congres-
         be made to overhaul                            posals help elderly Americans?        sional Quarterly Inc. (CQ). CQ reserves all copyright
         Medicare this year.                                                                  and other rights herein, unless previously specified
                                                                                              in writing. No part of this publication may be re-

         Floor Drama                                    FOR FURTHER RESEARCH                  produced electronically or otherwise, without prior
688      The House has a deep                                                                 written permission. Unauthorized reproduction or
                                                        For More Information
         partisan rift over Medicare,         692       Organizations to contact.
                                                                                              transmission of CQ copyrighted material is a viola-
                                                                                              tion of federal law carrying civil fines of up to $100,000.
         but the Senate does not.
                                              693       Selected sources used.
                                                                                              The CQ Researcher (ISSN 1056-2036) is printed on
                                                                                              acid-free paper. Published weekly, except Jan. 3, June
         OUTLOOK                                                                              27, July 4, July 18, Aug. 8, Aug. 15, Nov. 28 and Dec.
                                                        The Next Step
         More Debates Expected                694                                             26, by Congressional Quarterly Inc. Annual subscrip-

691      Many Medicare compro-
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Cover: John Polimeno, a retiree in Reading, Mass., displays the medications taken daily by    address changes to The CQ Researcher, 1255 22nd
his wife, a diabetic with heart, kidney and respiratory ailments. High drug prices have led   St., N.W., Suite 400, Washington, D.C. 20037.
seniors to demand that Medicare help pay for prescription drugs. (AP Photo/Charles Krupa)

674       CQ Researcher
                                     Medicare Reform
                                                                                                                           BY ADRIEL BETTELHEIM

THE ISSUES                                                                                        A. Scully, administrator of the
                                                                                                  Centers for Medicare and
                                                                                                  Medicaid Services, told the

L      ingTee Hailey, a 75-
       year-old Nashville re-
       tiree, seems like ex-
actly the kind of person
Washington policymakers
                                                                                                  Senate Finance Committee
                                                                                                  on June 6. “Not only is it im-
                                                                                                  portant to offer modern, in-
                                                                                                  novative health-care choices
                                                                                                  for seniors, but to do so in
want to help when they dis-                                                                       a way that is fiscally re-
cuss overhauling the feder-                                                                       sponsible.”

                                                                                             Getty Images/Joe Raedle
al Medicare program. To treat                                                                        After years of blaming each
her high blood pressure and                                                                       other for Medicare’s woes and
macular degeneration, an eye                                                                      using the issue as a political
condition that can lead to                                                                        cudgel in elections, Republi-
blindness, Hailey takes pre-                                                                      cans and Democrats early in
scription drugs that cost her                                                                     the current 108th Congress
$2,400 per year — a steep                                                                         concluded that it was in their
price considering her only           Seniors’ prescription-drug costs would be covered — at       respective interests to revamp
                                     least in part — under legislation to overhaul Medicare
source of income is $16,000        being debated by Congress. With drug prices skyrocketing       the entitlement program, which
in Social Security payments.         and an election year looming, lawmakers are trying to        currently serves 41 million el-
    But when the former              hammer out a compromise between House and Senate             derly and disabled Americans.
architectural designer studies          versions of the measure. Some 12 million elderly             The lawmakers who as-
the proposals under discus-                   Americans do not have drug coverage.                sembled on July 15 for cere-
sion in the House and Sen-                                                                        monial handshakes pledged to
ate that would add a prescription-drug          Medicare expenditures as a percent- work in a bipartisan fashion. But they
benefit to Medicare, she gets angry. age of gross domestic product are pro- still have very different visions of how
Even after paying a $420 annual pre- jected to rise from the current 2.6 per- the program should work when the
mium and deductible, elderly Ameri- cent to 5.3 percent in 2035 and 9.3 in first Baby Boomers become eligible for
cans like Hailey likely would have to 2077, according to the program’s trustees. benefits in 2010. Those differences may
spend thousands of dollars before gov-          Program costs have risen due to yet scuttle efforts to produce a final bill
ernment coverage pays for all or the the growing demand for services like for President Bush to sign. But the fact
vast majority of her drug bills.              home health care and technologically that leaders of both major political par-
    “There’s a huge gap where you have advanced procedures like organ trans- ties are considering overhauling arguably
to pay the entire thing,” an irate Hailey plants, joint replacements and new can- the most popular legacy of former Pres-
exclaims. “People who can’t afford it cer treatments. Waste, fraud and abuse ident Lyndon B. Johnson’s Great Soci-
now certainly can’t afford [the cost-shar- on the part of some providers have ety speaks volumes about the shifting
ing arrangement].” 1                          added to higher costs as well.             national debate over health care and
    Finding a way to help Hailey and            With health-care spending growing social policy.
other seniors is the biggest task fac- faster than the overall economy, it is               Both the House and Senate plans
ing 17 influential House members and increasingly difficult to offer quality care would allow seniors to get Medicare-
senators, who began negotiations on at affordable prices and still control ris- subsidized prescription drugs in 2006,
July 15 to write legislation that would ing Medicare costs. Covering seniors’ either through special drug-only in-
make the most significant structural prescription drugs would only add to surance policies or all-inclusive pri-
changes to Medicare in its 38-year his- the spiraling costs: Retail drug prices vate health plans. Between 2004 and
tory. At an annual cost of $269 bil- jumped more than three times the rate 2006, they could obtain interim sub-
lion, the Medicare program — which of inflation between 1998 and 2000. 2 sidized drug coverage through pri-
provides health-insurance protection to         “If we were creating the Medicare vately offered drug-discount cards. The
virtually every American who reaches program today, we would model it sweeping House and Senate blueprints
age 65 — is the second-most-expen- after what consumers are receiving in would also encourage seniors to en-
sive federal domestic program after today’s health-care marketplace: more roll in private managed-care health
Social Security.                              choices and better benefits,” Thomas plans — such as preferred provider

CQ on the Web:                                                                                         Aug. 22, 2003       675

 Medicare Could Go Broke in 2026
 As currently funded, Medicare is expected to have spent all the money in its trust fund, which is funded
 by payroll taxes, by 2026, according to Medicare trustees. Even sooner, in 2013, the program will begin
 to dip into the trust fund, paying out more than it is taking in. Rising health costs combined with a surge
 of retiring Baby Boomers account for the bleak projections. Advocates of overhauling the system believe
 giving private health plans a greater role in administering benefits will turn down rising program costs.

              Medicare Trust Fund Balance, as a Percentage of Annual Expenditures





        1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031



 Source: Department of Health and Human Services, Centers for Medicare and Medicaid Services, March 17, 2003

organizations (PPOs) or health-main-            Most policymakers believe the sys-         Critics of the overhaul efforts say
tenance organizations (HMOs) — as           tem must be changed because                that while Medicare should be mod-
an alternative to Medicare’s govern-        Medicare cannot survive the demo-          ernized to improve its long-term via-
ment-provided fee-for-service system.       graphic surge of retiring Baby             bility, the House and Senate plans rely
(See glossary, p. 685.)                     Boomers. On March 17, Medicare’s           too heavily on private insurers and
    But because both Congress and the       trustees forecast that the payroll-tax-    market forces to cut costs and deliv-
Bush administration have agreed to cap      funded program will exhaust its trust-     er benefits. This could lead to many
spending on Medicare overhaul at $400       fund money by 2026 — four years ear-       seniors seeing their coverage curtailed
billion over the next 10 years, revising    lier than was projected last year. In      or reduced due to insurers’ business
the system will require painful trade-      addition, the report said, Medicare will   decisions, critics say. They also want
offs. For instance, some Medicare ben-      begin to dip into the trust fund, by       policymakers to heed the risks of a
eficiaries will have to pay higher out-     paying out more than it is taking in,      competitive market and strengthen the
of-pocket costs for drugs. And seniors      by 2013 — three years earlier than pro-    traditional government-run Medicare
in certain geographic regions may have      jected last year. Rising drug and other    system, which allows beneficiaries to
fewer options for obtaining health cov-     health costs combined with a dramat-       choose which doctors they see.
erage. And one of the bills would cause     ic increase in the number of benefi-           “Medicare is a viable program,”
a fundamental shift away from Medicare’s    ciaries account for the revised esti-      says Marilyn Moon, a senior fellow at
core principle of equal benefits for all.   mates. 3                                   the Urban Institute, a nonpartisan Wash-

676       CQ Researcher
ington think tank. “In terms of meet-                                                          be in a position to target as much as
ing the needs of those it is intended                 Spending on Rx Drugs                     $400 billion for Medicare overhaul. No
to serve, and in terms of future af-                  Likely to Increase                       less a figure than Sen. Edward M.
fordability, the program can continue                                                          Kennedy, D-Mass., a liberal lion and
to succeed. It is neither unsustainable               Seniors will spend 36 percent            staunch defender of government en-
nor fatally flawed.”                                  more on prescription drugs by            titlements, threw his support behind
   Overhauling the system this year,                  2006, the year Congress pro-             the bipartisan Senate plan early in the
however, would signal that both polit-                poses creating new Medicare              debate, giving it an immediate air of
ical parties are willing to make tough                drug benefits.                           credibility. Though the plan goes
choices to address the needs of an in-                                                         against Kennedy’s wishes by provid-
fluential group of voters. * It also would                                                     ing incentives for seniors to join pri-
deliver immediate relief to the approx-                   Average Per Capita                   vate health plans to obtain Medicare
imately 12 million Medicare beneficia-                  Annual Drug Spending by                drug coverage, it also would allow
ries who don’t have drug coverage pro-                    Medicare Recipients                  similar drug coverage for seniors who
vided through employer-sponsored                                                               remain in Medicare’s traditional fee-
health plans or individual policies.                                                           for-service system. 4
   But policymakers still will have to                                                             The Senate bill represents “a major
overcome sharp divisions if they are                                                           breakthrough in our effort to give se-
to combine aspects of a bipartisan                                  $2,322                     nior citizens the prescription-drug cov-
Senate Medicare drug bill and a con-                                                           erage under Medicare they need and
siderably more conservative House ver-                  $1,610                                 deserve,” Kennedy says.
sion crafted virtually with no Demo-                                                               President Bush made overhauling
cratic input. More important, lawmakers                                                        Medicare his top domestic policy pri-
must convince seniors that any revised                                                         ority in his 2003 State of the Union
system will meet their health needs                                                            address and could reap significant po-
and be worth paying for — or face                        2000        2003        2006          litical benefits from any agreement
a potentially devastating political back-                                                      struck by Congress. Overhauling
lash in next year’s presidential and                  Source: Kaiser Family Foundation,        Medicare would allow Bush to take
congressional elections.                              June 2003                                credit for delivering results on an issue
   Such conundrums have made                                                                   on which Democrats have traditional-
Medicare and other forms of nation-                  gress became willing to pass autho-       ly scored high with voters. And any
al health insurance a political flash-               rizing legislation.                       negative fallout will only likely mate-
point ever since former President Harry                  Since then, Medicare has been a       rialize well after the 2004 elections —
S Truman’s unsuccessful effort to cre-               public-policy paradox: a beloved gov-     another factor driving some politicians
ate a national health-insurance system               ernment-run program that actually pro-    to cut a deal this year.
in 1949-50. For nearly a generation,                 vides much less in the way of bene-           As congressional negotiators debate
Democrats and their allies in labor                  fits than most private health plans. In   ways to overhaul the Medicare sys-
pressed for a system that would pro-                 the 1980s and ’90s Congress beefed        tem, here are some of the questions
vide coverage for seniors, only to be                up benefits, adding coverage of flu       they are asking:
rebuffed by congressional Republicans                and pneumonia vaccinations, as well
and the influential American Medical                 as mammograms to detect breast can-       Will adding Medicare drug cover-
Association (AMA), which felt it would               cer. As part of the 1997 Balanced Bud-    age help most seniors?
lead to standardization of care and                  get Act, lawmakers added more pre-           The debate over drug coverage for
government overregulation of the med-                ventive coverage, including screening     the elderly elicits powerful images,
ical profession. It was only after a De-             for prostate and colorectal cancer and    such as the ailing senior on a fixed
mocratic landslide in 1964 that Con-                 coverage for managing diabetes.           income cutting pills in half to make
                                                         The push to enact legislation this    the medicine last longer or elderly res-
* If lawmakers do not reach an agreement on
                                                     year and dramatically reshape the pro-    idents of border states taking bus trips
reform this year, they will have to start all over   gram was driven by forecasts of huge      into Canada and Mexico to buy low-
next year drafting plans, holding hearings and       federal budget deficits in the coming     priced prescription drugs. Politicians
markups — making chances for success very            decade, and the realization by both       cite such real-life circumstances as
slim.                                                parties that Congress may never again                            Continued on p. 679

