The New Drug Benefit Debate

Whatever the outcome of Congress’s contentious debate over a Medicare prescription drug benefit—whether or not the legislation now being considered is enacted—lawmakers are only beginning to confront the most difficult question about Medicare’s future. How will the federal government provide and finance a prescription drug benefit for seniors that will be viable for decades to come?

Five crucial issues will remain unresolved even if this year’s prescription drug bill passes. The first is whether or not seniors should expect the same prescription drug benefit they received when they worked—and that their working children currently enjoy. The bills currently under debate would pay only about half of the prescription drug costs for most seniors. This level of coverage is well below what is available in most of the country’s workplaces that offer health insurance—and substantially less than what federal government employees receive.

By 2006, when the legislation is implemented and the drug benefit begins, seniors will have learned that their coverage falls far short of what many of them wanted and expected. As seniors press Congress to expand the coverage of this benefit, the prescription drug issue is likely become important in the 2006 elections. This in turn may re-open the question of whether or not some of President Bush’s future tax cuts should be rolled back and used to pay for an expanded benefit.

The second unresolved issue is whether a prescription drug benefit—and other health insurance benefits under Medicare—should be managed principally by competing private plans or by the traditional government-run plan. The current House bill contains significant incentives for seniors to leave the conventional Medicare plan in 2010 and join private HMOs and other managed care insurers. This is likely to become controversial because, according to a recent Kaiser Family Foundation/Harvard School of Public Health poll, 63 percent of seniors would prefer to receive their benefits from the current government Medicare program—as opposed to 19 percent who would prefer that benefits were managed by private health plans.

The third issue is what to do about the cost of the new drug benefit as it rises over time. Spending on prescription drugs by the insured population has grown faster than spending on most other areas of health care. The bills currently being debated rely on market competition among HMOs and other managed care plans to contain the future cost of the new drug benefit, and the jury is still out on whether such an approach will succeed. If competition is not successful in containing costs, we are likely to see proposals for government regulation of prices, negotiated discounts from pharmaceutical companies, restricted formularies for what drugs can be used in given situations and efforts to encourage the importation of prescription drugs from countries like Canada, where government intervention has kept prices below their U.S. levels.

Polls show that government-negotiated discounts and drug importation are popular with the public. But it is not clear whether the public will continue to support these measures once the debate grows louder and opponents raise the issues of drug safety and the impact on future pharmaceutical research and development.

Fourth, the issue of prescription drug costs is likely to open a broader debate about the pricing policies of pharmaceutical companies. The same medicine may be sold at different prices in different countries, and in an era of free trade, many people may start asking why the American consumer cannot get the best price in the world. This debate is likely to involve the price of drugs for all Americans, not just for seniors.

Finally, the current debate about the future of Medicare has almost completely ignored the need to solve some of the program’s long-term financial problems. Politicians are avoiding the painful choices discussed by national commissions assigned to weigh the options. Commission reports usually include some combination of recommendations that include increasing the retirement age, requiring seniors to pay a larger share of Medicare costs out-of-pocket, means-testing benefits, increasing payroll taxes and reducing payments to doctors and hospitals for treating people covered by Medicare.

These five issues will begin to emerge the day after President Bush signs the prescription drug bill that he has hailed as the most important legislation for improving Medicare since the program’s enactment. Left unanswered, these issues could well become the major political dilemmas facing Medicare during the next decade.

Robert J. Blendon is professor of health policy and political analysis at the Harvard School of Public Health and the Kennedy School of Government. John M. Benson is managing director of public opinion research studies at the Harvard School of Public Health.