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Volume 55, No. 8 August 1999
NONINSURANCE FOR SENIORS
What Clinton couldn't achieve for all Americans in his heady
first 100 days, he may yet, as a post-impeachment lame duck,
foist on those over the age of 55.
While calling for a "Patients' Bill of Rights" to protect
against managed-care abuses, he proposes to turn HCFA into the
world's biggest Managed Care Organization, which will micromanage
choice of physician, treatment plan, and drug usage-or else
delegate the details to a "private" partner.
In Clinton Newspeak: "The President's proposal would make
the traditional fee-for-service program more competitive through
the use of market-oriented purchasing and quality improvement
tools to improve care and constrain costs."
The details from the White House (
www.whitehouse.gov/NH/New/html/medicare.pdf ) (also see
- Cost shifting: Beneficiaries get a "discount"
on every prescription. While Medicare pays only for the first
half of the first (after-discount) $5,000, other Americans
"contribute" through increased prices on all of their
prescriptions, and pharmacists and manufacturers earn less.
- Risk shifting to "providers": "Cost-effective
providers" would compete for a single rate for services related
to certain conditions, in assembly-line facilities known as
"Centers of Excellence."
- Income-tax bailout: As Medicare is obviously not
sustainable through payroll taxes, even with the more than 75%
income-tax subsidy for Part B, the White House proposes to shovel
in $794 billion in income-tax receipts (from the never-ending
"surplus") over the next 15 years.
- Lock-in ("choice"): Lured by additional benefits or
lower cost-sharing, beneficiaries would "volunteer" to be locked
into ("enroll with") Primary Care Case Management (PCCM) with a
team of providers including a geriatrician, nurse, and social
workers. "This is especially important for older and sicker
[expensive] beneficiaries, who have diminished capacity to
navigate the health care system [and will have even less],"
states the White House.
- "Incentives" ("fraud" if you use them):
"Centers would be allowed to provide incentives such as reducing
or waiving cost sharing, offering private rooms, or paying for
travel and lodging expenses to attract beneficiaries."
The Administration apparently recognizes the perverse
incentives in the current system. Therefore, it proposes a 20%
copayment for laboratory services, and indexing the Part B
deductible, which has fallen from 28% in 1967 to 3% in 2000, to
inflation. To eliminate "overpayments that are built into the
system due to disproportionate enrollment of healthy
beneficiaries," a risk adjustment mechanism will be developed.
Nevertheless, still more market-distorting features are in the
works. Since hospitals have tried to escape the effects of DRG
payment by expanding out-patient facilities, the Balanced Budget
Act (BBA) decreed the expansion of the prospective payment system
(PPS) to outpatients. Clinton's answer to hospitals' expected
attempt to maintain revenues: a retreading of the previously
proposed "volume control mechanism."
While attempting to decrease utilization of medical services
by the sick, the Clinton Plan intends to increase utilization of
preventive services by eliminating cost sharing for hepatitis B
vaccine, colorectal cancer screening, bone mass measurements,
prostate cancer screening, and diabetes self-management.
Additionally, Clinton plans a blitz of public service
announcements, a print media campaign, distribution of
comprehensive information on benefits, plus an education and
awareness campaign about the need for sturdy shoes and lighted
stairwells. Then there will be a "health status assessment tool"
so that beneficiaries can "raise the health issues identified to
their health care provider" [and to identify candidates for
PCCM?] All persons over the age of 50 will be targeted for
education about how their capacity is beginning to decline. The
cost of these measures: a mere $3 billion.
Clinton's plan has no "cuts," only "savings." And he would
restore $7.5 billion of the $197 billion in cuts made by the BBA,
to remedy any quality or access problems.
The Plan states that "no formulary would be established by
the Medicare program." The public-private partnership concept
comes into action: "[P]rivate benefit managers could establish
formularies, subject to the coverage requirements...." The
standards to be met by the PBM would be established by the
Secretary of HHS and would include "strategies to encourage
appropriate use of medications."
