In 2006, more than 85% of the 40 million Medicare beneficiaries were in what is known as the fee-for-service program despite nearly a decade of federal efforts to encourage enrollments in Medicare Advantage Plans: H.M.O’s (Health Maintenance Organization Plan)or PPO's (Preferred Provider Organization Plan).
In addition, most of the public already had drug coverage, and some of it, especially that provided by many corporate retirement packages and state Medicaid programs was quite good. Indeed, three quarters of the elderly had drug coverage for all or part of the year.
Medicare scored very high in consumer satisfaction surveys, largely because it granted the flexibility to see virtually any doctor and offered the certainty that the coverage would be there when needed. The main thing wrong with traditional Medicare was what it did not cover: prescription drugs and most preventive health services (cancer screenings, cardiovascular screenings and yearly flu shots), for example. It also lacked limits on payments for catastrophic illness.
By virtually all accounts the Republicans have always wanted to offer drug coverage through private health plans and through the traditional Medicare fee-for-service system, which insures the overwhelming majority of the elderly. In 2006, politicians decided to use drug coverage as a sweetener to entice the elderly toward market oriented reform of the Medicare system.
Under a proposal conceived by Republicans the fee-for-service system would still be available to current beneficiaries and those nearing retirement together with a private system providing drug coverage.
The managed care programs that already operated under Medicare had a mixed record, with some of the HMO’s or PPO's (health plan options approved by Medicare but run by private companies) going out of business and others forced to raise premiums to remain profitable. Given that history, there was no justification for driving the elderly out of their traditional Medicare program and into private plans that might or might not have perform well. Better to let the traditional program and private rivals compete, without rigging the game in advance.
Republicans knew that adding drug coverage could be hugely expensive, so it was reasonable for them to want to couple a prescription drug program with the strategies for controlling Medicare costs. There was absolutely no certainty that private plans would keep drug costs down any better than traditional Medicare, but if that step were taken carefully, the Republicans wanted to give it a try.
The most sensible policy was, of course, to provide drug coverage under both the traditional Medicare program and under the competing private health plans without tipping the scales in favor of either so judgements could be made as to which performed the best.
In the past, the debate over what to do with Medicare became so politicized that in the end nothing got done. To prevent that from happening again, Congress felt it should at least pass a stopgap measure that provided the most critical drug coverage without driving up the costs enormously. It felt that it should create a benefit for people with low incomes and those faced with huge drug bills for chronic diseases. A targeted program would diverge from the traditional Medicare approach of uniform benefits for every elderly person, but it would solve the immediate problems of those most in need.
The heart of the Republican drug proposal was as follows: starting in January of 2006, Medicare beneficiaries would be given three options, the existing fee-for-service benefits with drug benefits, H.M.O.’s with drug benefits and private plans offering “enhanced fee-for-service benefits” including drug coverage. Annual deductible: $250. After the deductible: beneficiary would pay 25% of drug costs, program would pay 75% up to $2,250. No drug cost coverage from $2,251 up to $3,600 . Once into the donut hole, beneficiary would pay 5% of drug cost, program would pay ninety-five percent(95%) of drug costs above $3,600.
Employers' health care costs have, in fact, skyrocked over recent years. The cumulative wallop of several years of double digit increases reveals the fact that the increases are not going to go away. And indeed, they have not! Health costs are continuing to rise at double digit rates. While retirees will continue to pay for a significantly higher share of the costs involved, employers continue to shoulder the lions share.
The plan set aside $12 billion dollars in subsidies to entice private plans to come into areas of Medicare where they did not operate before. It set up a demonstration project in six metropolitan areas (2010-2016) to compete with Medicare. It forbade the federal government from negotiating directly with drug companies to secure lower prices for Medicare beneficiaries. But private insurers and pharmacy benefit managers could do so. It allowed the reimportation of drugs from Canada with some restrictions (i.e prescription drugs etc) and sped up access to generic drugs. Medicare recipients could obtain drug benefits from private plans covering only prescription drugs or from plans offering the full range of health care services. It provided more than $70 billion dollars over the next ten years to discourage employers from eliminating retiree benefits once the benfit program began in 2006. It increased the payments to hospitals and doctors (slightly).
