[Pages S2650-S2653]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

VOLUNTARY MEDICARE PRESCRIPTION DRUG PLAN ACT OF 2000

Mr. SMITH of New Hampshire. Mr. President, I would like to talk a bit
about The Voluntary Medicare Prescription Drug Plan Act of 2000--S.
2319.
This bill allows seniors to enroll in a new program under Medicare
which will provide for prescription drug coverage without increasing
Medicare premiums or costing the Federal Government one penny.
This is an issue about which, as you know, many seniors are very
concerned.
The Senate unanimously approved a sense-of-the-Senate amendment on
the budget resolution offered by myself, Senator Allard, and Senator
Domenici.
This sense-of-the-Senate is very simple. First of all, under the plan
the Senate Democrats are committed to passing this year, there are six
basic principles.
I agree with them all.
No. 1, it is voluntary.
I agree with this. If the senior doesn't want it, he or she should
not have to take it.
No. 2, it is accessible to all Medicare beneficiaries.
I agree with that. A hallmark of Medicare is that all beneficiaries,
even those in rural or underserved communities, have access to
dependable health care. It should be accessible to everybody. The
Smith-Allard plan is fully accessible for all beneficiaries.
No. 3, it is designed to provide meaningful protection and bargaining
power for Medicare beneficiaries in obtaining prescription drugs.
A Medicare drug benefit should assist seniors with the high cost of
drugs and protect them against excessive, out-of-pocket expenses. I
agree with that.
No. 4, it is affordable for all Medicare beneficiaries and for the
Medicare program.
It should be affordable to all beneficiaries, and it should be
affordable to the Medicare program itself. The Smith-Allard bill is
free. Free to all beneficiaries, free to the trust fund. If free
qualifies as affordable, I think we are there.
No. 5, it is administered using private sector entities and
competitive purchasing techniques.
The management of the prescription drug benefit should mirror the
practices employed by private insurers. Discounts should be achieved
through competition, not through price controls or regulation.

[[Page S2651]]