Recognizing that HCFA could use improvement, Clinton
proposes increasing accountability through the formation of three
new public/private advisory boards. This will no doubt "assure a
process that new processes are accountable, transparent, clear,
and certain (sic.)."
Clinton has contemplated a Medicare out-patient prescription
drug benefit from the outset, as shown in documents of the
Clinton Health Care Task Force. Initially, there was an option
for the Secretary to develop the formulary, and to have an RxPRC
(Prescription Payment Review Commission), to operate like the
PPRC (Physician Payment Review Commission). The basic ideas of a
formulary and price controls are changed but slightly.
As Paul Starr told the Task Force, in answer to the question
"Why not Medicare for Everyone?": "...[I]t would be a step down
for the great majority. And if we brought Medicare coverage up to
par, it would break the bank."
The question that needs to be asked is this: Why not
freedom for everyone, instead of enforced government dependency?
And why not true insurance, instead of forced prepayment for
Comments on the Clinton Medicare Plan
About the drug discount plan: "[T]here are no price controls
in this and there is no use of an accumulated bargaining power by
Medicare" (Gene Sperling, Clinton's national economic advisor,
BNA's HCPR 7/5/99). [It depends on what "not" means.]
"A senior with $1,000 in drug expenses would in fact have to
pay $1,028 under the Clinton plan ($500 for the 50% copayment and
$528 for the premiums)...[M]ost seniors would actually pay more
under the Clinton plan" (Peter Ferrara, Americans for Tax
"People don't need to pay $288 a year [at first] to get $100
worth of help on the first $200 of drugs. Processing $10, $20,
$30 bills through an insurance mechanism is extremely
wasteful....[Then, if a patient] has $5,000...or even $20,000
worth of...drug expenses, Mr. Clinton says, `Too bad, Granny. We
aren't doing this to help people who really need help, but to get
people accustomed to coming to Big Brother for things they do
every day" (Greg Scandlen, Cato Institute).
"[NBC spotlighted an elderly woman] who spends $2,000 per
year on prescriptions and, horror of horrors, has to dip into her
savings. The message: It's wrong for her to have to dip into her
savings, but it's not wrong for her to dip into someone else's"
(Craig Cantoni, Capstone Consulting).
Prescription Drugs for the Needy
Many drug companies will supply medications to the truly
needy free or at a nominal price. One example is Glaxo-Wellcome
www.glaxowellcome.com and check out the patient
AAPS Members May Save on Liability Insurance
A plan underwritten by OHIC, first developed by the Ohio
chapter to provide savings on professional liability insurance,
is expanding and can already be offered in 23 states. Members
have saved up to $10,000 on annual premiums. You may receive
information and a telephone call in the next few months. Or you
may call our agent, Mr. Steve Trimborn, at (937) 293-6000 or
AAPS Member Assumes Presidency of MedChi
Wayne C. Spiggle, M.D., an internist, is now President of
MedChi, the Maryland state medical society. Dr. Spiggle has
expressed his appreciation to other AAPS members for their work
in defending medical confidentiality, including Richard Epstein,
M.D., and James Kelly, D.O., a MedChi Trustee.
Nominating Committee Report
The following slate will be presented at the annual meeting
in Coeur D'Alene:
President: Dr. Lawrence Huntoon of Jamestown, NY
President-Elect: Dr. Robert Cihak of Aberdeen, WA
Secretary: Dr. Robert Urban of Belle Vernon, PA
Treasurer: Dr. R. Lowell Campbell of Corsicana, TX
Directors: Drs. Art Astorino of Newport Beach, CA; Claud
Boyd of Augusta, GA; Kenneth Christman of Dayton, OH; James Coy
of Punta Gorda, FL; Chester Danehower of Peoria, IL; John Dwyer
of Chicago, IL; Alieta Eck of Somerset, NJ: Robert Gervais of
Mesa, AZ; Vernon (Bud) Goltry of Boise, ID; and Mark Schiller of
San Francisco, CA.