CQ on the Web:                                                                           Aug. 22, 2003              677

 How Much Competition Is Enough?
D           iscussions about revamping Medicare inevitably turn         to make up the extra amount through out-of-pocket payments.
            to the thorny question of how to inject market com-             Defenders of traditional Medicare worry that healthier and
            petition into the system and control the program’s ris-     wealthier seniors will gravitate to private plans, leaving sicker,
 ing costs. It is a conundrum that divides Republicans and most         poorer seniors in the traditional system. Those beneficiaries’
 Democrats and is arguably the most difficult element of the            medical bills are likely to rise faster, making it likely that costs
 current negotiations over overhauling the program.                     under the traditional system will exceed the established rates.
     The House-passed plan assumes a much greater role for pri-             A group of 37 Senate Democrats served notice to President
 vate health insurers than the Senate plan and revives the contro-      Bush on July 8 that they would not support any conference
 versial concept of “premium support,” which was endorsed in 1999       agreement that includes the House language on competition or
 by a bipartisan commission studying proposals to overhaul the sys-     otherwise “coerce [beneficiaries] into leaving conventional Medicare
 tem. Fittingly, one of the commission’s co-chairmen was current        to enroll in HMOs [health maintenance organizations] and pri-
 House Ways and Means Committee Chairman Bill Thomas, R-Calif.,         vate plans.” In a letter to Bush, the senators additionally said
 who helped draft the House version of the Medicare overhaul leg-       they would oppose an agreement that would force seniors “to
 islation and now heads the House-Sen-                                                               choose between giving up their doc-
 ate conference on the measure. The                                                                  tor or face higher premiums to stay
 other co-chair was Sen. John Breaux,                                                                in the current Medicare program.” 1
 D-La., a conservative Democrat and                                                                      The statement was designed to
 one of the current Senate conferees.             Defenders of traditional                           assuage labor unions, consumer
     In an effort to trigger competition                                                             groups and other traditional Demo-
 between private plans, the pending                 Medicare worry that                              cratic allies that the traditional fee-
 premium-support proposal would                                                                      for-service program would be pro-
 have the federal government subsi-               healthier and wealthier                            tected in negotiations.
 dize some of the out-of-pocket costs                                                                    But conservative lawmakers had
 that beneficiaries would have to pay             seniors will gravitate to                          similarly drawn their own line earli-
 to join private health plans. Benefi-                                                               er. On June 25 a group of 42 House
 ciaries who prefer to buy more ex-                private plans, leaving                            Republicans wrote Speaker J. Dennis
 pensive plans would have to pay                                                                     Hastert, R-Ill., that they would not
 more out of their own pockets, while            sicker and poorer seniors                           support any final compromise unless
 those who opt for plans with lower                                                                  it promotes private health plans.
 premiums could save both themselves             in the traditional system.                              The members identified “cost-sav-
 and the federal government money.                                                                   ing, market-based measures” in the
     Premium support also would help                                                                 House-passed plan as essential to their
 pay some of the costs for Medicare’s                                                                support, and demanded that any final
 traditional fee-for-service program, allowing it to compete on         bill include the House language. “Should this reform be removed
 equal footing with the private plans. The fee-for-service system       or weakened, we cannot, as a matter of responsible public poli-
 pays physicians and other health-care providers for Medicare           cy, support a bill to add a prescription-drug benefit to Medicare,
 services, as they are provided to beneficiaries.                       which would accelerate the insolvency of this vital program,” the
     The House bill would require private health plans to bid against   lawmakers wrote. 2
 each other to offer Medicare services in geographic regions es-            The Senate bill treats competition differently, allowing pri-
 tablished by the government. The three lowest bidders would win        vate plans to compete against each other but not charge ben-
 the right to offer service modeled on preferred provider organi-       eficiaries more than traditional Medicare until 2009. After that,
 zations (PPOs). Medicare beneficiaries could select between tradi-     plans could compete with each other in ways similar to the
 tional Medicare fee-for-service or one of the three private options.   method outlined in the House bill. However, the plans could
     In areas where competition exists, the House plan would re-        not compete directly against Medicare. The Senate bill also con-
 quire the traditional Medicare system to compete directly on           tains a provision favored by Democrats that would offer a gov-
 price against the private plans, beginning in 2010. The govern-        ernment-run drug benefit in those areas where there are not
 ment would review all of the bids and establish a weighted av-         at least two private plans offering drug benefits.
 erage cost of care, by which it would establish payment rates.
                                                                        1 See Rebecca Adams, “Criticism of Medicare Bill Is Growing on Both Sides
 Traditional Medicare would have to provide services according
                                                                        of Aisle in the Senate,” CQ Today, July 9, 2003, p. 15.
 to those rates. If the cost of any participating plan, including       2 See Adam Graham-Silverman, “House Conservatives Draw Line on Con-
 Medicare, exceeded the established rate, beneficiaries would have      ference Report,” CQ Today, June 27, 2003, online at

678       CQ Researcher
Continued from p. 677                      contain so many gaps — due mostly                Most employers expect to retain ben-
they debate how to balance the needs       to budget constraints — that seniors         efits for seniors already receiving them,
of an aging population that is using       may feel cheated and unwilling to pay        according to surveys by the Kaiser
more and more prescription drugs           for the new benefit. The House plan,         Family Foundation and others. But some
with those of a Medicare system            for example, would require seniors to        — already hurt by rising health-care
whose drug spending is expected to         pay monthly premiums of about $35            costs — are planning reduced cover-
grow by 10 percent annually over the       and an annual deductible of $250. In         age for future retirees. Lawmakers worry
next decade.                               exchange, the government would pay           that the promise of government cov-
   Though seniors comprise only 13         80 percent of drug costs from $251 to        erage may entice some companies to
percent of the nation’s population,        $2,000, but seniors would pay drug           scale back or drop their private cov-
they account for 42 cents of every dol-    costs from $2,001 to $4,900. Only after      erage sooner.
lar spent on prescription drugs, ac-       a senior paid $3,500 out-of-pocket               “You don’t want to replace private
cording to the liberal-leaning Wash-       would Medicare cover all further drug        dollars with public dollars,” says
ington advocacy group Families USA.        costs. The Senate plan contains a sim-       House Ways and Means Committee
Nine in 10 Medicare beneficiaries use      ilar coverage gap, known in health-          Chairman Bill Thomas, R-Calif., chair-
prescription drugs, at an average an-      care parlance as a “doughnut hole.”          man of the House-Senate Medicare
nual cost of $2,322. Advocates for the         GOP leaders stress that very few         drug conference.
elderly fear medical inflation will hike   seniors would fall into the coverage             Closely watching the debate are se-
those out-of-pocket costs dramatically     gaps. Yet the Kaiser Family Founda-          niors such as Darlene Vierow, 70, of
at a time when many cash-squeezed          tion, a health-care think tank, esti-        Evans, Colo., who doubts the bank
companies are considering reducing         mates that in 2006 a third of Medicare       where she used to work will cover
drug coverage for retirees. 5              recipients will probably fall within the     her drug costs indefinitely and hopes
   The Medicare overhaul plans under       House’s doughnut hole. 7 One such            Congress will create a Medicare drug
discussion would allow seniors to ob-      senior is Hailey, the Nashville retiree      benefit. The bank’s share of her med-
tain prescription-drug coverage in two     who was upset the proposed drug              ical insurance, including drug cover-
main ways: by joining a new man-           benefit does not offer continuous cov-       age, totals $6,000 — an amount she
aged-care network similar to a PPO         erage.                                       expects to exhaust in two years. Vierow
— which most seniors do not now                “The best we are offering is an on-      suffers from migraines, osteoporosis
have — or by remaining in the tradi-       again, off-again discount plan that pro-     and high cholesterol, requiring medi-
tional Medicare program and buying         vides at least as much confusion as it       cine that would cost her more than
a separate drug-only insurance plan,       does coverage,” says Senate Minority         $500 out-of-pocket per month without
an option that does not exist now. 6       Leader Tom Daschle, D-S.D., who              coverage. Vierow’s story is featured on
   Supporters say the coverage will        blames Republican tax cuts for leav-         the Web site of AARP, the influential
provide a safety net by subsidizing        ing Congress with insufficient funds to      seniors’ lobby. While it has not taken
the average senior’s drug bills and        create across-the-board coverage for         a formal position on a specific over-
providing so-called catastrophic cov-      drug costs. “The drug benefit is dras-       haul plan, the AARP is urging Con-
erage for the lion’s share of expens-      tically underfunded. As a result, se-        gress to preserve the traditional
es for the sickest beneficiaries. Low-     niors will be forced to pay high de-         Medicare system. 8
income beneficiaries would receive         ductibles and face large gaps in                 Beyond employer subsidies, many
extra subsidies.                           coverage.”                                   lawmakers are adding elements to the
   “[The overhaul plan] is like a shot         Others worry that struggling em-         Medicare plans to further address se-
of legislative botox,” says House En-      ployers could stop offering prescription-    niors’ rising drug costs without tak-
ergy and Commerce Committee Chair-         drug coverage to their retirees, trans-      ing the more dramatic and political-
man Billy Tauzin, R-La., whose panel       ferring the burden to the new                ly controversial step of imposing
helped draft that chamber’s Medicare       government plan and leaving the re-          price controls. Both the House and
drug bill. “It will rejuvenate an anti-    tirees with potentially skimpier bene-       Senate bills, for example, would
quated program by eliminating the          fits. Aware of the threat of so-called       streamline the Food and Drug Ad-
old-age lines of a different era and       employer crowd-out, lawmakers already        ministration (FDA) process for ap-
give it a fresh new look and appeal.”      have larded both the House and Sen-          proving less-expensive generic equiv-
   But many question how much the          ate bills with billions of dollars in sub-   alents of brand-name drugs. The bills
new drug benefit would help seniors.       sidies to employers to continue retiree      would restrict brand-name drug com-
Both the House and Senate proposals        coverage.                                    panies to apply for only one 30-month

