Congress's dramatic pre-dawn votes on Friday to add prescription drug
benefits to Medicare were a political milestone, authorizing the biggest
expansion of the program since its birth. But health policy analysts
say that, even if the House and the Senate are able to resolve differences
between their bills, it is far from certain the plan would work.
The drug coverage envisioned by Congress and the White House relies
on two kinds of private insurance methods: separate policies solely
for drugs, something that does not currently exist, and preferred-provider
networks, a health plan that is common among younger people but includes
few Medicare patients.
According to policy specialists, industry lobbyists, Wall Street analysts
and health care executives, not one company has said publicly that it
would sign up for either of these new marriages with Medicare, and the
willingness of insurers to take part remains an open question.
"There is no solid commitment to participate," even though
lawmakers have been developing the idea of federal drug benefits for
years before last week's votes, said Robert L. Laszewski, a Washington-based
health policy consultant whose clients include several of the nation's
leading health insurers. "That has got to be a big yellow light
to what Congress . . . is doing."
Until now, the political and policy debate over Medicare's future has
revolved largely around whether the country could afford to help pay
for older Americans' medicine, whether the coverage would be good enough
and how to achieve the proper balance between the government-run and
private aspects of the program. The practical question of whether its
40 million patients could find insurance for drugs, even if Congress
wants it, has become increasingly central as a revision moves closer
to reality.
Medicare was created in 1965 to provide health insurance for people
65 and older. The government's second-largest program -- surpassed only
by Social Security -- it has paid for medicine administered in a hospital
but not for prescription drugs that patients buy.
In interviews, industry officials said that, broadly speaking, they
are glad the government is working to carve out older markets for them
at a time when the nation's population of the elderly is about to soar.
Privately, they acknowledge they are unsure, even at this late stage
in the government debate, whether signing up Medicare patients would
be sound business.
That decision, company executives and lobbyists said, hinges on subtle
but crucial details in the legislation. These involve how much they
would be paid, how tightly they would be regulated and how much the
government would help them if patients' need for medicine -- or pharmaceutical
prices -- proved greater than they expected. In some instances, these
critical issues are addressed differently in the House and Senate bills.
As a result, industry officials said they cannot decide whether to participate
before they see what emerges from House-Senate negotiations over the
bills scheduled to begin in about a week.
Overlaying these issues is the sour taste Medicare has left with parts
of the health care industry because of the program's recent history
in enlisting HMOs and other private health plans to accept older patients.
Many such plans have dropped out or pared their services, complaining
that the government has been stingy and intrusive.
Highmark Inc. is a large Blue Cross Blue Shield plan in western Pennsylvania,
with a large population of the elderly, that has always participated
in Medicare. It has run a Medicare HMO for several years, and has just
started a preferred-provider organization (PPO) through Medicare.
Despite that long association, Highmark is not sure it wants to offer
the drug benefits Congress is seeking. "We are going to give it
every hard look," said Bruce R. Hironimus, Highmark's vice president
of government affairs. "But we are not at the position we can make
a business determination today."
Others are much less receptive. "I don't think anyone in the industry
has any confidence," said one insurance source who, like many interviewed
for this story, spoke of her reservations on the condition of anonymity
for fear of antagonizing lawmakers while the legislation is taking shape.
Both the House and Senate bills would devote an additional $400 billion
to Medicare over the next decade, mainly for the new drug benefits.
The benefits would be voluntary, and unlike the original Medicare program,
which is administered by a federal agency, the idea behind the legislation
is for patients to purchase drug coverage from two kinds of private
companies.
Patients who want to stay in the traditional fee-for-service part of
Medicare, as nearly nine out of 10 choose to do today, could buy coverage
through a separate insurance policy. Or patients could sign up to get
coverage from a private health plan, which would oversee the rest of
their health care as well.