Reflections on Insurance
Since I retired from practice in June, 1998, having reached
the age of 77, the Medicare questionnaire is not of much value
for me to fill out. But I can give a general overview of the
state of medicine since I started practice in 1955 in the town of
Clovis (pop. 25,000). As the only radiologist in the area, I had
to accept all referred patients. Virtually no one had insurance,
except for Blue Cross, and it did not cover x-rays outside the
hospital. At that time, my uncollectible amounts came to about
40%. At the time of my retirement, the write-offs, including all
uncollectibles and the "adjustments" made by various insurers,
came to 55%. In essence, all this "insurance" increased my
charity load from 40% to 55%. In addition, before all this
"insurance" I needed a single receptionist-bookkeeper-biller to
handle the business aspects of the practice. In 1998, I needed a
receptionist-insurance agent, an insurance filer-assistant
bookkeeper, and a transcriber-insurance filer.
Today, when a patient calls a doctor's office for an
appointment, the clerk asks about insurance, and if he has none,
the patient is often refused. This did not happen before, and has
produced the phenomenon that 90% of ER patients should have been
seen in the office....
As long as we have the employer tax advantage in so-called
health programs, this problem cannot be solved. The employee
should receive a full salary with no compulsory deductions for
so-called benefits. We need to promote true insurance, only for
fees over about $1,500.
Martin Goodwin, M.D., Portales, NM
My colleagues and I founded the largest IPA in Washington
State in an attempt to preserve independent medicine. We created
a monster....We couldn't have been busier but were losing $80,000
per month. We decided it was unethical to charge cash-paying
patients retail price, when all we had to do was bank their
payments, and all others got a 30 to 60% discount. And it was
insanity to be begging a 19-year-old clerk for permission to do a
few tests. Therefore, we started Simple Care (see AAPS News, Sept. 1998). Since we now
offer a totally different service, one without administrative
involvement, the CPT codes do not apply. And the CPT-associated
fees take into account staff time, computer down time, re-bill
time, denial time, fight-them time, etc., which are not part of
SimpleCare. We reversed our Patient:Paperwork ratio from 1:7 to
7:1. We do not offer discounts, but a fair price. In three
months, we were $10,000 per month in the black. With our staff's
input, we began sending 90-day cancellation notices to insurance
companies that caused hassles and delayed payment.
Instead of being on the sinking side of the equation,
doctors need to create a new field that puts the patient in
charge....Imagine going to CME to learn about medicine instead of
how to code so you don't get *** or thrown in jail!
Vern Cherewatenko, M.D., Renton, WA
Oct. 13-16. 56th annual meeting, Coeur D'Alene, ID.
Oct. 25-28, 2000. 57th annual meeting, St. Louis.
The Quest for Data
School Data. Ursula Smith, a nurse and mother of five,
volunteers at school. "I have worked directly with the Missouri
state health department and seen their vision of the future," she
writes. "It is scary." The lengthy data base required for
participation in the state school health program includes family
income, social security history, social history, etc. The only
thing parents are required to sign is a form that says, in
effect: "In order to provide the best care possible for your
child, we may need to share information with other interested
professionals. Please sign below to allow us to do so." Without
knowing it, the family has agreed to put its most personal
information on a national computer data base, accessible to
almost anyone who tries at all. Moreover, all of this data has
been promised (not even sold, just given) to the Robert Wood
Johnson Foundation to use however they wish.
"Voluntary" Provision of Social Security Numbers. No
governmental agency can lawfully withhold services solely because
the SSN was not provided-or so claims the IRS. So how to get the
information? Richard L. Westerman, M.D., reports that Michigan,
in order to avoid losing $1 billion in federal child-care funds,
passed a law requiring physicians to provide their SSN
"voluntarily." "I elected not to volunteer," he writes. "This
resulted in my being denied a license renewal."