CQ on the Web:                                                                    Aug. 22, 2003             679
                                                                                         But most Democrats and some Re-
 Uninsured Americans Pay More for Drugs                                              publicans remain skeptical about pri-
                                                                                     vate companies’ willingness to partic-
 About 12 million elderly Americans don’t have prescription-drug                     ipate, pointing to unsuccessful attempts
 coverage. Many tend to be older and sicker than seniors who have                    to steer beneficiaries into managed-
 coverage through employer-sponsored plans or privately purchased                    care plans since 1998. Many question
 policies and, as a result, spend more out-of-pocket for drugs.                      the wisdom of relying heavily on pri-
                                                                                     vate insurers to pay for drugs and
                                                                                     meet other important health needs of
          Average Out-of-pocket Drug Spending by                                     elderly Americans. 10
      Medicare Beneficiaries, by Source of Drug Coverage                                 “There hasn’t been any insurance
                                                                                     company I’m aware of that says they
             All Beneficiaries                                $999                   want to participate in this,” says Ira S.
                                                                                     Loss, senior health-care analyst for
              No Rx Coverage                                            $1,356       Washington Analysis Corp., a financial
                                                                                     consulting firm. “This could be a ben-
 Medigap/Medicare+Choice                                       $1,094                efit that no one comes to.” 11
            Employer/Retiree                              $880                           Many seniors in recent years have
                                                                                     been stung by steep premium increases
                            Other                      $761                          from their Medicare managed-care
                                                                                     plans, or by companies’ decisions to
                       Medicaid                $510                                  withdraw from Medicare altogether,
                                                                                     claiming program reimbursements were
                                                                                     too low to provide them with a suf-
 Source: Kaiser Family Foundation, June 2003
                                                                                     ficient profit.
                                                                                         William Cornelius, a 74-year-old
stay to protect their patents from gener-   many policymakers are demanding a        Baldwin, Pa., retiree, learned in late
ic drugmakers’ challenges. Under cur-       solution that delivers price breaks to   2002 that he was facing a nearly five-
rent law, brand-name drugmakers             seniors. During House debate, im-        fold increase in his Medicare HMO
can file multiple stays.                    portation supporter Gil Gutknecht, R-    premiums. “This thing is running wild.
    Another provision would allow li-       Minn., held up two packages of the       It’s totally out of control,” he said.
censed drug wholesalers, pharmacists        breast cancer drug tamoxifen. “Why       “How can you afford it if it continues
and doctors to import U.S. drugs            is it that Americans have to spend       down this road, if they keep raising
shipped or manufactured abroad,             $260 for this life-saving drug,” he      [premiums] by these exorbitant per-
where they often sell for less. The         asked, “when Germans can buy it for      centages?” Eventually, Cornelius
House plan, in particular, contains         $60?” 9                                  switched to a rival plan whose pre-
controversial language, strenuously                                                  mium was about four times what his
opposed by the drug industry, al-           Are private insurance companies          old plan cost. 12
lowing consumers to import FDA-ap-          that stand to play a bigger role in          Congress expanded Medicare’s man-
proved prescription drugs from Cana-        Medicare willing to administer           aged-care program and renamed it
da. If imports from Canada are deemed       benefits?                                Medicare+Choice in the 1997 Balanced
safe by the Institute of Medicine, an          For years, Republicans have ad-       Budget Act. Lawmakers hoped that
arm of the National Academy of Sci-         vocated an expanded role for private     encouraging more beneficiaries to
ences, the provision could be ex-           insurance companies in Medicare, be-     join private plans would both save
panded to cover drugs made in FDA-          lieving they are better equipped to      money and give seniors a more com-
approved facilities in 25 industrialized    control the program’s growth than a      plete package of health coverage. To
countries.                                  government bureaucracy. GOP law-         encourage the development of man-
    Opponents fear the provision could      makers are so convinced of this that     aged care in outlying areas, where
trigger a flood of counterfeit or inef-     they have compromised with De-           Medicare reimbursements traditional-
fective medications into the U.S. mar-      mocrats and agreed to add prescrip-      ly are lower and private plans have
ket. But with public frustration over       tion-drug coverage for the first time    been reluctant to serve beneficiaries,
skyrocketing drug prices building,          since Medicare was created in 1965.                             Continued on p. 682

680       CQ Researcher
 Discriminating Against the Rich?
M             uch of the current Medicare system’s appeal lies in Feinstein unsuccessfully tried to attach an amendment to the
              its universal nature: Anyone who reaches age 65 is Senate Medicare bill that would charge higher premiums for
              eligible, regardless of income. If he were old enough, some wealthier recipients.
 even Bill Gates, the world’s richest person, would be able to
 receive subsidized health care under the program.
                                                                             Congress’ most well-known experiment with income relat-
                                                                         ing took place in 1988, when lawmakers passed the Medicare
     But current congressional efforts to overhaul the program Catastrophic Coverage Act. It dramatically expanded Medicare
 are tempting policymakers to consider restricting benefits for benefits but charged affluent beneficiaries extra for limiting their
 wealthier seniors. The House version of the bill, for instance, annual out-of-pocket medical expenses. The bill passed by large
 would gradually phase out federal subsidies for so-called cat- margins. Fewer than half of Medicare beneficiaries were sub-
 astrophic prescription-drug coverage for beneficiaries with in- ject to the extra tax.
 comes of $60,000 or higher.                                                 However, the new fee caused an uproar, culminating in an
     The concept is technically called “income relating,” but it is incident in which then-Ways and Means Chairman Dan Ros-
 more widely — and incorrectly — known as “means testing.” * tenkowski, D-Ill., was chased by a group of angry seniors after
 Congress has debated the op-                                                                              a meeting in his Chicago district.
 tion at least three times since                                                                           The next year, lawmakers took
 the late 1980s during discus-                                                                             the unprecedented step of re-
 sions on entitlement reform.                                                                              pealing the law.
 But lawmakers generally worry                                                                                 In 1995, Congress tried to charge
 about alienating wealthier se-                                                                            Medicare beneficiaries with incomes
 niors, who tend to vote in                                                                                above $60,000 more for their Part
 higher numbers than other age                                                                             B coverage. ** But the provision
 groups. The Bush administra-                                                                              was wrapped in a broader bud-
 tion opposes income relating.                                                                             get-reconciliation bill that was ve-
     Income relating is again                                                                              toed by then-President Bill Clin-
                                                                                                        AFP Photo/Dan Levine
 being considered because                                                                                  ton. Two years later, the Senate
 President Bush and Congress                                                                               Finance Committee included lan-
 agreed to limit spending on                                                                               guage in its version of a budget-
 Medicare overhaul to $400 bil-                                                                            reconciliation bill linking Medicare
 lion over a decade. Advocates                                                                             beneficiaries’ Part B insurance de-
 of the idea argue that with-                                                                              ductibles to their incomes.
 out some income criteria, an                                                                                  The theory was that the change
 individual like billionaire Gates,       Microsoft Chairman Bill Gates — the world’s richest              would alter seniors’ behavior, mak-
 co-founder of Microsoft Corp.,          person — is entitled to receive Medicare at age 65, but           ing them think twice about spend-
 would be eligible for the               some lawmakers want to restrict benefits for wealthier            ing their own money on health
                                              seniors in the federally subsidized program.
 same benefits as an unin-                                                                                 services. Clinton endorsed the
 sured, impoverished senior.                                                                               idea, and it was included in the
     “There’s a notion that it’s OK to consider using the money final Senate version of the budget bill. However, the idea was
 for the people who are most in need,” said Republican pollster dropped in conference in the face of strong opposition from
 Bill McInturff, adding that many of the most affluent seniors have House lawmakers.
 private benefits and are not in need of additional assistance. 1
     Substantial opposition to the idea still exists, in part because 1 See Bob Benenson, “Tying Benefits to Income a Tap Dance On Politically
 it would tinker with Medicare’s core principle of equal bene- Deadly ‘Third Rail,’ ” CQ Weekly, June 7, 2003, p. 1362.
 fits for all workers who contribute to the program through pay-
 roll taxes. Lawmakers who want to retain the core principle,
                                                                         * Means testing refers to the practice of specifically targeting an enti-
 such as Sen. Edward M. Kennedy, D-Mass., additionally worry
                                                                         tlement to individuals below a certain income level, as is the case with
 that income relating will make Medicare appear more like a
                                                                         the nation’s welfare program. Income relating allows all individuals to
 program targeted to the needy instead of a middle-class enti-
                                                                         obtain the same benefit, but charges well-heeled recipients more.
 tlement, making it less politically popular and potentially vul-
 nerable to future budget cuts.                                          ** Medicare Part B is an optional package covering physicians’ office
     Kennedy engaged in a rare shouting match with Sen. Di- visits and outpatient services available to individuals 65 and older will-
 anne Feinstein, D-Calif., on the Senate floor on June 26, after ing to pay monthly premiums, an annual deductible and co-payments.

CQ on the Web:                                                                                                 Aug. 22, 2003   681
Continued from p. 680                        envision a cost-sharing arrangement in           number of plans serving a particular
Congress authorized creation of net-         which the private plans and the gov-             region. Insurers contend it will cost
works of doctors, hospitals and other        ernment share in any cost savings or             millions of dollars to assemble
health providers who could band to-          overruns beyond specified levels, giv-           provider networks and to make a
gether to offer insurance.                   ing private plans an incentive to con-           competitive bid. They also argue that
   Instead, dozens of private plans          sistently keep costs down and to re-             any company that wants to devote the
withdrew from the program, com-              main in the program.                             resources to compete to offer bene-
plaining the government was setting              Moreover, Scully argues, the plans           fits should be allowed to do so.
low reimbursement rates and that it          involved will be preferred provider or-              “I think there is a long way to go
made little business sense to contin-        ganizations (PPOs), which are more               before [insurers] say, ‘Oh yeah, count
ue administering the benefits. As of         flexible than older forms of managed             me in,’ ” says Donald Young, presi-
January, an estimated 2.4 million se-        care — such as health-maintenance or-            dent of the Health Insurance Associ-
niors had been forced to join anoth-         ganizations — and better at coordi-              ation of America, a trade group rep-
er Medicare+Choice plan or return to         nating health services. Scully and other         resenting insurers who offer health,
the government-run Medicare system           Bush administration officials say gov-           disability, long-term care and other
because their original plan had left         ernment data suggest the most efficient          forms of coverage. 13
the program. Many of the seniors             plans can offer the same benefits as                 But even if insurers’ changes, like
joined a managed-care plan specifi-          the government-run Medicare system               single-state regions, are adopted, there
cally to obtain prescription drug cov-       for an average of 2.3 percent less. *            are few assurances they will remain in
erage not offered in traditional                 “The private marketplace has de-             the program. All expect to constantly
Medicare.                                    veloped an efficient and effective model         re-evaluate the business climate to gauge
   Those skeptical about the current         of health plans that meets the needs             whether it makes sense to participate.
overhaul efforts say private compa-          of enrollees and purchasers, as well                 “There’s nothing to hold them in the
nies, by their nature, must create           as providers, in specific local markets,”        market long-term, so there’s no way to
shareholder profits and thus are more        Scully says.                                     ensure that seniors will get stable, pre-
focused on the bottom line than on               Both overhaul plans call on health           dictable coverage over time,” says Pa-
patients’ needs. Democrats, in partic-       insurers to bid against each other to            tricia Neuman, director of the Medicare
ular, note that Medicare managed-care        offer PPO-type coverage in one of 10             Policy Project at the Kaiser Family
plans have not been able to make             geographic regions. But insurers are             Foundation. “It’s just real uncertain.”
enough money to justify remaining in         lobbying hard to change the legisla-
the program, even after Congress gave        tive language, because they fear that            Can the traditional Medicare sys-
them more funds in 1999 and 2000 to          the regions could be too large, mak-             tem compete with private health
cushion their needs.                         ing it onerous to offer a standard pack-         plans?
   There also is evidence suggesting         age of coverage over a wide area.                    The notion of Medicare “compet-
managed-care plans may not be hold-          Some companies may not be licensed               ing” with private health plans seems
ing down costs as well as they de-           to operate in all the states in a geo-           contradictory, at first. After all, the
pict. A Commonwealth Fund study in           graphic region or lack provider net-             pending overhaul plans envision
August found out-of-pocket costs for         works across a particular region. With-          Medicare designing a system specifi-
Medicare managed-care enrollees will         out such relationships, it would be              cally to encourage managed-care plans
increase by 10 percent in 2003. The          difficult to offer a continuum of ser-           to play a more prominent role in the
study found the average enrollee in a        vices to a potential enrollee.                   program. Government efforts to then
Medicare+Choice plan is spending                 The insurers also take issue with            have the traditional program vie against
$1,964, twice the 1999 average. The          lawmakers’ plans to limit to three the           these private insurers would appear to
increase was largely attributable to high-                                                    be self-defeating.
er managed-care premiums, physician                                                               However, Medicare still would con-
                                             * PPOs — the most prevalent form of man-
and hospital co-payments and pre-                                                             tinue to operate its traditional pro-
                                             aged care — limit costs by steering patients
scription drug co-payments. Managed-         to physicians and other health providers who     gram, which embraces a so-called
care plans disputed the findings.            agree to accept discounted prices in exchange    “fee-for-service” model in which doc-
   The Center for Medicare and Med-          for seeing more patients. Unlike HMO patients,   tors and other health-care providers
icaid Services’ Scully says such fallout     PPO participants can go outside the network      bill the government for services pro-
won’t happen under the current               for care, usually after paying an annual de-     vided. Patients generally can obtain
Medicare-overhaul proposals. Both plans      ductible and higher co-payments.                                        Continued on p. 684

682        CQ Researcher
                                       President Lyndon B. Johnson to         help defray the costs, forcing Con-
Early efforts to develop health-
                                       establish the Medicare system.         gress to repeal the law the next
insurance systems for workers          1960
prove ahead of their time.             With pressure mounting from            1991
                                       organized labor and other groups       Congressional Budget Office warns
1912-1920                              to address seniors’ health costs,      the program is unprepared to deal
Labor groups unsuccessfully en-        House Ways and Means Commit-           with the eligibility of Baby Boomers
courage legislatures to establish      tee Chairman Wilbur Mills, D-Ark.,     beginning in 2010.
government-run health insurance.       strikes a deal with the American
                                       Medical Association, leading to        1995
                 •                     passage of a law covering health       Medicare spending represents
                                       costs of the indigent elderly who      one of every five health-care
                                       do not qualify for welfare.            dollars spent — up from 11
Great Depression and the New           1964
                                                                              percent in 1970.

