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Medicare
Medicare will spend more than $250 billion in 2003 to provide health-care coverage for approximately 41 million seniors and disabled citizens. Medicare was established in 1965 to address the health-care costs of the elderly, especially those with limited incomes or costly health needs and was later expanded to cover the non-elderly disabled. In large part, the program's benefit package has remained the same, failing to keep pace with a variety of new advances in the health care system. As a result, a variety of attempts have been made over the years to cover outpatient prescription drugs, provide consistent coverage for many preventive treatments, support coordinated management for chronic diseases, and protect beneficiaries against the high cost of treating serious illness. The Administration is attempting to address these issues-and protect the solvency of the program in the face of the coming retirement of the Baby Boom generation-through various proposals in the FY '04 budget.
Modernization of the Medicare Program
The FY '04 budget proposes a significant investment of $400 billion in the modernization of the Medicare program over the next ten years. This amount is more than double the amount proposed in the FY '03 Budget. Beneficiaries will be encouraged to move into a modernized version of the Medicare program that will offer a variety of plan options that will include prescription drugs, catastrophic coverage and better preventive care. Costs will be controlled through competition among private health plans offering the coverage. The budget also proposes to modernize fee for service to include catastrophic coverage and more rationalized cost sharing. Reports indicate that the "enhanced fee for service" options (with prescription coverage, cost-sharing and catastrophic coverage options) will have higher premiums. Current beneficiaries and those soon to be eligible will be able to maintain their current benefits and benefit structure. Initial outliers suggest that those remaining in the existing fee-for-service would not receive drug coverage.
The budget also includes a set of principles the Administration believes any Medicare Modernization program should meet:
- There should be an option for a subsidized drug benefit as part of a modernized Medicare program.
- A modernized Medicare program will have better coverage of preventive care and serious illnesses.
- Today's Medicare beneficiaries and those soon to come should have the option of keeping traditional Medicare benefits with no changes.
- Medicare should make available better options, like those available to federal employees.
- The long-term financial security of the program must be strengthened.
- Management of the program should be strengthened to improve care.
- Regulatory and Administrative streamlining should occur, including the elimination of waste, fraud and abuse.
- Encourage high quality care.
Hospital Outpatient Prospective Payment System (OPPS)
As an additional improvement to the Medicare program, the Administration stated its intention to pursue legislation "to ensure Medicare more accurately reimburses for covered outpatient drugs, and the cost of administering them."
Changes to AWP
Issues with "Average Wholesale Price" (AWP) as a benchmark for physician reimbursement for covered outpatient prescription drugs have been raised by the General Accounting Office (GAO), the HHS Inspector General and others. The Administrator of the Centers for Medicare and Medicaid Services (CMS) Thomas Scully has also been a vocal opponent of this benchmark.
The Administration's budget suggests that AWP reforms may be a revenue source for additional savings that might be targeted for Medicare modernization efforts. As a result, the line items for Medicare Modernization are apparently net of the proposed change to AWP.
Prescription Drug Waivers
Medicaid is the source of drug coverage for approximately four million Medicare beneficiaries whose incomes qualify for both programs. Last year, the Administration developed a new "Pharmacy Plus" waiver program to provide new budget neutral expansions of Medicaid drug coverage and proposed new enhanced matching rates in some cases. While the Pharmacy Plus waiver program remains in effect and is highlighted in the President's budget, new Medicaid reforms are the Administration's more long-term plan for handling Medicaid waiver issues.
Medicare + Choice
Established in 1997, Medicare + Choice (M+C) was intended to offer beneficiaries comprehensive private plan options for their health insurance coverage. These plans offer additional benefits, such as prescription drug coverage, vision and dental care, at a price that is usually well below that of a comparable supplemental policy. However, M+C faces significant challenges that threaten beneficiary choice. Because the pricing system that controls payments to M+C plans has artificially held down payment increases as health-care costs have risen, many plans have withdrawn from the program.
The Administration proposes short term payment increases to these plans, tied to the costs of providing underlying benefits, including prescription drugs. Medicare+Choice plans are also likely to be dramatically affected depending on the underlying details of the Administration's plan to modernize Medicare.
Other Medicare Issues
The Administration's budget also announces efforts that will seek:
- better coordination of Medicare and FEHBP for federal retirees;
- more information to beneficiaries on hospitals and nursing homes; and
- reforms to the Medicare appeals process.
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