The drug benefit would be the same either way and would be subsidized
by the government. The legislation varies in specifics, but, in general,
both measures would require patients to pay a premium each month and
a yearly deductible before the government subsidized their drug spending
up to a certain limit. After they reached that limit -- which differs
in each bill -- the coverage would stop, except for a relatively small
portion of older people who have extremely large, or "catastrophic,"
pharmaceutical expenses.
The Senate has tried to hedge against the possibility that private companies
might balk by including in its legislation a promise that the government-run
part of Medicare would offer a drug benefit anywhere in the country
that patients do not have two private-sector choices. The House legislation
contains no such guarantee.
The industry has different reasons for its qualms about drug-only insurance
and about drug coverage as part of private health care plans.
One difficulty is that Congress anticipates that the separate drug policies
would be offered by companies that are pharmacy benefit managers, known
as PBMs, as well as by existing health insurance companies.
Dan Mendelson, a former Clinton administration budget official who now
works as a health care consultant, including to pharmacy benefit managers,
said: "This concept of drug-only insurance does not exist in nature."
Mendelson recalled that a few PBMs briefly offered such policies in
the mid-1990s but stopped after discovering they could not make a profit.
For PBMs, such an arrangement conflicts with a tradition in which they
administer drug benefits and work to keep down costs, but do not shoulder
insurance risks.
Some of those companies are completely opposed to assuming those risks;
others are open to them but wary. Barrett A. Toan, chairman and chief
executive of Express Scripts Inc., one of the nation's largest PBMs,
said the idea could be "workable," but only if the government
gives the companies enough freedom to employ various tools to constrain
their expenses.
Toan and other industry sources are highly critical of two provisions
in the Senate bill that limit that freedom. One would require the new
drug insurance policies to allow patients to receive a 90-day supply
of pills from a pharmacy, a convenience typically allowed by PBMs only
if patients order their medicine by mail. The other measure would require
PBMs to disclose to the Departments of Justice and Health and Human
Services the discounted prices they have negotiated with drug manufacturers,
a provision the companies say would make those negotiations more difficult.
Health insurance companies, already accustomed to the risk of higher-than-expected
costs, also have doubts about the plans. One of the main reasons is
that Medicare patients would decide on their own whether to buy the
coverage. Ordinarily, insurance companies offset the cost of their most
expensive patients with those who use less care. But under a voluntary
drug benefit, executives and policy analysts predict, the patients most
prone to sign up would be the ones who use a lot of medicine.
"Am I going to set my price . . . and then the people whose drug
spending is more than that will buy the product and people whose drug
spending is less won't?" asked Donald A. Young, president of the
Health Insurance Association of America.
Both the House and Senate, in slightly different ways, seek to cushion
such financial risk, at least temporarily. But questions linger within
the industry over whether those attempts go far enough.
Companies that run preferred-provider networks, meanwhile, are also
skeptical, partly because of the managed care industry's disappointment
over Medicare's relationship with HMOs in Medi- care+Choice, a part
of the program created in 1997.
The Bush administration has appeared sensitive to that difficult history,
encouraging Congress to designate PPOs, not HMOs (which operate a more
restrictive version of managed care), as the basis for redesigning the
program. Thomas A. Scully, the administration's top Medicare official,
said at a recent Senate hearing that PPOs were "fundamentally different"
than HMOs, adding that "we believe there is going to be intense
competition" to take part in a redesigned program.
The administration draws hope from a fledgling experiment with preferred-provider
organizations that since last winter has led 16 companies that run PPOs
to sign up 66,000 Medicare patients, less than two-tenths of 1 percent
of the program's beneficiaries.
Health plan officials, however, said they are uncomfortable with an
aspect of the House and Senate legislation, that is not part of the
experiment, that would require them to compete in 10 large regions of
the country -- areas larger than their current markets. And even though
Congress would add money to rural communities, health plans say it remains
difficult to sign affordable contracts with doctors and hospitals in
sparsely populated parts of the country.
Health plans and their trade association have more optimism about the
House bill, which would give them more money more quickly than the Senate
version.
Still, an insurance industry source said: "We are all kind of scratching
our head, saying, 'We don't know how we are going to do this."
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