Deal prompt the first large-scale      After Johnson sweeps to re-election,   1997
debate over a national health-         and Democrats bolster their majori-    Congress passes the Balanced
insurance system.                      ties in both houses of Congress, the   Budget Act, creating a Medicare
                                       Ways and Means panel begins hear-      managed-care option known as
1934                                   ings on a national health-insurance    Medicare+Choice, and cuts $115
President Franklin D. Roosevelt fo-    system.                                million over five years — nearly
cuses on creating the Social Secu-                                            equal to all previous cuts com-
rity system after doctors object to    1965                                   bined.
national health insurance.             Johnson signs Medicare bill into
                                       law on July 30 at the Indepen-         1999
1945-1949                              dence, Mo., home of Truman,            National Bipartisan Commission on
President Harry S Truman, on sev-      who is signed up as the pro-           the Future of Medicare disbands
eral occasions, calls for compulsory   gram’s first beneficiary.              after a year without agreeing on
national health insurance for all.                                            how to overhaul the program.
Congressional Republicans, physi-                       •
cians’ groups and other medical-                                                               •
care providers resist the effort.
                                       1970s-1990s 2000s
                                       Congress expands the program,                        New overhaul
                                       but cannot contain its costs.          proposals emerge in the House
                                                                              and Senate.
1950s            Influential med-
ical groups warn Congress that
                                       Medicare is expanded to cover          2003
federal health insurance would         certain disabled persons and those     President Bush proposes to spend
lead to government control of          with end-stage renal disease.          $400 billion over 10 years to over-
health care and prove exorbi-                                                 haul Medicare. . . . The House
tantly expensive. Meanwhile, the       1983                                   and Senate pass overhaul bills
growth of private insurance            The program begins reimbursing         adding a prescription-drug benefit
brings hospital coverage to about      hospitals based on a patient’s di-     and increasing the role of private
60 percent of the population.          agnosis rather than the actual         health plans in delivering Medicare
                                       treatments he received.                benefits. . . . Lawmakers began
                 •                                                            conference negotiations on the
                                       1988                                   two bills in July.

1960s          Democratic-
controlled Congress works with
                                       Congress expands Medicare benefits,
                                       but wealthier seniors rebel against
                                       higher premiums they must pay to

CQ on the Web:                                                         Aug. 22, 2003           683
Continued from p. 682                          Defenders of traditional Medicare        ertheless, believe private plans will be
care from any licensed provider, and       are particularly incensed at language        able to squeeze new efficiencies out of
the government pays a predetermined        in the House bill — staunchly backed         the health market in the next decade
portion of costs after the patient has     by conservative lawmakers — requir-          and beyond. 15
paid an annual deductible.                 ing traditional fee-for-service plans to         The most contentious issues during
   The big question is whether tradi-      compete directly on price against pri-       the House-Senate conference will prob-
tional Medicare can survive once pri-      vate plans, beginning in 2010, in re-        ably revolve around making the tra-
vate insurers, with their coordinated      gions where competition between pri-         ditional program compete with private
provider networks and cost controls,       vate plans already exists. The               plans. House conservatives have al-
administer benefits to seniors. This co-   government would consider all of the         ready promised to veto any confer-
nundrum is at the heart of the debate      bids and establish a weighted aver-          ence agreement that does not include
over the overhaul efforts and is spark-    age, to be used to set payment rates.        a provision that sets up direct com-
ing the sharpest ideological differences   Traditional Medicare would have to be        petitive bidding between traditional
between Republicans and Democrats.         able to provide services according to        Medicare and private health plans. De-
   “The end result will be that Medicare   those rates. If the cost of any plan,        mocrats, meanwhile, have vowed to
as we know it will wither on the vine,”    including Medicare, exceeded the es-         oppose any final bill that contains the
Democrats on the House Energy and          tablished rate, beneficiaries would have     House language and are backing al-
Commerce Committee wrote in dis-           to make up the extra amount through          ternative Senate language allowing pri-
senting views in the committee report      out-of-pocket payments.                      vate plans to compete against each
on the House overhaul plan. The law-           This system would theoretically re-      other to serve regions, but not directly
makers fear private plans will skim off    ward efficiency because a plan that          against the government-run system.
well-heeled beneficiaries, leaving the     can keep its costs below the weight-             “You have two sides that have drawn
poorest and sickest Medicare recipi-       ed average would still be guaranteed         a line in the sand, and those lines are
ents in the traditional program, driving   to receive the average payment and           very far apart,” Robert L. Laszewski, a
up its costs even faster. House over-      could offer additional services and ben-     health policy analyst, told The Wash-
haul efforts, they said, are “an ideo-     efits, or discounts on drugs, to attract     ington Post. “It’s not simply numbers.
logical experiment in which our na-        more beneficiaries.                          It’s a fundamental difference . . . I
tion’s seniors are the guinea pigs, with       Democrats and some moderate Re-          think the only thing they can agree
no real cost savings or improvement        publicans fear this will make the fee-       to is to do nothing at all.” 16
in Medicare’s outlook.” 14                 for-service system unaffordable because
   Competition issues have dominat-        wealthier, healthier seniors will opt to
ed Medicare debates since the Na-
tional Bipartisan Commission on the
Future of Medicare in 1999 studied a
                                           pay for more generous benefits. That
                                           will leave sicker, low-income benefi-
                                           ciaries lumped together in a traditional
concept known as “premium support.”        Medicare system whose care costs could
Developed by academics, it encour-         exceed the weighted average if the
ages competition between private           beneficiaries’ medical costs rise faster        Evolution of Medicare
health plans by paying a portion of        than those in the private plans.
a participant’s premium. Medicare ben-         Republican supporters of the pro-
eficiaries who want to purchase more
expensive plans would have to pay
more out-of-pocket, while those who
                                           posal, however, depict Medicare as an
                                           efficient, cost-effective system that will
                                           be able to compete with private plans.
                                                                                        M      edicare was established around
                                                                                               the notion of equal benefits for
                                                                                        all at a time when nearly half of U.S.
opt for plans with lower premiums          They note that government-run Medicare       senior citizens’ incomes were below fed-
would save both themselves and the         has considerably lower administrative        eral poverty levels, and many could not
federal government money. The fed-         costs than private health plans, as well     obtain private insurance. Its roots ex-
eral government would also pay a           as more clout negotiating discounts with     tend to early 20th-century efforts by a
portion of costs for Medicare’s fee-       providers. PPO plans’ administrative ex-     group of University of Wisconsin econ-
for-service program, making it com-        penses are 8 to 13 percent of expen-         omists — known as the American As-
pete against private plans on an equal     ditures, compared with 2 percent or less     sociation for Labor Legislation — to per-
footing. The concept is resurfacing        for Medicare, according to a Centers for     suade state legislators to enact laws
during current talks on overhauling        Medicare and Medicaid Services analy-        providing broad hospital and medical
the system. (See sidebar, p. 678.)         sis this year. The GOP lawmakers, nev-       benefits to workers and their depen-

684        CQ Researcher
 Glossary of Medicare Terms
     Catastrophic coverage — Health insurance for the most            and most prevalent — managed-care plans are preferred provider
 expensive illnesses and conditions. It sets annual limits on po-     organizations (see below).
 tential out-of-pocket expenses, beyond which insurance pays               Medicare — The federal program established in 1965 that
 all or the vast majority of costs.                                   provides health insurance to individuals age 65 and over and
     Deductible — The amount a patient pays out-of-pocket             the disabled. The program is financed by payroll taxes and of-
 each year before insurance coverage kicks in. Medicare’s Part        fers hospital insurance with optional coverage for outpatient
 A deductible for hospital insurance is $840 in 2003 (more for        doctor visits and other care.
 hospital stays beyond 60 days). The optional Part B deductible            Medicare+Choice — A federal program created by Con-
 for doctors’ office visits is $100 per year, after which benefi-     gress in 1997 authorizing managed-care plans to serve Medicare
 ciaries pay 20 percent of the Medicare-approved amount for           recipients, as an alternative to Medicare’s traditional fee-for-ser-
 services.                                                            vice system. Many seniors choose the managed-care option be-
     Drug card — An interim way of financing a drug benefit           cause the plans typically offer more generous benefits, includ-
 until proposed structural reforms take effect. Overhaul advo-        ing drug coverage, which is not offered by traditional Medicare.
 cates would like to give beneficiaries drug cards, offered by             Medicare Part A — Medicare’s hospitalization insurance,
 private health plans, providing discounts for outpatient drugs       which covers inpatient care at hospitals and skilled-nursing fa-
 at participating pharmacies. As envisioned, the cards would be       cilities. Also covers hospice care and some home health care.
 used from 2004 to 2006, at which times a permanent Medicare               Medicare Part B — Optional health insurance that covers
 drug benefit would come into existence.                              doctors’ office visits, outpatient medical and surgical services,
     Income relating — The concept of requiring wealthier             supplies and occupational therapy.
 Medicare beneficiaries to pay more for their coverage. The con-           Preferred provider organizations (PPOs) — A managed-
 troversial idea has been revived during current negotiations on      care plan that limits costs by steering patients to health-care
 the future of the program.                                           providers who have agreed to accept discounted prices in the
     Managed care — Any health system that combines the de-           hope of getting more patient visits. PPOs are less restrictive
 livery and financing of health-care services. There are many dif-    than HMOs and older forms of managed care, which means
 ferent varieties of managed-care plans, including the oldest form:   they place fewer restrictions on the type of care that plan ben-
 health-maintenance organizations (HMOs), which give patients         eficiaries can receive. Advocates of overhauling Medicare want
 less freedom to choose their health-care providers and obtain        PPOs to administer new drug benefits.
 care outside of health plans. In general, managed-care plans              Premiums — Fees usually paid each month for health in-
 give patients access to a network of health-care providers who       surance. Medicare has always charged a premium for its op-
 have agreed to accept certain negotiated rates in exchange for       tional Part B coverage; it stands at $58.70 per month in 2003.
 seeing more patient volume. Some more-restrictive plans have         Overhaul plans envision monthly premiums of about $35 for
 “gatekeepers,” or doctors who must preapprove treatments by          new drug coverage. The vast majority of seniors do not pay
 specialists in order to keep costs down. The least restrictive —     Part A premiums.

dents, particularly low-income workers.       social relations and found justifica-           government-run health-insurance sys-
By 1917, such bills had been introduced       tion for the notion of “every man for           tem triggered quick and fervent protests
in 12 states, and interest groups such        himself.” Progressives additionally             from doctors, who viewed it as an at-
as the AMA, the National Association          were divided between rooting out                tempt to institutionalize medical care
of Manufacturers and the American             abuses that victimized workers and              and regulate their profession.
Hospital Association (AHA) appeared           establishing a variety of new social-                Pressure from the AMA was felt
receptive to the proposal.                    welfare programs. 17                            acutely in Congress, where there was
   However, between 1918 and 1920,               Sentiment began to shift back in             little interest-group pressure in favor
momentum shifted against the idea,            favor of a government-provided safe-            of creating a national health-insurance
in part due to a still-prevalent Jef-         ty net during the Depression and the            system. Secretary of Labor Frances
fersonian view that government most-          early days of Franklin D. Roosevelt’s           Perkins, an influential voice in the ad-
ly existed to promote private enter-          “New Deal.” In 1934, Roosevelt con-             ministration, argued that under the ex-
prise and self-reliance. Another line         vened a Cabinet Committee on Eco-               isting economic circumstances the
of thinking at the time embraced “so-         nomic Security to study all forms of            White House would be wise to spend
cial Darwinism,” which applied                social insurance, including health in-          its political capital on creating what
Charles Darwin’s scientific views to          surance. However, the prospect of a             became the Social Security System.