National Child Support Monitoring. Congress ordered
states to obtain SSNs when issuing professional, drivers, and
hunting licenses so that they can be revoked if the holder is
delinquent in child-support payments. Recently, Virginia
officials apologized to 2,300 parents misidentified as delinquent
due to a computer programming error and threatened with loss of
hunting and fishing licenses (Buffalo News 6/27/99).
Defective Baby Data Base in Nevada. Pursuant to
Assembly Bill 238, passed this spring, the chief administrative
officers of hospitals or obstetric units must report to the state
any child under age 7 with a "birth defect," defined as "any
structural or biochemical abnormality." The names of such
children may be used for research unless the parent makes a
written demand for exclusion, in the prescribed manner.
Physicians, midwives, or even relatives assisting any woman at
childbirth are required to report babies with defects. According
to Twila Brase, R.N., of the Citizens' Council on Health Care,
such laws result from the Birth Defects Prevention Act of 1998,
which makes $70 million available for registry development and
What Next? A 1998 amendment to the German constitution
permits police to obtain court orders to eavesdrop on physicians'
consultations with patients or parishioners' confessions to
priests (World Press Review, May, 1999).
Gailey Conviction Upheld, Precedent Avoided
In an eight-line opinion, the U.S. Circuit Court of Appeals
for the 8th Circuit upheld the mail fraud conviction of Raymond
Keith Gailey, M.D., (see AAPS News
Dec. 1998). By invoking a local rule (8th Cir. R. 47B),
judges avoided addressing, and setting an appeals court
precedent, for the use of the mail fraud statute to federalize
and criminalize a private contract dispute. "[A]n extended
discussion of the issues presented by this appeal will serve no
On Removing Physicians Without Cause
"Missouri's ruling could dull CEO's ax" is the headline
concerning a ruling that involves AMA Executive Vice President E.
Ratcliffe Anderson, M.D. "If hospital administrators can't remove
clinical department chairs without cause, how can they turn
around a hospital that needs to head in a new direction?"
(Modern Healthcare 4/26/99).
The decision in Goldman v. Truman Medical Center,
Circuit Court of Jackson County, MO (CV97-31606), is posted at
matters"). It reads in part:
"After Dr. Anderson became Executive Director and Dean of
the Medical School, existing problems deteriorated rapidly....As
a result,...five Department Chairs...signed a letter...calling
for Dr. Anderson's removal....Dr. Anderson thereafter began
proceedings to remove...[three department chairs]....Dr. Anderson
refused to describe to the Executive committee any factual basis
for his action....In spite of overwhelming votes by the Executive
Committee of the Medical-Dental staff and the Professional
Standards Committee, Dr. Anderson indicated that he intended to
go forward with seeking removal....Counsel for the hospital
announced that the Executive Committee of the Board of Directors
was free under the Bylaws to disregard the recommendations of
[these medical staff committees]."
In finding for the Plaintiff, enjoining Defendant against
further proceedings for the removal of Dr. Goldman as Chairman of
the Radiology Department and assessing costs against Defendant,
the Court wrote:
"The Bylaws also impose an affirmative duty on Department
Chairs to safeguard the welfare of TMC's patients, which is
inconsistent with TMC's position that Department Chairs can be
removed for any reason."
- The wedge audit, based on a tiny, statistically
nonvalid sample of records, is favored by the government as a
cheaper, faster way of collecting "recoveries." Consent
settlement offers providers the choice of repaying the amount
extrapolated from the sample or inviting a full audit that could
result in a payment five times as large and expose providers to
civil or criminal charges. Observers say HCFA is nailing
providers for more trivial infractions (Medicare Compliance
- Civil-criminal investigations put targets in a
double vise. Threats of prosecution may leverage higher fines,
and civil cases may be used to extract confessions. Through a
civil subpoena, prosecutors may be able to obtain documents they
could not get through a search warrant. The target may spend
thousands of dollars and hundreds of hours complying with a
warrant, only to be asked for the same material two days later.
Two different types of defense are needed, and one may harm the
other. Although midlevel employees are seldom targeted in civil
cases, they may be investigated in a criminal case, and the
employer may need to provide separate counsel for them. In 1998,
1,866 criminal health fraud matters were pending, and 3,471 civil
matters (Medicare Compliance Alert 5/3/99).
