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What's in the New Law?The Medicare law that Congress enacted in November has a number of troubling provisions. Here are some details of a new law that, unfortunately, may do more harm than good. Inadequate Rx Benefits: The bill's prescription drug benefit has an estimated premium of $35 a month or $420 per year, a $250 annual deductible and 25 percent co-pays for drug costs from $251 to $2,250 per year. After you reach $2,250 in drug expenses, the coverage stops and you are required to pay 100 percent out of pocket for the next $2,850 in annual prescription drug costs. This gap is known as the "doughnut hole." While in the "hole," you continue to pay the $35 monthly premium but get no benefits. After you reach $5,100 in annual drug spending, the plan covers 95 percent of your drug expenses with no limit. The drug benefit will be provided through private, prescription-drug-only insurance plans (for seniors in traditional Medicare) and by Medicare HMOs. Signing up for either of these options is completely voluntary. Medicare Privatization: The new law authorizes a Medicare "demonstration project" in 2010 in six metropolitan areas. AFSCME believes the project could change the social insurance nature of Medicare, turning it into a privatized program in the hands of the HMOs. In these yet-to-be-chosen areas, traditional fee-for-service Medicare will be forced to compete and bid against private plans. These plans will have large government subsidies to encourage their participation and will try to attract the youngest seniors who use the fewest services, in order to maximize profits. Since traditional Medicare will be left with an older, sicker and much more expensive population, costs will be driven up and passed along to beneficiaries. Over time, the cost of traditional Medicare could become so high that most seniors won't be able to afford it. They'll be forced to go into HMOs. In the six project areas, seniors will get "vouchers" to buy their insurance (in the form of traditional Medicare or an HMO). The amount of the voucher will be a percentage of the average price of all competing plans. If the demonstration project succeeds, Congress will switch all Medicare beneficiaries to vouchers. Then, whenever Congress faces a budget crunch, it can reduce seniors' voucher amounts. Over time, vouchers will make it easier to shift Medicare costs away from the federal government and require seniors to pay more for health care. Employer Sponsored Drug Coverage is at Risk: Thirty percent of Medicare beneficiaries have drug coverage through their former employers. To prevent employers from canceling coverage in light of the new drug plans, the bill includes a cash subsidy for employers who already provide a retiree drug benefit. Unfortunately, the relatively small subsidies in the bill probably won't be enough to stem the tide of cancelled plans. The subsidy equals only 28 percent of the government's contribution to the initial portion of the drug benefit. Unfortunately, employers won't be able to take advantage of the catastrophic coverage under the bill, which pays for 95 percent of seniors' drug spending over $5,100 a year. To attempt to make up for this shortcoming, the bill establishes a new tax advantage for employers who maintain coverage. But this only pertains to private employers. Public employers and non-profit employers will get no comparable relief under this bill. The result could be serious problems for AFSCME retirees who are covered by these employer plans, as prescription drug prices continue to rise and drive up the cost of retiree health care. Containing Drug Costs: The bill prohibits Medicare from negotiating with the drug companies for lower prices, thus foregoing the enormous buying power of a system that represents 40 million beneficiaries. Instead, private insurers will negotiate separately on behalf of smaller subsets of the Medicare population — a much less effective means of containing costs. The bill does permit re-importation of prescription drugs from Canada, BUT the Department of Health and Human Services (HHS) will be required to certify that no safety risks exists. HHS has already said it will not do that. Means-test on Part B Premiums: For the first time in the history of the Medicare program, the Part B premium will vary depending on income. Seniors with incomes over $80,000 per year will have to pay higher premiums than others. Though this may sound reasonable on the surface, it has serious consequences. Medicare is a social insurance program, where everyone pays in and everyone gets the benefit. Universality and fairness are Medicare's political strengths. Means-testing the Part B premium for higher income seniors establishes a precedent that eventually could make Medicare more like a welfare program. The $80,000 income threshold will almost certainly be lowered in the future, when Congress wants to shift a larger share of Medicare costs to a greater number of seniors. Limits on Medicare Funding: The bill requires specific actions that could limit future funds for Medicare. It creates a new accounting standard that would declare Medicare insolvent once general federal revenues exceed 45 percent of the program's costs. No comparable standard exists for any other program of the federal government. Health Savings Accounts: The bill includes $6.7 billion for Health Savings Accounts (HSAs). These are essentially tax shelters for the healthiest and wealthiest and have nothing to do with Medicare or seniors. Designed like an IRA or 401(k) for health care, contributions to the accounts are made with pretax dollars. The account allows for withdrawals for health-related expenses without tax penalty. Big Winners — Insurance and Drug Companies: The bill raises reimbursement rates to HMOs to encourage their participation in Medicare — a terrible waste because HMOs tend to cover the healthiest Medicare beneficiaries, who are the least expensive to serve. There's also a $14 billion slush fund to provide additional enticements for HMOs. Drug companies will gain a lot from this legislation as well. They stand to make nearly $140 billion in windfall profits because the new drug coverage will result in a higher volume of drug sales, with prices unchecked by any meaningful cost-containment measures. More details:
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