CQ on the Web:                                                                           Aug. 22, 2003                685
Roosevelt, taking the cautious route,          It was left to Rep. Wilbur Mills, D-       The resulting Medicare system con-
heeded the advice and put health in-       Ark., chairman of the powerful House       sists of several parts. Part A, which cov-
surance on the back burner, though         Ways and Means Committee, to begin         ers hospitalization, is free to all Amer-
the topic continued to generate sig-       developing a compromise. He worked         icans eligible for Social Security. Financed
nificant debate.                           with the AMA to expand payments to         by a special payroll tax on both em-
    After World War II, Roosevelt’s suc-   providers under state aid programs,        ployers and workers, it covers inpatient
cessor, Truman, enthusiastically revived   creating a category of assistance called   hospital treatment, skilled nursing-home
the push for national health insurance,    “medical indigency” for elderly citizens   care and some home health and hos-
though he had not previously made          who did not qualify for welfare but        pice care. Most hospitals are reimbursed
his ideas on the subject known. Tru-       still needed help with their medical       predetermined amounts based on the
man sent Congress a draft bill in No-      bills. The agreement became a rally-       average cost of treating a condition.
vember 1945 making it a cornerstone        ing point and was codified in legisla-         Medicare also offers an optional pack-
of a social-policy package he called       tion that cleared Congress and was         age of services known as Part B that
the “Fair Deal.” But the increasingly      signed into law in 1960.                   covers doctors’ office visits and outpa-
conservative bent of the postwar Con-          But creation of the limited program    tient services. It is available to anyone
gress, and Truman’s lack of prestige       did not tamp down sentiment for a          65 or older willing to pay monthly pre-
at the time, conspired to defeat the       full-fledged national health-insurance     miums, an annual deductible and co-
effort.                                    program. President John F. Kennedy         payments. Part B pays for physical or
    In 1946, voters elected a Republi-     was determined to press for a con-         occupational therapists, certain home
can-controlled Congress, and organized     gressional showdown but soon be-           health services, medical equipment, pros-
labor turned its attention to fighting     came consumed with Cold War events.        thetics and doctors’ visits. It also covers
the Taft-Hartley law, which imposed        Nevertheless, public debate intensi-       preventive services, such as certain vac-
new restrictions on unions. By 1948,       fied, with doctors’ groups trying to       cinations, screening for cervical, col-
Truman concluded government health         blunt the momentum and organized           orectal and prostate cancer and mam-
insurance would have to be consid-         labor and the insurance industry pro-      mograms. Health-care experts deem the
ered an “ultimate aim” instead of an       moting new low-cost private insurance      Part B package a bargain in the current
immediate possibility.                     programs for individuals over 65.          marketplace because recipients only pay
                                               However, sentiment for national        about one-quarter of what the covered
                                           health insurance continued to grow.        services are worth, with the remainder
  Final Battles                            Such disparate groups as the Nation-       subsidized by federal taxpayers. 18
                                           al Council of Churches, union retiree
                                           organizations and grass-roots seniors’
                                                                                          Benefits Added
T    he final round of political battles
     on the issue began in 1957, when
the AFL-CIO mobilized its 14 million
                                           groups mobilized by the national De-
                                           mocratic Party — such as the Nation-
                                           al Council of Senior Citizens — vo-
members for an all-out fight to create
health insurance for Social Security
beneficiaries. Despite AMA and AHA
                                           cally pressed for a new system.
                                               The outcome of the 1964 elections
                                           assured creation of Medicare. John-
                                                                                      I   n 1972, Congress made individuals
                                                                                          with end-stage renal disease eligi-
                                                                                      ble for coverage for such services as
opposition, congressional hearings the     son, who became president after            dialysis and kidney transplantation. In
next two years brought new attention       Kennedy’s 1963 assassination, was re-      1997, lawmakers added Part C, known
to the worrisome economic plight of        turned to office by the largest plural-    as Medicare+Choice, allowing ex-
American seniors and convinced some        ity in the nation’s history, while De-     panded health-care options for those
lawmakers that the private insurance       mocrats picked up 38 House seats and       enrolled in Parts A and B, including
market could not give many the cov-        two in the Senate. With lopsided ma-       the ability to enroll in private man-
erage they needed. Figures such as         jorities in both Houses, Mills and his     aged-care plans. The private plans try
House Speaker Sam Rayburn, D-              allies began to cobble together a mea-     to attract customers by offering ser-
Texas, and then-Senate Majority            sure creating the modern Medicare          vices not provided under “traditional”
Leader Johnson joined a lobbying           program. The legislation added Title       Medicare, such as prescription drugs,
campaign for a national system, while      XVIII to the 1935 Social Security Act.     eyeglasses and hearing aids. Howev-
Republicans sought alternatives, such      The authorizing legislation also creat-    er, many plans have pulled out of the
as federal subsidies for private insur-    ed Medicaid, a separate program for        program, dissatisfied with the level of
ers to cover the aged poor.                the poor under age 65.                     reimbursements Medicare provides.

686       CQ Researcher
    Medicare’s benefit package still re- for spending increases based on in- to cap payment increases, leaving mil-
sembles a typical circa-1965 health in- flation, changes in the number of ben- lions of seniors searching for new health-
surance package. It pays for most “med- eficiaries and other factors.                      care arrangements.
ically necessary care,” but excludes many         Revising payment systems eased some         Earlier this year, the Bush adminis-
preventive measures and all long-term financial pressure, but policymakers gen- tration continued to look to private
care, except rehabilitation in a nursing erally agreed that a longer-term solu- health plans for solutions when it un-
home after a hospital stay. It also ex- tion would entail gradually moving ben- veiled a draft Medicare-overhaul plan
cludes hearing, vision, dental and foot eficiaries away from Medicare’s offering a new prescription-drug bene-
care or prescription drugs, except those fee-for-service system. The creation of fit only to those seniors who left the
administered in a doctor’s office. Medicare Medicare+Choice in 1997 tried to per- traditional Medicare system and en-
also lacks “stop loss”                                                                                     rolled in managed-care
coverage, a central                                                                                        plans. That proposal
component of pri-                                                                                          quickly drew the ire of
vate plans that limits                                                                                     influential Republicans
the amount patients                                                                                        and Democrats from rural
must pay out-of-pock-                                                                                      states, who recalled the
et for their share of                                                                                      reluctance of private in-
covered medical bills                                                                                      surers to serve their re-
each year.                                                                                                 gions after the creation
    Whenever law-                                                                                          of Medicare+Choice. Sen-
makers have added                                                                                          ate Finance Committee
benefits, they have                                                                                        Chairman Charles E.
simultaneously taken                                                                                       Grassley, R-Iowa, and
steps to control costs.                                                                                    ranking Democrat Max
In 1983 Congress                                                                                           Baucus of Montana —
created a hospital re-                                                                                     responsible for shep-

                                                                                                      Getty Images/Stefan Zaklin
imbursement sys-                                                                                           herding Medicare legisla-
tem that based pay-                                                                                        tion through that cham-
ments on a patient’s                                                                                       ber — insisted that seniors
diagnosis rather than                                                                                      who remain in tradition-
on what the hospi-                                                                                         al Medicare be offered
tal actually did to                                                                                        an equivalent drug ben-
treat the patient. Pay-                                                                                    efit. The inclusion of that
ments were set                                                                                             guarantee in the Senate
                                 Senate Majority Leader Bill Frist, R-Tenn., a heart-transplant
based on what the              surgeon,will be a key negotiator as conferees work out differences
                                                                                                           bill won the support of
average hospital             between House and Senate versions of a proposed Medicare-overhaul             some Democrats. But it
would spend to                       bill. Majority Whip Mitch McConnell, R-Ky., looks on.                 remains a sore point with
treat a patient with                                                                                       conservative politicians,
the same condition, with some al- suade seniors to give up their choice who believe the addition of a drug ben-
lowances for geographic variations.            of doctors and hospitals in exchange efit will dramatically boost mandatory
    Though the new system brought for enhanced benefits offered by government spending unless significant
hospital spending under better con- providers in private health-plan net- market reforms are introduced into the
trol, payments to physicians soared 15 works. Medicare pegged payments to Medicare system.
to 18 percent annually in the 1980s private plans at 95 percent of the cost                   “[Such] reforms are essential to make
— a symptom, critics contend, of over- of caring for the average beneficiary — the current program sustainable,” write
compensation for surgery, diagnostic a move designed to save the program Joseph Antos and Jagadeesh Gokhale,
tests and other procedures. To control money. However, studies soon revealed scholars at the conservative American
costs lawmakers in 1989 adopted a that healthier beneficiaries who tended Enterprise Institute in Washington. “With
system that paid according to the time, to live longer switched to private plans, their abandonment, the prescription-drug
training and skill needed to perform increasing Medicare’s long-term costs. benefit that is about to be signed into
a given procedure, with adjustments And many private plans withdrew from law will be the most fiscally irrespon-
for overhead. Medicare also set targets the program after government efforts sible legislation in U.S. history.” 19

CQ on the Web:                                                                        Aug. 22, 2003                687

                                             which Medicare would pay half of their     but not against the traditional Medicare
                                             drug costs up to $4,500 a year. Medicare   system. Before that time, private plans
                                             would then stop offering coverage until    could bid against each other, but their

SITUATION                                    a senior paid out-of-pocket costs of
                                             $3,700. At that point, the government
                                             would pay 90 percent of costs.
                                                                                        payments would be limited by the rates
                                                                                        for traditional Medicare. The theory is
                                                                                        the private plans could get a lot of
                                                The biggest differences between the     new business administering benefits; if
                                             two bills deal with the differing roles    they offer more generous packages than
    Conference Hurdles                       of government and the private sector       traditional Medicare, they could, in the-
                                             in delivering health benefits. The most    ory, peel off seniors from the fee-for-