- Although professional courtesy may be acceptable
under certain conditions (entirely free treatment, not "insurance
only," and no prospect of referrals), many consultants recommend
abandoning it altogether rather than risk being accused of fraud
or abuse. In a compliance audit, it is likely to be a "suspect
activity" (Part B News 4/12/99).
Physicians Must Fight Harder. In testimony before the
House Ways and Means Subcommittee on Health, the AMA referred to
"a growing sense...HCFA is about to collapse under the sheer
weight of its administrative duties." Yet, after comparing HCFA
to the IRS, the AMA suggests giving it more money! Better to cut
HCFA's funds and watch the arrogant and bumbling behemoth
collapse. After all, HCFA's errors could cause an underfunding of
physicians' services of $1 to $2 billion next year, according to
I believe that if enough physicians fought back and appealed
and filed complaints against HCFA every time its agents did
something wrong, the beast could be brought to its knees by the
very bureaucracy that it wields against physicians.
If ever there was a time to fight, it is now. Well-motivated
physicians, even if small in number, could provide the longed-for
proverbial straw. Or, physicians could opt out.
A reminder: HCFA itself warns of anticipated "delays" in
implementing the year 2000 physician updates because of the Y2K
computer problem. That presumes that HCFA will be able to process
claims at all after January 1, 2000. What better time to become a
nonparticipating physician or to opt out!
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY
Medicare Patients Seen Free of Charge. Our program to
provide Medicare beneficiaries with services free of charge is
coming along fine. There have been no adverse inquiries from
third parties. Most of our patients agree with our choice. About
20 to 25% make a contribution to the Americanism Foundation or
the Freedom in Medicine Foundation.
Nino Camardese, M.D., Norwalk, OH
Clinton Allies. I believe the recent survey sent by the
American Academy of Family Physicians (AAFP), regarding universal
coverage, is part of a public relations campaign to support a
repackaged Clinton plan for government-controlled medicine. Also
see the goals of the National Coalition on Health Care (americashealth.org),
which has been funded by the Robert Wood Johnson Foundation. Its
membership rolls, which have looked like a list from the Clinton
Health Care Task Force, have added a number of prominent
Republicans such as George Bush and Bob Dole.
Glenn P. Dewberry, Jr., M.D., Oklahoma City, OK
Wage and Price Controls Not Enough. In Canada, they
have discovered that it's not enough to pay doctors whether they
treat or not. Doctors must be given a direct financial incentive
not to treat. Thus, Canada is moving toward managed care.
Robert P. Gervais, M.D., Mesa, AZ
Correction Demanded. From a letter to Medicare Part B,
attention, Tanaisha Owens, Claims Analyst: Your letter of 4/9/99
concerning Mr. ** was incorrect. What are your credentials for
making this determination? I am sending a copy of this letter,
and of your letter, to U.S. legislators and requesting HCFA to
review your performance and your credentials. I expect to hear
promptly from you that you have corrected your error and notified
the patient of your error.
Richard B. Swint, M.D., Paris, TX
No to Universal Coverage. From comments on the
AAFP survey: AAFP should not seek universal coverage;
the pursuit makes us look unwilling to provide charity care when
indicated. We should establish local clinics for charity care as
we have in Navarro County. Many of my patients are uninsured by
choice. Should we force insurance on them? Food, clothing, and
shelter are more important than medical care. Do we seek
universal coverage for that?
R. Lowell Campbell, M.D., Corsicana, TX
Compassion in Arizona. Sociocrats are saying that
230,000 kids may be eligible for KidCare, but only 13,000 have
enrolled. They say that too many parents don't want to go on the
government dole. So what's their plan? Cut back on the program?
Celebrate that their projections were way off? No: they're going
to conduct a $700,000 ad campaign to get people signed up.
Businesses are going to help; one will advertise the program on
his 60 food push carts....