We are five for five.
No. 6, it is consistent with broader Medicare reform.
None of the plans that I know of are consistent with this principle
because they all cost the taxpayers of America in the upwards of $40
billion dollars. And that's just to start. The President's plan is
looking at an additional $203 billion.
Medicare will face the same demographic strain as Social Security
when the baby boomer generation retires. We need to save Medicare, not
add more of a financial burden to it.
So, these six principles I have listed are principles I totally
support. They are principles that the Smith-Allard plan meets.
But we added three new principles: The plan should be revenue
neutral; not increase Medicare beneficiary premiums; and provide full
coverage in 2001.
These three principles enhance and strengthen those put forth by my
colleagues on the other side of the aisle.
Let me briefly explain how my new legislation works:
Medicare part A--under the old system, the current system--has a $776
deductible.
Medicare part B has a $100 deductible. In other words, if you go to
the doctor, the first $100 you pay for; if you go to the hospital, the
first $776 you pay for; the rest, Medicare pays. That is total of $876
you will have to pay.
My new plan would create one new deductible, combining those two
deductibles of part A and part B into one deductible of $675, which
would apply to all hospital costs, all doctor visits, and prescription
drugs--50 cents on the dollar up to $5,000.
And the prescription drug costs apply to the deductible, so every
dollar you pay for a prescription moves you forward to meet the
deductible.
Once the $675 deductible is met by the Medicare recipient, Medicare
then will pay 50 percent of the cost toward the first $5,000 worth of
drugs the senior purchases.
However, the senior could not purchase a Medigap plan that would pay
for the $675 deductible. This must be paid for by the senior. But if
you have a Medigap plan now as a senior, you will not need it.
As a result, seniors would save about $550 under Medigap plans if
they traded their current Medigap plan for my new prescription drug
plan.
Again, it is their option. It is voluntary. Seniors could even use
their $550 in savings to pay the $675 deductible.
If you are a senior out there, and you have part A, part B, and you
are paying $675 toward the deductible, and you have Medigap insurance
of $550, you now can put the $550 toward the $675 to meet your
deductible. So you are going to have $550 in savings. You can put that
toward the $675, and you are already two-thirds of the way there.
But how do you get the cost savings?
As my colleagues are aware, according to the National Bipartisan
Commission on the Future of Medicare, the Federal Government pays about
$1,400 more per senior if the senior owns a Medigap plan that covers
their part A and part B deductible.
The savings result because Medicare will not have to pay this $1,400
per person per year out of the trust fund.
As I mentioned, all hospital, physician, and prescription drug costs
would count toward this $675 deductible. Once it was met, the senior
would receive regular, above-the-deductible Medicare coverage, just as
you get now. Or if you worked out the numbers and decided against my
plan, then you would not have to select it; it is your choice.
I have spoken to senior groups and health care providers, both in
Washington as well as in my State over the past several weeks, about
this proposal. The response has been very enthusiastic.
Seniors want a prescription drug benefit. Doctors and nurses
understand the importance of providing coverage for seniors because of
the expense of prescription drugs in this country.
It would be a victory for seniors and for health care in this country
if we could provide this coverage to them.
In a recent press conference, President Clinton and Senator Daschle
outlined their goals for prescription drug coverage.
Leaving the politics aside, the fact that elected leaders from both
parties are looking at this issue of prescription drug coverage is good
news for the senior citizens of America.
I have talked with several of my Republican colleagues, and it is
clear to me there is overwhelming support for allowing seniors to have
this choice. The only question among us all is how we can responsibly
structure such a program.
I heave heard from seniors in my State about what they are looking
for in a prescription drug plan.
First, they are concerned about the solvency of the Medicare program.
They want a program that does not add some huge financial burden to the
trust fund which will be passed on to their grandchildren.
Second, they do not want to increase the national debt, either. Yes,
seniors are concerned about the national debt. Ask them the next time
you speak to a seniors group.
Third, seniors do not want new premiums. My plan requires no premium
hike for seniors--zero.
As I have previously stated, the guiding principles of this plan,
which may come as a shock to some of my colleagues on the other side of
the aisle, are the same principles as those of the President and the
distinguished minority leader for any prescription drug plan.
I believe the vast majority of seniors will benefit from this plan.
In fact, every senior with a Medigap plan will definitely benefit.
Any senior with a prescription drug expenditure of more than $15 a
month will benefit. Today, the Medicare part A and part B deductible
totals $876, which most seniors cover by an average $1,611 Medigap
insurance premium.
Let me go through some charts that will help explain how the plan
works.
First, it is budget neutral.
It is ironic to see the direction in which the Medicare reform debate
is headed.
Do my colleagues remember what started these discussions about
Medicare reform?
It was the fact that the program was going broke.
So why would we support reforms that cost the program billions more
in spending and further increase its insolvency?
I want to support Medicare reform that preserves the integrity of the
program, not some sham reform that adds new financial burdens we will
not be able to sustain.
For those of you who are skeptical that these numbers can work, let
me say right off that I am not an actuary. I know budgets, but these
are vast actuarial calculations we are talking about.
So, I wrote a letter to someone who I feel is in a unique position to
make an unbiased assessment of this plan. His name is Guy King, and he
was the Chief Actuary at the Health Care Financing Administration
Here is the letter he sent me.
I ask unanimous consent that this letter and a letter from Mark
Litow, an actuary from the firm of Milliman and Robertson, be printed
in the Record.
There being no objection, the letters were ordered to be printed in
the Record, as follows:

King Associates,

Annapolis, MD, March 28, 2000.
Hon. Bob Smith,
U.S. Senate,
Washington, DC.
Dear Senator Smith: This is in response to your letter of
March 9, 2000 asking for my analysis of legislation you
intend to introduce in the Senate. The proposed legislation
establishes a voluntary prescription drug benefit, the
Medicare Prescription Drug Plan, under the Medicare program.
Under the Medicare Prescription Drug Plan, the current Part
A and Part B deductibles would be replaced by a single
deductible of $675 which would also be applicable to the new
prescription drug benefit. The Medicare program would pay
fifty percent of the cost of prescription drugs, up to a
maximum of $2,500 after satisfaction of the deductible. A
beneficiary who chooses the Medicare Prescription Drug Plan
would not be allowed to purchase a Medicare supplement policy
that fills in the $675 deductible, so special Medicare
supplement policies for those who choose the option would be
allowed.
The Medicare Prescription Drug Plan would be available, on
a voluntary basis, to any Medicare beneficiary not also
covered by Medicaid. The possibility of anti-selection is an
important consideration for a plan that is available to all
Medicare beneficiaries as an option. I believe that the
design features of the Medicare Prescription Drug Plan, as
outlined in your legislation, minimize the impact of anti-
selection.