I   f Congress and the administration
    are to overhaul Medicare this year,
they must overcome deep philosoph-
                                             contentious aspect involves the House
                                             plan’s requirement that the traditional
                                             Medicare system begin competing with
                                                                                        service system, especially healthier and
                                                                                        wealthier seniors.
                                                                                           The Bush administration has not en-
ical differences and significant bu-         private health plans in specified geo-     dorsed one plan over the other, but
reaucratic challenges.                       graphic regions beginning in 2010, to      officials told conservative lawmakers
    The House-Senate talks are likely to     be phased in over five years. (See side-   privately that the White House will work
continue through at least early fall and     bar, p. 678.)                              in conference to bend any final bill its
are aimed at reconciling two very dif-          The provision was written to turn       way — presumably to more closely re-
ferent Medicare plans.                                                                                   semble the House bill.
The House plan                                                                                           The administration has
would focus its drug                                                                                     taken pains not to ap-
coverage on seniors                                                                                      pear to be micromanag-
with lower drug costs.                                                                                   ing the negotiations, or
Beneficiaries would                                                                                      doing anything to an-
meet a $250 de-                                                                                          tagonize Democrats.
ductible, after which                                                                                    However, many ob-
Medicare would pay                                                                                       servers predict that Pres-
80 percent of drug                                                                                       ident Bush will have to
                                                                                                      Getty Images/Alex Wong
costs up to $2,000.                                                                                      get involved at some
After that, seniors                                                                                      point and make person-
would pay for their                                                                                      al appeals to lawmakers
drug costs until they                                                                                    in order to win votes.
had spent $3,500 out-                                                                                       “Clearly, this is going
of-pocket, at which                                                                                      to be very difficult,” said
point Medicare would                                                                                     Gail Wilensky, who ran
cover all further drug    Retirees demonstrate against plans to overhaul Medicare at a June 25           the Medicare program
                               rally in Washington, D.C. Seniors fear increasing the role of
costs.                             private health plans will give elderly Americans fewer                during the administra-
    The House bill                       options in choosing doctors and hospitals.                      tion of former President
also would require                                                                                       George Bush. The con-
wealthier seniors to pay more before Medicare into a so-called “defined- ferees “are knowledgeable, smart, tough
they could receive catastrophic cover- contribution” program, in which the individuals, and it will be a real bat-
age — a controversial element known government’s financial liability is fixed. tle as to how it plays out. It will be
as “income relating” that both De- Conservatives believe this ultimately very important how the White House
mocrats and the Bush administration will hold down program costs. Tradi- comes down.” 20
oppose. (See sidebar, p. 681.)              tional Medicare is a “defined-benefit”
    Not surprisingly, the Senate bill is system, in which the government
more bipartisan, given the political dif- guarantees patients a certain level of
ficulties of passing any Medicare legis- care, irrespective of how much it costs.
                                                                                             Floor Drama
lation in a chamber where Republicans          The Senate would allow more lim-
have 51 seats and Democrats 48, with ited competition. For five years, be-
one independent. It would require se- ginning in 2009, some private plans
niors to pay a $275 deductible, after could bid against each other on price,
                                                                                          T   he negotiations could easily un-
                                                                                              ravel. The political challenges
                                                                                                                  Continued on p. 690

688       CQ Researcher
                                                  At Issue:
Will pending Medicare proposals help elderly Americans?

      SEN. BILL FRIST, R-TENN.                                               SEN. DEBBIE STABENOW, D-MICH.
      MAJORITY LEADER, U.S. SENATE                                           MEMBER, SPECIAL COMMITTEE ON AGING

      FROM A SPEECH ON THE SENATE FLOOR, JUNE 10, 2003                       FROM A SPEECH ON THE SENATE FLOOR, JUNE 11, 2003

o         ur] goal is twofold: to strengthen and improve
          Medicare and, at the same time, provide meaningful
          prescription-drug benefits to seniors and Americans          t      ]here is much work left to be done by this body before
                                                                              we have prescription-drug coverage that, in fact, meets the
                                                                              needs and the desires of the seniors of America.

           yes no
with disabilities. . . . [O]ver the next 30 years, we will have a          All of the prescription-drug plans [under discussion] involve
doubling in the number of seniors, but in terms of workers ac-         private insurance first. If private insurance is available in your
tually paying into the program itself, that will be falling off con-   state or region, if there are two or more companies there . . .
tinually over time. Thus, we need to take this opportunity . . .       you would have to choose one of those two private insurance
to modernize the program so seniors and individuals with dis-          plans. . . . [S]eniors, potentially every year, would get paper-
abilities will continue to get good care and hopefully improve         work in the mail about two different insurance companies . . .
that care in this environment where we have to address the is-         and would have to wade through the paperwork and decide
sues of solvency and sustainability.                                   which of the two is best for them. The next year, if those two
   Some [say] Medicare denies some seniors coverage. [W]e              companies were not both available . . . the senior would have
will make sure this coverage is available to every senior              the ability to go to a backup plan — something administered
everywhere. We will specifically . . . ensure access in rural          through Medicare. Then the next year, if there were two com-
areas. We will be creating public-private partnerships that will       panies that decided they wanted to try their hand in covering
offer choice — again, it is voluntary — but will be offering           Medicare prescription drug[s] in their region, [seniors] could not
choice for all seniors in every corner of America.                     get the Medicare plan anymore; they would have to pick be-
   Seniors might ask: Do I have to give up what I have now?            tween those two companies.
Are you forcing me into some new system? The answer is no.                 Potentially, this could happen every single year. Seniors are
This is a voluntary program. All of us will be able to look            not asking for more paperwork or more choices of insurance
every senior in their eyes and say: You can keep exactly what          companies. There is a better way to do this: to give people
you have now if that is what you want. We will be able for             more choices, but make sure one of the choices is traditional
the first time to say there are options that include choices you       Medicare.
may not have today in Medicare, such as preventive care,                   I [am] quite amazed that we are even talking about struc-
such as chronic-disease management.                                    turing a plan this way when . . . Medicare has been rising in
   The fact is, the current program is fragmented. It does not         cost about 5 percent a year, and private insurance is going up
provide adequate coverage. . . . [I]t does not adequately cover        15 to 20 percent a year. . . . This approach uses a more ex-
preventive care. It does not cover disease management or               pensive model — arguably, putting more dollars into the
chronic-disease management. As we all know, it does not                pockets of insurance companies. . . .
cover outpatient prescription drugs. I do believe good health              Why are we going through all this convoluted process?
depends on giving seniors good options, the opportunity to             Well, I think there are two reasons. [Some] believe we should
choose the plan that best meets their needs.                           move to private insurance, [and] some don’t believe we
   Seniors deserve care that keeps them healthy by incorporat-         should have universal health coverage under Medicare. I dis-
ing preventive measures. Seniors deserve care that protects            agree.
them from catastrophic out-of-pocket expenses. America’s se-               [In addition] . . . a very large and powerful prescription-
niors should have the ability to see the doctor they choose,           drug lobby, . . . I believe, at all costs, wants to make sure
even if that doctor is outside the network. America’s seniors          our . . . 40 million seniors and disabled people . . . are not
deserve a system that focuses on their needs to keep them              in one insurance plan together, who could then negotiate big
healthy and not just to respond to acute, episodic illness.            discounts in prices. By dividing folks up into lots of different
   Since 1965, Medicare has admirably served a generation of           insurance plans, making it more confusing for people to stay
America’s seniors. We owe tomorrow’s seniors no less. That             in traditional Medicare and get prescription-drug help, and try-
will take a response in this body to give seniors access to the        ing in every way to move people more to managed care, the
care they truly deserve. I look forward to working with my             prescription-drug companies know they will not [be forced] to
colleagues to strengthen and improve Medicare.                         substantially lower their prices for seniors.

CQ on the Web:                                                                           Aug. 22, 2003              689
Continued from p. 688                                                                                    Ways and Means Com-
were evident during a                                                                                 mittee Chairman Thomas
tumultuous June 27                                                                                    is chairman of the con-
House debate on its                                                                                   ference, by virtue of his
version of the legisla-                                                                               committee’s jurisdiction
tion. With Democrats                                                                                  over the issue and his
nearly unanimously                                                                                    party’s control of both the
opposed to the bill,                                                                                  House and Senate. The
House GOP leaders                                                                                     61-year-old lawmaker is
faced defections from                                                                                 regarded both as one of
some their own mod-                                                                                   the smartest and most
erates, who feared the                                                                                prickly members of Con-
competition provisions                                                                                gress. Recently, he offered
in the bill could gut                                                                                 a tearful apology on the
traditional Medicare.                                                                                 House floor after calling
They also faced a re-                                                                                 the Capitol police to break
bellion from about                                                                                    up a meeting of Ways and

                                                                                                AFP Photo/Tannen Maury
two-dozen conserva-                                                                                   Means Democrats. Al-
tives who withheld                                                                                    ready, he has accused
their votes, arguing                                                                                  several of the Democrat-
the bill did not do                                                                                   ic negotiators of hypocrisy
enough to promote                                                                                     for signing a letter that
competition and would                                                                                 publicly urged bipartisan
merely boost govern-                                                                                  compromise while pri-
ment spending by             President Bush discusses health care with senior citizens during         vately insisting that most
adding a drug benefit.       a rally at Sun City, Fla. Bush’s call to spend $400 billion over 10      elements of the existing
   On the pivotal vote,             years to update Medicare spurred the current talks.               system survive. 22
Majority Leader Tom                                                                                      “It becomes much more
DeLay, R-Texas, and Majority Whip Roy against a more conservative confer- difficult to make something happen
Blunt, R-Mo., focused on a handful of ence agreement later. * But since only when people on the conference sign
wavering party members, holding the 51 votes are needed to approve a letters” suggesting they would not sup-
vote open until they could wear down compromise, the White House can af- port a bill without certain provisions,
enough members to declare victory. At ford to lose a dozen or more Demo- Thomas said after a meeting at the
about 2:30 a.m., about a half-hour after cratic votes and still prevail.                  White House between conferees and
the allotted time for the House vote                                                      President Bush. “You have to practice
had expired, Rep. Jo Ann Emerson, R-                                                      bipartisanship all of the time, not just
                                            * The conferees include Senate bill authors
Mo., left a small group of Republicans Grassley and Baucus, as well as Majority Leader in front of the cameras.”
and picked up a green ballot, signify- Bill Frist, R-Tenn., Minority Leader Tom              Democrats worry that Thomas will
ing a “yea” vote. Democrats groaned Daschle, D-S.D., Budget Committee Chairman not tolerate dissent but will bend the
as she walked to the well and cast the Don Nickles, R-Okla., and Sens. Orrin G. Hatch, conference toward the House position,
ballot. The lighted board above the R-Utah, John D. Rockefeller IV, D-W.Va., and particularly with respect to premium
floor showed more yes votes than no’s John B. Breaux, D-La. Of the group, Daschle support and competition between tra-
for the first time. The speaker prompt- and Rockefeller are the most vocal opponents ditional Medicare and private health
ly banged the gavel, closing the vote. of the GOP proposals, with Baucus and Breaux plans. “There is a growing fear with-
Republicans won, 216-215, with one likely to support a bipartisan compromise, if in the Democratic side in the Senate
member — Ernest Istook, R-Okla. — it does not veer too far toward the House po- that this is going to turn very badly
voting present. 21                                                                        when Bill Thomas puts his loving arms
                                                House conferees include Tauzin and rank-
   There was no such drama in the ing Democrat John D. Dingell of Michigan, around it in the conference,” says Sen.
Senate, where the bipartisan bill passed ranking Ways and Means Committee Democ- Richard J. Durbin, D-Ill., who voted
by a wide majority of 76-21. Many of rat Charles B. Rangel of New York, DeLay, for the Senate bill, despite misgivings
the Democrats who had misgivings and Reps. Michael Bilirakis, R-Fla., Nancy L. about whether it will undermine the
but voted for the bill could vote Johnson, R-Conn., and Marion Berry, D-Ark.              traditional program.