Craig Cantoni, Scottsdale, AZ
The Solution for Medicare. The solution is perhaps too
simple: Medical Savings Accounts that can roll over into
Medicare. "Liberals" would oppose the idea because it gives the
consumer too much control over his own medical care, and is
contrary to their cause for universal coverage or "single payer"
to control this $1 trillion industry. Why do they favor this
control? Their jobs depend on it.
Ernest J. White, www.mdhcrx.com
On Rapid Change. Some say that too rapid a change in
our employer-based insurance would hurt some people. Any change
at any pace always hurts somebody. Rosie the Riveter became
unemployed when World War II ended. It reminds me of a joke: Had
Abraham Lincoln proposed the Emancipation Proclamation as a
constitutional amendment, instead of issuing an unconstitutional
dictatorial decree, a Republican-controlled Congress, instead of
granting all slaves their freedom instantly, would have phased in
emancipation over 20 years. It all depends on your definition of
Gerry Smedinghoff, Wheaton, IL
Legislative AlertClinton's Major Medicare
Now opens another major chapter in the relentless effort of
the Clinton Administration to expand government control over
American medicine: the President s long-awaited Medicare reform
proposal. The President says, of course, that he is proposing
reform of the Medicare system to "modernize" it and make it more
"efficient," but the specific changes he is proposing build
largely on Medicare s well-established 60s framework of central
planning and price controls.
With the addition of a prescription drug benefit and a
proposal to include another whole class of Americans-those
between ages 62 and 65-in the Medicare program, the latest
Clinton proposal represents an historic expansion of bureaucratic
control over medical benefits, treatments and procedures, and
While there are ample differences between the Clinton Health
Security Act of 1993 and the latest Clinton Medicare proposal,
the specifics demonstrate a recurrent theme: they depend upon a
high degree of bureaucratic micro-management and contain various
and specific restrictions on patient choice.
The proposals for Medicare managed care plans call for
competition on "price," but make sure that the choices available
to people are all basically the same. In other words, in the
Medicare HMO area, it looks as if we are witnessing the
resurrection of the old Clinton-style "managed competition" model
of managed care networks.
The "competition" envisioned is actually another version of
the government contract bidding-Pentagon style-in which the
government as buyer uses its leverage to get the "best deal."
As Congressional liberals always said about Pentagon practices,
this often turned out to be not the best deal: $400
toilet seats, and such.
To "make Medicare efficient," the Clinton proposal calls for
giving the Medicare bureaucracy new purchasing authority, plus
incentives for patients to use lower cost "providers" and care
"coordination" for patients with chronic illnesses. These
provisions are expected to save the program $25 billion over 10
years. Additionally, Clinton would establish a "competitive
defined benefit" for managed care plans, allowing them to compete
on cost and quality. Savings for "wise choice" would be divvied
up: 25% for the government and 75% for the patient. Over ten
years, the Administration thinks this proposal will save
"billions." Beyond these changes, the President proposes to slow
the growth rate in Medicare spending from 4.9% to 4.3%, saving an
estimated $39 billion over 10 years.
The President s proposal revives a proposal, rejected in the
last Congress, that would permit persons aged 62 to 65 to "buy
into" the Medicare program for about $300 per month. [But they
will have to repay this "loan" later, after reaching the age of
65.] Persons aged 55 to 62 would be able to buy in for about $400
per month if they lost their jobs and job based medical
insurance. [Persons paying more than $4,800 per year for medical
insurance might be tempted; the White House admits that "some
Federal costs are expected due to adverse selection."]
The president proposes to dedicate 15% of the projected
budget surplus-$794 billion over a 10-year period-to Medicare,
thereby keeping the Medicare trust fund solvent until 2027.
Hooked on Drugs
The centerpiece of the Clinton proposal is the new Part D
prescription drug benefit. Covering prescription drugs in an
unreformed Medicare program may appeal to too many lawmakers in
Congress, but it would saddle the financially troubled program
with a costly new benefit that could threaten the quality and
availability of drugs for senior citizens.