[[Page S2652]]

As you requested, I performed an analysis of the proposed
legislation. This analysis is based on Medicare and
prescription drug data that I obtained from the Health Care
Financing Administration (HCFA). My analysis indicates that
the Medicare prescription Drug Plan, as described above,
would be cost-neutral to the Medicare program if it were made
available on a voluntary basis to all beneficiaries except
those also covered by Medicaid.
If you should have any questions regarding my analysis,
please don't hesitate to call.
Sincerely,
Roland E. (Guy) King, F.S.A., M.A.A.A.
____

Milliman & Robertson, Inc.,

Brookfield, WI, March 29, 2000.
Hon. Senator Robert C. Smith,
Dirksen Building, Washington, DC.
Re: Medicare Alternative Including Prescription Drug
Coverage.
Dear Senator Smith: At your request, we have analyzed the
impact of creating a new option for the Medicare population
that would provide coverage for prescription drugs. This
option would allow most non-Medicaid aged and disabled
Medicare beneficiaries, including those who are
institutionalized but not covered under Medicaid and those
with end stage renal disease (ESRD), a choice between
traditional Medicare coverage and a new form of Medicare
coverage referred to as the Prescription Plan. If the
individual chooses the prescription plan, the deductible
applies across all benefits (Part A, Part B, and drugs).
Coinsurance still remains as currently exists under Parts A
and B after deductibles, although the Part A extended benefit
is available as an option, and prescription drugs have their
own coinsurance levels as specified. If the individual
chooses to remain under traditional Medicare, no prescription
drug coverage is available.
The key components of the Prescription Plan option are:
The Prescription Plan has an aggregate deductible of $675
for the year 2000 across all benefits. Coinsurance for Parts
A and B above the deductible are consistent with Medicare
today, except as noted in the following bullet. Coinsurance
for drugs is 50/50 on the next $5,000 above the deductible,
with no coverage thereafter, so that the plan's maximum
prescription drug benefit is $2,500.
Individuals have the option to pay an additional premium to
Medicare under the Prescription Plan of $21 per year ($1.75
per month) that would provide full coverage of hospital
claims for days 61 to 90 plus Lifetime Reserve Days.
Currently, Medicare only covers a portion of the cost for
days 61 to 90 and Lifetime Reserve Days.
People can purchase a new Medicare Supplement plan to cover
their out-of-pocket costs above the deductible. Under this
scenario, premiums for the current Plan F (which exclude
prescription drugs) are expected to decrease by roughly $550
per year on average. Coverage below the aggregate deductible
is not permitted.
People choosing to be covered under traditional Medicare
will have exactly the same benefits they have today under
Medicare. We believe the choice of current Medicare versus
the Prescription Plan is reasonably balanced so that a
relatively equal mix of healthy and less healthy individuals
will select current Medicare and the Prescription Plan.
Therefore, we do not anticipate significant amounts of
adverse selection with this choice.
The offering of Prescription Plan along side traditional
Medicare is estimated to be revenue neutral to Medicare. In
other words, the Prescription Plan allows individuals access
to prescription drug coverage at no additional cost to the
Federal Government. Election of the option results in no
change to the Part A and/or Part B premium, as applicable.
This system allows individuals two opportunities to change
options. The first is at their initial time of eligibility
for this program. The second is at the beginning of any year
that is at least four years after their initial option. In
both cases, the move can be made without evidence of
insurability.
Estimates of the aggregate deductible are based on our best
set of assumptions. A wide range of reasonable assumptions
exist that could either increase or decrease these values.
A number of data sources and assumptions have been used in
our analysis. These include:
The benefit design is applicable to the non-Medicaid aged,
disabled, and ESRD populations. The only population not
covered under this plan is that covered by Medicaid.
We estimate the Prescription Plan will result in an
aggregate decrease in utilization of approximately 5%.
However, we expect that the utilization savings will occur if
and only if the aggregate deductible cannot be covered under
any supplemental insurance plan.
We have assumed no price discounts on prescription drugs.
We have assumed that the choice between current Medicare
and the Prescription Plan is fairly equal. The reason is that
the higher deductible for Part B services will attract
healthier people under the Prescription Plan, while the drug
benefit will attract less healthy individuals. Given the
magnitude of the Part B benefit and the drug benefit included
in the Prescription Plan, we are unable to discern a tendency
for people in a certain health status to have a greater
inclination for current Medicare or the Prescription Plan
than would people in a different health status.
All estimates above are based on calendar year 2000 levels,
and should be properly adjusted for healthcare inflation in
years beyond 2000. We have not made any adjustments for the
new Hospital Outpatient Prospective Payment System which is
expected to take effect in early calendar year 2000. Our
analysis is based on the current Medicare payment system in
Part B services. Since Part B services and prescription drugs
would now be included, the trend rate applied to the
deductible in future years is critical to controlling the
cost of Medicare.
Cost and distributions of costs are based on the 1999
Milliman & Robertson, Inc. Health Cost Guidelines Ages 65 and
Over. These Guidelines are based on an extensive analysis of
various data sets, including Medicare data.
The following caveats apply to our estimates:
1. The values included are estimates only. Actual results
may be better or worse than anticipated and could vary from
anticipated results. Thus, actual experience should be
monitored closely and revisions made as necessary to maintain
revenue neutrality and other objectives.
2. This letter assumes the reader is familiar with the
Medicare program and should be reviewed in its entirety.
Since our conclusions reflect assumptions specific to the
Medicare program, they may not be appropriate from other
situations. This letter is intended for distribution for all
who request, and therefore should be used in its entirety.
The results and assumptions may be misinterpreted if taken
out of context. As such, portions of this letter should not
be excerpted.
3. The opinions in this letter are those of the author and
do not necessarily reflect the options of others in Milliman
& Robertson, Inc. (M&R). M&R does not take any position on
specific health care reform proposals. There is uncertainty
associated with some assumption underlying this analysis.
Changes in the assumptions may have a material impact on this
proposal. Actual experience may vary from the results
projected in this letter.
This letter is a revision of an earlier letter dated
September 22, 1999. The assumptions supporting that document
were tested independently by Guy King of King Associates. The
changes made to that analysis are relatively modest, but we
have not as yet asked Guy King for his comments on these
changes. A copy of Mr. King's work to date was attached to
our September 22, 1999 letter.
If you have any questions or need additional information,
please call.
Sincerely,
Mark E. Litow, F.S.A,
Consulting Actuary.

Mr. SMITH of New Hampshire. There it is, folks. It's revenue neutral.
Let me talk about the premium issue, because this I believe is the
most explosive political side of this.
Seniors watch their budgets closely. If you try to sock them with a
new premium, they will not be happy.
Let me remind my colleagues what happened the last time we tried to
slap new premiums on seniors.
This picture is an incident that occurred when seniors who were angry
with the enactment of the so-called Catastrophic Act assaulted
Congressman Rostenkowski's car.
Congressman Rostenkowski wrote the legislation which increased
premiums on certain seniors.
It would be a grave mistake to interpret seniors' desire for
prescription drug coverage as a call for new higher premiums.
It would also be a huge mistake to think that there is any need for
such premiums.
Let me show you how my plan compares with the Administration's plan
as far as premiums and benefits.
This chart shows that the Clinton plan's benefits do not even start
until 2003, and the benefits are not fully effective until 2009.
These premiums are just the new added government premiums. They do
not count other premiums such as Medigap.
I ask unanimous consent that this chart be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

------------------------------------------------------------------------
Monthly premiums Maximum annual
------------------ benefits (50%)
Year -----------------
Clinton Smith- Smith-
Allard Clinton Allard
------------------------------------------------------------------------
2001................................ 0 0 0 $5,000
2002................................ 0 0 0 5,000
2003................................ $26 0 $2,000 5,000
2004................................ 30 0 2,500 5,000
2005................................ 34 0 3,000 5,000
2006................................ 38 0 3,500 5,000
2007................................ 42 0 4,000 5,000
2008................................ 46 0 4,500 5,000
2009................................ 51 0 5,000 5,000
------------------------------------------------------------------------