690       CQ Researcher
   Lobbyists could also insert special        If an added drug benefit triggers      many of those who are most in need
provisions in what would be the biggest   further program growth, Republicans        are expecting some relief,” says the
health-care measure in years. For ex-     are prepared to respond with next-         Urban Institute’s Moon. “The basic
ample, Breaux, backed by large hos-       generation proposals that would, for       problem is that $400 billion is not
pital chains, inserted language in the    example, limit those who qualify for       enough to provide a well-designed pre-
Senate bill preventing doctors from re-   benefits or link the level of benefits     scription-drug benefit.”
ferring patients to new facilities in     to participants’ incomes. Tying ben-           But no one really knows how se-
which they have ownership interests.      efits to incomes “directs most of the      niors will respond to a revamped
The move is designed to steer busi-       help to the people who need help,”         system. Establishing new coverage
ness away from so-called “specialty       says Rep. Jim McCrery, R-La., a            options, in which beneficiaries would
hospitals” that deal with one type of     House Ways and Means Committee             have to select from three managed-
practice, such as orthopedics, and that   member.                                    care plans or the traditional
community hospitals say skim prof-            But it also could bolster Democ-       Medicare system, would be likely to
itable specialties, leaving them with     ratic contentions that Republicans’        spawn confusion, according to many
high-cost treatments like emergency       real goal is to dismantle Medicare         experts. Considerable backlash
care. 23                                  over time. Democrats worry that a tar-     could also develop if cost-cutting
   Both bills boost payments to cer-      geted, less universal Medicare bene-       companies drop guarantees they will
tain providers, such as rural hospitals   fit will make the program resemble         continue paying retirees’ health bills
and doctors. Alaska, for example, would   welfare, eroding congressional and         into the future, figuring seniors
get a $45 million demonstration pro-      public support.                            could get equivalent coverage from
ject to increase program reimburse-           “When a senior citizen enters a        the government.
ments — the work of Senate Appro-         hospital, Medicare pays the same               Moreover, seniors could decide the
priations Committee Chairman Ted          amount for their care whether they         extra out-of-pocket expenses for the
Stevens, R-Alaska.                        are a pauper or a millionaire,” Sen.       new benefits are not worth the cost.
   With so much at stake, lawmak-         Kennedy says. “Medicare is for all se-     Such a scenario doomed a 1988
ers expect considerable horse-trad-       nior citizens who paid into the pro-       Medicare catastrophic-coverage law
ing, particularly to prevent conserva-    gram during their working years —          that proposed a tax surcharge on cer-
tive Republicans from defecting like      not just some senior citizens. And it      tain wealthy beneficiaries.
they did before the House floor vote.     should stay that way.”                         Hoping to avoid a repeat, GOP
“There have been no commitments               Democrats hope to use the cover-       strategists are urging Republican law-
[to conservatives] about conference,”     age gaps in any compromise plan as         makers not to hype the proposed drug
Grassley said. “We’re going into con-     justification for future increases in      benefit, but merely depict it as an al-
ference with everything on the table,     Medicare spending, in the hope of cre-     ternative or a safety option for those
and we’ll just have to work our way       ating gap-free drug benefits for all se-   without coverage. Others don’t expect
through it.”                              niors. The strategy would put Repub-       a negative reaction but worry that se-
                                          licans in the position of arguing that     niors may want even more generous
                                          more government spending on seniors        benefits.

OUTLOOK                                   would be a budget-buster and expose
                                          the U.S. Treasury to the brunt of fu-
                                          ture drug-price increases. 24
                                                                                         Members of Congress “will find out
                                                                                     that they’re not off the hook on this
                                                                                     at all,” said Robert Blendon, a poll-
                                              “The gap or ‘doughnut hole’ re-        ster at the Harvard School of Public
                                          duces protection just at the time when     Health. 25
  More Debates Expected
                                                                     About the Author

T    hough both parties have endorsed
     Medicare overhaul with lightning
speed by Washington standards, many
                                           Adriel Bettelheim is deputy editor for social policy at Congressional Quar-
                                           terly, where he previously covered science and technology. He is the au-
                                           thor of Aging in America A to Z (CQ Press, 2001) and was a member of
expect future battles over the pro-        The CQ Researcher team that won the 1999 Society of Professional Journal-
gram, since many of the compromis-         ists Award for Excellence for a 10-part series on health care. He has a bach-
es so far are designed to spawn fu-        elor’s degree in chemistry from Case Western Reserve University.
ture debates.

CQ on the Web:                                                                Aug. 22, 2003            691

   Notes                                             FOR MORE INFORMATION
1 Quoted in Sheryl Gay Stolberg, “Medicare         AARP, 601 E St., NW, Washington, DC 20049; (800) 424-3410; In-
Plan Far From Cure-All, Irate Retirees Find,”      fluential seniors lobby urging policymakers to strengthen the traditional Medicare
The New York Times, June 26, 2003, p. A1.          system.
2 Pharmaceutical companies blame rising re-

search costs for the large price hikes, but        American Association of Health Plans, 1129 20th St., NW, Suite 600, Washing-
critics attribute them to higher company spend-    ton, DC 20036; (202) 778-3200; This trade group representing pri-
                                                   vate health plans supports Medicare privatization.
ing on what they say is excessive direct-to-
consumer advertising and higher industry prof-
                                                   American Medical Association, 515 N. State St., Chicago, IL 60610; (312) 464-5000;
it margins. For background, see David Hatch,
                                          A physicians group opposed to creation of the original Medicare
“Drug Company Ethics,” The CQ Researcher,
                                                   program, now actively involved in influencing the debate over overhauling it.
June 6, 2003, pp. 521-544. Also see “Pre-
scription Drug Trends: A Chartbook Update,”
                                                   Centers for Medicare and Medicaid Services, 7500 Security Blvd., Baltimore,
Kaiser Family Foundation, November 2001,           MD 21244; (410) 786-3000; The Department of Health
pp. 7-8.                                           and Human Services branch responsible for administering Medicare.
3 See Centers for Medicare and Medicaid Ser-

vices, “2003 Annual Report of the Boards of        Consumers Union, 1666 Connecticut Ave., NW, Washington, DC 20009; (202) 462-
Trustees of the Hospital Insurance and Sup-        6262; A consumers’ group that backs efforts to lower
plementary Medical Insurance Trust Funds,”         consumers’ drug prices but opposes Republican-led efforts to overhaul Medicare.
March 17, 2003. For background on drug
prices, see Hatch, ibid.                           Families USA, 1334 G St., NW, Washington, DC 20005; (202) 628-3030;
4 For background, see Congressional Re-
                                          A nonprofit organization “dedicated to the achievement of
search Service, “Medicare Prescription Drug        high-quality, affordable health care for all Americans.”
and Reform Legislation,” RL31966, June 19,
2003 (update).                                     Health Insurance Association of America, 1201 F. St, NW, Suite 500, Washington,
5 See Families USA, “Out of Bounds: Rising         DC 20004; (202) 824-1600; A prominent trade organization representing
Prescription Drug Prices for Seniors,” 2003.       managed-care firms that would play a more prominent role delivering benefits in a re-
6 For background, see David Nather and Re-         vamped Medicare system.
becca Adams, “Medicare Rewrite: Prescrip-
tion For Disappointing Everyone,” CQ Week-         Pharmaceutical Research and Manufacturers Association, 1100 15th St., NW,
ly, July 5, 2003, pp. 1690-1696.                   Washington, DC 20005; (202) 835-3400; The drug industry’s trade
7 See Kaiser Family Foundation, “Medicare          association opposes price controls on prescription drugs and importation of foreign
and Prescription Drug Spending Chartpack,”
June 2003.
8 See Sarah Lueck, “Medicare Drug Benefit         June 16, 2003, p. 8.                          Medicare-Overhaul Conference,” CQ Weekly,
                                                  16 Quoted in Amy Goldstein, “Medicare Talks   June 28, 2003, pp. 1611-1617.
Is a Mixed Bag for the Elderly,” The Wall
                                                  Moving Slowly,” The Washington Post, July     21 See Jonathan Allen and Adam Graham-Sil-
Street Journal, July 14, 2003, p. B1.
9 See Mike Dorning, “Bill Gives Boost to Re-      27, 2003, p. A12.                             verman, “Hour by Hour, Vote by Vote, GOP
                                                  17 For background, see Peter A. Corning,      Breaks Tense Tie,” CQ Weekly, June 28, 2003,
ducing Drug Costs,” Chicago Tribune, July
26, 2003, p. A1.                                  “The Evolution of Medicare, From Idea to      pp. 1614-1615.
10 For background, see Rebecca Adams,             Law,” Social Security Administration, 1969.   22 See David Nather, “Contrite Chairman Does

“GOP Pushes Private Coverage,” CQ Weekly,         Available online at   Not Quell Calls for more GOP Comity,” CQ
Nov. 23, 2002, pp. 3071-3072.                     tory/corning.html.                            Weekly, July 26, 2003, pp. 1885-1888.
11 Quoted in “As Medicare Conference Ap-          18 For background, See Julie Rovner, Health   23 See Laurie McGinley and Sarah Lueck,

proaches, Lobbyists Ready to Kick Into Gear,”     Care Policy and Politics A to Z, CQ Press     “Medicare Bill: Prescription for Politics,” The
CQ Weekly, July 5, 2003, pp. 1692-1693.           (2000), pp. 121-126.                          Wall Street Journal, July 14, 2003, p. A4.
12 Quoted in Pamela Gaynor, “No Panacea,”         19 See Joseph Antos and Jagadeesh Gokhale,    24 For background, see Mary Agnes Carey,

Pittsburgh Post-Gazette, Dec. 22, 2002, p. F1.    “The Medicare Prescription Drug Benefit Is    “Plans for Targeted Benefits Deepen Medicare
13 Ibid.                                          Bad for America’s Health,” American Enter-    Debate,” CQ Weekly, June 7, 2003, pp. 1358-
14 See House Committee Report 108-178, Part I.    prise Institute, On The Issues, July 2003.    1363.
15 See Mary Agnes Carey, “Private Medicare        20 See Rebecca Adams and Mary Agnes           25 See Nather and Adams, op. cit.

Health Plans Already Being Tested,” CQ Today,     Carey, “Compromise Will Come Hard In

692         CQ Researcher
                                                   Selected Sources

Books                                                             cile Medicare drug proposals in Congress will assess whether
                                                                  a revamped program addresses seniors’ needs.
Jost, Timothy S., Disentitlement: The Threats Facing Our
Public Health Programs and a Right-Based Response,                Toner, Robin, “Medicare: Battleground for a Bigger
Oxford University Press, 2003.                                    Struggle,” The New York Times, July 20, 2003, p. WK1.
  A law professor examines how deficiencies in private health       The differences in Medicare-overhaul plans illustrate Re-
insurance have hindered the ability to finance health care        publicans’ and Democrats’ profoundly different visions of so-
for U.S. citizens and what American policymakers can learn        cial-welfare programs and of government in general.
from national health insurance and social insurance in other
countries.                                                        Reports and Studies
Morrison, Ian, Health Care in the New Millennium: Vision,         Congressional Research Service, “Medicare Prescription
Values and Leadership, Jossey-Bass, 2000.                         Drug Provisions of S1, as Passed by the Senate, and HR1,
 A futurist and health-care analyst explores managed care         as Passed by the House,” July 11, 2003.
and market-driven reforms in the U.S. health system and            A detailed, nonpartisan analysis of provisions in House and
why escalating costs continue to plague the marketplace.          Senate Medicare-overhaul plans.

Oberlander, Jonathan, The Political Life of Medicare,             General Accounting Office, “Medicare: Observations on
University of Chicago Press, 2003.                                Program Sustainability and Strategies to Control Spend-
  An accessible history of the Medicare program by a pro-         ing on Any Proposed Drug Benefit,” April 9, 2003.
fessor of social medicine details the bipartisan consensus the      In conjunction with House Ways and Means Committee
program has enjoyed for decades and how it has been over-         hearings on overhauling Medicare, this report examines the
looked in recent policy disputes.                                 challenges of adding a drug benefit to Medicare in the con-
                                                                  text of the program’s current and projected financial con-
Articles                                                          dition.

“Medicare Drug Benefit Is a Mixed Bag for the Elderly,”           Gold, Marsha, and Lori Achman, “Average Out-of-Pocket
The Wall Street Journal, July 14, 2003, p. B1.                    Health Care Costs for Medicare+Choice Enrollees Increase
  A package of articles examines Medicare beneficiaries’ con-     10 Percent in 2003,” Mathematica Policy Research Inc./The
cerns that proposed coverage is too skimpy and the various        Commonwealth Fund, August 2003.
choices facing employers, who can decide to trim or even            The average Medicare managed-care enrollee is spending
eliminate retiree health coverage.                                10 percent more than last year and double the levels of four
                                                                  years ago, raising questions about private health plans’ abil-
Adams, Rebecca, “Medicare Prescription Benefit Just One           ity to control costs.
Part of Overhaul,” CQ Weekly, Jan. 18, 2003, pp. 150-153.
  This year’s Medicare debate probably will go beyond adding      Kaiser Family Foundation, “The Current Medicare Pre-
a drug benefit to the entitlement program. It is also likely      scription Drug Debate: Briefing Charts,” July 15, 2003.
to include a proposal for the largest overhaul in the pro-          A series of briefing charts, prepared by a nonpartisan health-
gram’s 38-year history.                                           care think tank, with background information on prescription-
                                                                  drug use and spending among senior citizens, recent survey
Goldstein, Amy, and Helen Dewar, “Medicare Bills Pass             data on employers’ likely reaction to a Medicare drug bene-
in Congress; Prescription Drug Benefit Is Key To Biggest          fit and an overview of pending Medicare legislation.
Changes In 38 Years,” The Washington Post, June 27,
2003, p. A1.                                                      Shea, Dennis G., Bruce C. Stuart and Becky Briesacher,
  Details the political jockeying that led to near-simultaneous   “Caught in Between: Prescription Drug Coverage of
House and Senate passage of Medicare drug bills and the dif-      Medicare Beneficiaries Near Poverty,” The Common-
ferences between the plans.                                       wealth Fund, August 2003.
                                                                    Researchers from Pennsylvania State University and the Uni-
Nather, David, and Rebecca Adams, “Medicare Rewrite:              versity of Maryland conclude that pending Medicare-over-
Prescription For Disappointing Everyone?” CQ Weekly,              haul proposals passed by the House and Senate would only
July 5, 2003, pp. 1690-1696.                                      slightly reduce the drug costs of a couple living at 160 per-
 Beyond political compromises, negotiators trying to recon-       cent of the federal poverty level.

CQ on the Web:                                                                    Aug. 22, 2003              693
                              The Next Step:
                          Additional Articles from Current Periodicals
Catastrophic Coverage                                           under Medicare, seniors might be surprised to learn that
                                                                lawmakers approved such coverage once before.
Cohen, Richard E., “Remember ‘Catastrophic,’ ” The Na-
tional Journal, July 20, 2002.                                  Dewar, Helen, “Both Parties Face Huge Risks In Pre-
  Recent congressional efforts to tame Medicare are doomed      scription Drug Bill Fight,” The Washington Post, June
to repeat the mistakes of past legislation like the Medicare    11, 2003, p. A6.
Catastrophic Coverage Act of 1988.                                Adding a prescription-drug benefit to Medicare offers po-
                                                                litical risks and difficult choices for both parties in Congress.
Goldstein, Amy, “White House Mulls Alternate Drug Plan,”
The Washington Post, Dec. 8, 2002, p. A5.                       Dewar, Helen, “Possible Voter Backlash Feared on Drug
 A Bush administration Medicare-reform plan calls for el-       Benefit Measure,” The Washington Post, Aug. 3, 2003,
derly Americans to purchase insurance policies to protect       p. A9.
against “catastrophic” pharmaceutical costs.                      Some voters have reacted skeptically to details of the pre-
                                                                scription-drug benefit passed by Congress, and lawmakers
Kemper, Vicki, and Janet Hook, “Medicare Reform Now             are worried about a voter backlash.
Hits the Bumpy Road,” Los Angeles Times, June 28, 2003,
p. A16.                                                         Kemper, Vicki, “Industry Using Its Leverage in Medicare
 Some lawmakers worry about seniors who are crippled by         Debate,” Los Angeles Times, July 9, 2003, p. A16.
high medication expenses that don’t quite reach the thresh-      Lawmakers are trying to add a prescription-drug benefit to
old for “catastrophic” coverage.                                Medicare while making the 38-year-old program operate
                                                                more like the private-insurance industry.
Coverage Gaps
                                                                Stolberg, Sheryl Gay, “Medicare Drug Plan Far From
Connolly, Ceci, “Medicare Bills Don’t Mimic Model,” The         Cure-All, Irate Retirees Find,” The New York Times, June
Washington Post, July 6, 2003, p. A4.                           26, 2003, p. A1.
 The two Medicare drug bills passed by the House and              Many seniors are bitterly disappointed by the proposed
Senate do not come close to providing the level of cover-       new prescription-drug benefit, saying it doesn’t offer them
age given to 8.5 million federal workers.                       the coverage they need.

Hulse, Carl, “Democrats Attack G.O.P. In TV Ads on              Managed Care
Medicare Bill,” The New York Times, July 12, 2003, p.
A8.                                                             Bloche, Gregg M., “Talk About Health Care: Sorry, Wrong
  Congressional Democrats are accusing Republicans of dis-      Numbers,” The Washington Post, May 19, 2003, p. B2.
regarding seniors whose drug expenses will be ignored by          Some experts are worried that Congress is basing its Medicare
Medicare “coverage gaps.”                                       arguments on the outdated and erroneous notion that managed
                                                                care can control medical costs.
Toner, Robin, and Robert Pear, “Senate Rebuffs Bid to
Close a Gap in Medicare Drug Coverage,” The New York            Brock, Fred, “Misgivings About Nudging the Elderly Into
Times, June 25, 2003, p. A20.                                   Managed Care,” The New York Times, March 9, 2003, p. C8.
 The Senate rejected a Democratic effort to make a new            Lawmakers are disenchanted with medical-industry notions
Medicare drug benefit more generous by closing a gap in         of revamping Medicare so that seniors have strong incen-
coverage for elderly people with high drug costs.               tives to join managed-care plans.

Trafford, Abigail, “Bridging the Drug Gap,” The Wash-           Cohn, Jonathan, “Old Tricks,” The New Republic, March
ington Post, March 20, 2001, p. T9.                             17, 2003, p. 11.
  While most Medicare beneficiaries have some kind of drug        The Bush administration’s Medicare-reform plan would
benefit, one-third of the enrollees have no coverage for pre-   force seniors to choose between staying in traditional Medicare
scription drugs.                                                or enrolling in a managed-care plan.

Drug Benefit                                                    Freudenheim, Milt, “Employers Seek To Shift Costs Of
                                                                Drugs to U.S.,” The New York Times, July 2, 2003, p. A1.
“Drug Plan for Seniors Risks Replay of ‘Catastrophic’             The recently passed Medicare bills offer the country’s largest
Past,” USA Today, July 28, 2003, p. A12.                        employers a long-sought prize: shifting their burden of soar-
 As Congress struggles to pass a prescription-drug benefit      ing drug costs to the federal government.

694      CQ Researcher
Marks, Alexandra, “Dueling Drug Plans: the Impact on Se-            sion of Medicare since its creation nearly four decades ago.
niors,” The Christian Science Monitor, March 6, 2003, p. A2.
 President Bush hopes to use prescription-drug coverage to          Privatization
entice seniors out of the traditional Medicare plan into a
more cost-conscious managed-care group.                             Abelson, Reed, “Private Plans Again Seen as Aid to
                                                                    Medicare,” The New York Times, July 5, 2003, p. A1.
New Legislation                                                       The government hopes that by encouraging beneficiaries
                                                                    to enroll in the private plans of their choice, it can rein in
Eilperin, Juliet, “Medicare Bill Has House Conservatives            Medicare costs through the free market.
Grumbling,” The Washington Post, July 15, 2003, p. A4.
  Some Republicans are questioning whether the party made           Goldstein, Amy, “Report Challenges Medicare Reform
too many concessions in its bid to hijack an issue — Medicare       Bills,” The Washington Post, July 23, 2003, p. A2.
— that voters have associated with Democrats.                         Landmark Medicare legislation is unlikely to prompt older
                                                                    Americans to sign up for private health plans, the Congres-
Gleckman, Howard, “This Medicare Reform Is No Cure,”                sional Budget Office told lawmakers.
Business Week, July 14, 2003, p. 36.
  In an effort to compromise between Democratic demands             Hacker, Jacob S., “How Not To Fix Medicare,” The New
for a drug benefit and GOP efforts to open Medicare to              York Times, July 2, 2003, p. A25.
competition, lawmakers will accomplish neither.                      The House and Senate have passed bills giving private
                                                                    health plans a huge new stake in Medicare and providing
Goldstein, Amy, “On Medicare, Bush Left Details to Con-             prescription-drug benefits.
gress,” The Washington Post, April 20, 2003, p. A4.
 Bush’s Medicare-reform framework is a compromise be-               Lieberman, Trudy, “Privatizing Medicare,” The Nation,
tween conservative ideology and its pragmatism.                     July 7, 2003, p. 24.
                                                                     The House and Senate Medicare bills move the 38-year-
Hook, Janet, “Medicare Plans Are No Cure-All in Con-                old social-insurance program closer to privatization.
gress,” Los Angeles Times, June 18, 2003, p. A1.
 Free-market conservatives say Medicare needs to be over-           Pear, Robert, “Medicare Debate Focuses on Merits of Pri-
hauled before a new prescription-drug benefit is added.             vate Plans,” The New York Times, June 9, 2003, p. A1.
                                                                      A central issue in Medicare reform is whether private health
Kemper, Vicki, “Congress on Verge of Remaking                       plans can deliver better care, at lower cost, than the tradi-
Medicare,” Los Angeles Times, June 11, 2003, p. A1.                 tional Medicare program created 38 years ago.
  A prescription-drug plan is just part of a Medicare-reform plan
that could radically transform health-care delivery for seniors.    Pear, Robert, “Plan to Overhaul Medicare by Enlarging
                                                                    Private Health Plan Role Is Criticized,” The New York
Toner, Robin, and Robert Pear, “House and Senate Pass               Times, May 6, 2003, p. A28.
Measures For Broad Overhaul of Medicare,” The New                     Congressional efforts to revamp Medicare by expanding the
York Times, June 27, 2003, p. A1.                                   role of private health plans have been derailed by new data
 The Senate and the House approved the biggest expan-               suggesting that such plans would not save money.

   Sample formats for citing these reports in a bibliography include the ones listed below. Preferred styles
 and formats vary, so please check with your instructor or professor.
     Jost, Kenneth. “Rethinking the Death Penalty.” The CQ Researcher 16 Nov. 2001: 945-68.
     Jost, K. (2001, Nov. 16). Rethinking the death penalty. The CQ Researcher, 11, 945-968.
     Jost, Kenneth. “Rethinking the Death Penalty.” CQ Researcher, November 16, 2001, 945-968.

CQ on the Web:                                                                     Aug. 22, 2003             695
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CHILDREN/YOUTH                                  HEALTH CARE AND MEDICINE                    Stimulating the Economy, January 2003
Cyber-Predators, March 2002                     Obesity Epidemic, January 2003              Future of NATO, February 2003
Preventing Teen Drug Use, March 2002            Medical Malpractice, February 2003          Trouble in South America, March 2003
Sexual Abuse and the Clergy, May 2002           Organ Shortage, February 2003               North Korean Crisis, April 2003
                                                Drug Company Ethics, June 2003              Rebuilding Iraq, July 2003
CRIMINAL JUSTICE                                Increase in Autism, June 2003
Rethinking the Death Penalty, Nov. 2001         Fighting SARS, June 2003                    TRANSPORTATION
Intelligence Reforms, January 2002                                                          Auto Safety, October 2001
Cyber-Crime, April 2002                         LEGAL ISSUES                                Future of the Airline Industry, June 2002
Corporate Crime, October 2002                   Abortion Debates, March 2003                Future of Amtrak, October 2002
                                                Race in America, July 2003                  SUV Debate, May 2003
EDUCATION                                       Torture, April 2003
Teaching Math and Science, Sept. 2002
Homework Debate, December 2002
Charter Schools, December 2002
                                                MODERN CULTURE
                                                Gambling in America, March 2003
                                                Movie Ratings, March 2003
                                                                                               Future Topics
ENVIRONMENT                                     Mothers’ Movement, April 2003
Bush and the Environment, October 2002          Unemployment Benefits, April 2003          v   Trouble in Africa
Crisis in the Plains, May 2003
NASA’s Future, May 2003                         POLITICS/GOVERNMENT

Reforming the Corps, May 2003                   Confronting Iraq, October 2002                 Gay Marriage
Water Shortages, August 2003                    Presidential Power, November 2002

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