As proposed, the benefit would have no deductible, and would
pay for half of a Medicare patient s drug costs up to $5,000 when
the benefit is fully phased-in, in 2008. The monthly premium for
the drug benefit would be $24, rising to $44 per month by 2008,
under current projections. For patients with incomes below 135%
of the official poverty line, there would be no premiums or cost
sharing. Moreover, for seniors with incomes between 135 to 150%,
there would be some premium assistance, but the details are not
Initially, Administration officials said that their
prescription drug benefit would be universal but "fiscally
prudent." Two things happened since that prediction of fiscal
prudence. First, officials said that they were going to try to
make the prescription drug benefit a universal benefit for all 39
million patients, displacing the private market. This is not
fiscally prudent. Second, the Administration toyed with, and then
dropped any attempt to means test the drug benefit. Liberal
seniors lobbies don t like anybody telling the wealthy they can t
have their "middle class" entitlements. They re entitled to them,
even if they re no longer middle class.
Today, 65% of senior citizens, including upper-income senior
citizens, already have prescription drug coverage, largely from
private sources, including Medigap and employer-based insurance.
According to the National Academy of Social Insurance, only 4% of
seniors have costs exceeding $2,000 per year, and 10% have costs
between $1,000 and $2,000.
According to ace health reporter Robert Pear,
"Administration officials said the design of the President s
prescription drug proposal had been heavily influenced by
politics. Mr. Clinton, they said, wanted to provide some
tangible benefit to a large number of people, rather than helping
a small number with high drug expenses" (NY Times,
6/29/99). So, instead of targeting the limited financial
resources of the Medicare program toward those who need the most
help, the President wants to displace the already existing
private market for prescription drugs and have the rest of
taxpayers, including low-income working families who are
struggling to pay their own medical bills, subsidize all Medicare
beneficiaries, including Donald Trump.
Good old 18th century Bourbon Dynasty politics. But not
exactly a lesson in fiscal prudence.
We know one thing: prescription drug costs can be huge.
Right now Medicaid pays more for prescription drugs than it
pays for doctors. It appears that the Clinton Administration
estimates on prescription drug policy were changing every few
days, up until the last moment. It was first reported that
Medicare recipients would pay $10 to 25 more each month for the
prescription drug benefit (NY Times, 6/9/99). Then,
Administration officials said that they were looking at keeping
the cost of the benefit below $70 to $90 per month, the amount
that it would cost in a Medigap policy, but that it would be more
generous (NY Times, 6/16/99). Next, officials said that
the prescription drug coverage would fall somewhere between $20
and $90 per month (NY Times, 6/24/99). The
Administration estimates a total cost of $118 billion over 10
years, beginning in the year 2002.
The estimates are likely to be wrong. If past experience is
any guide, the benefit will prove far more costly than official
government projections. Originally projected at $5.7 billion,
the true costs of the 1989 Medicare Catastrophic drug benefit
skyrocketed to over $11 billion within just 12 months. The
erroneous cost projections of the drug benefit helped to sink the
whole Catastrophic bill.
Notice a pattern here? Upon unveiling the 1993 Health
Security Act, Clinton and his team said that the plan would pay
for itself, and that it would not cost American families any more
than they were already paying. In February of 1994, the CBO
reported that the Clinton Plan would add $74 billion to the
Observe that the drug benefit is not insurance, but a
straight subsidy. The government would pay up to $2,500, or
half the cost, of prescription drugs up to $5,000: but no more,
even if the beneficiary has drug expenses running up to $10,000
to $15,000 per year. Thus, the Medicare beneficiary would
thus assume all of the risks in giving up the Medigap
insurance for the cheap, but capped, prescription drug benefit.