Mr. SMITH of New Hampshire. This chart shows all the premiums seniors

[[Page S2653]]

would pay. As you can see the drug premium is nothing. If a senior has
Medigap, premiums substantially decrease from current law under Smith-
Allard. Under the administration plan, they stay the same--averaging
$230.75 per month. So, if you compare all premiums, a senior would save
an average of $96.83 per month.
I ask unanimous consent that this chart be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

MONTHLY PREMIUMS
------------------------------------------------------------------------
Smith-
Clinton Allard
------------------------------------------------------------------------
Drugs........................................... $51.00 0
Part B.......................................... 45.50 45.50
Medigap......................................... 134.25 88.42
-----------------------
Total..................................... 230.75 133.92
=======================
Smith-Allard Premium Savings.................... .......... 96.83
------------------------------------------------------------------------

Mr. SMITH of New Hampshire. Some might say this is not much money.
But let's take a look.
What could a senior do with $96.83 each month?
You can see that this is a lot of money when you think of how it
would impact other expenses seniors have.
These numbers come from the Bureau of Labor Statistics Consumer
Expenditure Surveys.
Finally, Mr. President, we will look at annual deductibles.
Smith-Allard combines the hospital, medical, and drug benefits into a
single deductible.
Because seniors spend an average of $670 per year, they would just
about reach the full hospital and medical deductible with just drug
expenses.
Under the Clinton plan, drugs don't count toward the deductible, so
even though seniors would have a 50 percent drug benefit, they would
not be paying down their deductible.
I have talked about this plan with seniors, and they understand this
concept. They love it.
I ask unanimous consent that these charts be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

Smith-Allard

Saves seniors $96.83 in monthly premiums.
What could a senior do with $96.83 each month?

prescription drugs

Seniors average $55 per month on drugs.
The premium savings alone would pay for all their drugs
twice.

food

Seniors spend $235 per month on groceries. Premium savings
pay for nearly half.
Seniors spend $99 per month going out to eat. Premiums
savings pay for nearly all dining out.

entertainment

Seniors spend $87 per month on entertainment. Premium
savings pay for all entertainment.

taxes

Seniors spend $93 per month on Federal, State, and other
taxes. Premium savings pay for all taxes.
____

ANNUAL DEDUCTIBLES
------------------------------------------------------------------------
Clinton Smith-Allard
------------------------------------------------------------------------
Part A................................ $776
Part B................................ 100 $675 combined.
Drugs................................. 0
Total deductibles............... 876 675
------------------------------------------------------------------------

Mr. SMITH of New Hampshire. Let me just conclude speaking on this
bill by saying that the benefits in this plan are delivered by private
companies and regional entities, such as pharmaceutical benefit
managers. These entities would negotiate with large drug companies and
provide the drugs to Medicare seniors.
In addition, according to the actuaries who reviewed the legislation,
there will be no adverse selection. Both the healthy and the sick will
have an incentive to choose this plan. Everybody is in.
There are many different methods of providing prescription drug
coverage for seniors, but I urge my colleagues--I plead with my
colleagues--to look to the revenue-neutral methods that fund this
benefit by the elimination of waste in the present system. I urge my
colleagues to resist the temptation to raise Medicare premiums on the
people who can least afford it.
I have vivid memories of seniors rocking Mr. Rostenkowski's car a few
years ago when he decided to raise Medicare premiums. Let's look at it
more specifically. The House's fiscal year 2001 budget--this is
important--sets $40 billion aside for prescription drugs.
In the Senate, we are expected to do a budget that is going to set
aside $20 billion now for prescription drugs, and $20 billion later.
We don't need either under my plan. We don't need any more money. We
don't need $20 billion. We don't need $40 billion. We don't need $2
billion.
Let's use the money for debt reduction or tax credits for the
uninsured rather than providing for prescription drugs. Let's use my
revenue-neutral prescription plan instead.
I urge my colleagues to take a look at this approach. It provides
prescription drugs in a way that will meet seniors' needs without
hiking their premiums or adding more burden to the Federal treasury.
Mr. President, I yield the floor.
The PRESIDING OFFICER. Under the previous order, the Senator from
Nevada, Mr. Reid, is recognized to speak for up to 20 minutes.

____________________