This is the reverse of a catastrophic policy, under which the
beneficiary spends up to a certain amount-a stop loss-and is then
guaranteed 100% coverage for the costs of a service or
Consider another odd twist. The benefit is supposedly
voluntary, but if a Medicare beneficiary once chooses the Clinton
Drug Option, he is locked into it: According to sources
familiar with the proposal, Clinton will recommend that
Medicare patients be allowed to choose to enroll in the drug
benefit plan, but will not be able to drop in and out of it"
(Wash Post 6/29/99).
The Administration expects 31 million Medicare patients to
take advantage of the drug benefit, largely because of the price,
which is expected [according to some estimates] to range from
one-third to one-half of typical Medigap drug premiums. At first,
seniors will be delighted by "cheap" drugs. The short-term
politics for critics of the Clinton proposal will, therefore, be
tough. But cheap government health care benefits can be very
expensive. What Congress and the Clinton Administration can
give, they can also take away. Curiously, even as the Clinton
Administration is saying it wants to add a prescription drug
benefit to Medicare, it is also, in its most recent budget
submission, calling for a reduction of payments for certain drugs
that are covered by Medicare under current law, including cancer
drugs. These drug payments cutbacks amount to $2.5 billion over 5
years. Figure that out.
The design of the proposed program-with no deductible-is not
one to dampen utilization. When the fine print is available,
don't be surprised to see utilization or price controls, or drug
formularies. Politicians and their bureaucrats cannot control
demand; they can only control supply. They can do that in many
subtle or not-so-subtle bureaucratic ways, as by refusing to pay
except under certain carefully defined circumstances, all the
while telling senior citizens that the drug or service is
"covered" when "necessary."
Having Faith in HCFA
HCFA, of course, through the new Medicare Part D, would
be responsible for running the Medicare prescription drug
benefit. Charming. The General Accounting office (GAO) and others
have underscored the inability of HCFA to efficiently handle its
current responsibilities. Its handling of the processing of more
than 800 million claims in Medicare Parts A and B is an historic
mess. HCFA s management of Medicare Part C -the ironically named
"Medicare Choice" program-has been a disaster. This time,
apparently, HCFA will get it right. But please note that, for the
historical record, HCFA s attempts to manage the first Medicare
prescription drug program, under the ill-fated and repealed
Medicare Catastrophic Act in 1988, was fraught with, shall we
say, practical infirmities.
Instead of cutting back on HCFA s regulatory morass, the
Clinton Administration, true to form, is adding to it. The
Clinton Plan will thus increase, not decrease, the regulation and
the paperwork that is smothering the program.
An Historic Opportunity
The President could have built upon the solid work of the
Bipartisan Medicare Commission and created a better form of
medical insurance for American seniors based on the principles of
patient choice and real competition. But lawmakers can seize the
opportunity the President has passed up and forge a superior
If Congress really wants to give seniors the option of
buying prescription drugs in a competitive market, at affordable
prices, it should look to the best features of its own program,
the Federal Employees Health Benefits Program (FEHBP), which
covers nearly 10 million federal employees and their dependents.
Federal employees enjoy a level of personal choice, quality, and
efficiency that rivals many of the best corporate plans in
It is not out of the question for Congress to create a new,
and better, system for the next generation of retirees based on
private choice, private plans, and freedom for doctors and
patients. The prescription is simple: (1) Adopt a "premium
support" approach to Medicare reform. This would assure seniors
they would have a basic package of benefits they could afford and
encourage them to pick the most cost-effective coverage. (2)
Allow the "fee-for-service" Medicare program to compete with
private plans. Seniors who want to stay with the traditional plan
would be better served by the program if it is given the
flexibility to compete with private bidders.
As the Bipartisan Medicare Commission noted in its
report, Medicare is poor value for money. Members of Congress
know it. But too many seniors, unfortunately, don t, largely
because they have not been exposed to anything other than
Medicare for their primary coverage in retirement.
It is incredible that as Americans enter the 21st century,
they must retire into an outdated medical "insurance" system in
which it takes a major Act of Congress to add drug coverage-a
benefit normally offered by private insurers in response to
consumer demand. That fact alone ought to make Members of
Congress realize that this relic of the 1960s is in need of a
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage