PHARMA/POLICY: Drug coverage in Medicare Catastrophic (1988) and in the Clinton plan (1994), by MedPac

This is taken straight from a hard to navigate PDF document created in 2000 by MedPac (and advisory body on Medicare for the Congress). It’s a good primer on what happened, especially to  drug coverage under the by now forgotten Medicare Catastrophic Act. I reprint it here because there’s some confusion over that issue and I don’t want to have to do more writing myself when they’ve explained it so well!

Policymakers previously approached the issue of adding Medicare prescription drug coverage: in 1988, with the Medicare Catastrophic Coverage Act (MCCA) of 1988, and in 1994, with the Health Security Act. Both efforts failed, but for different reasons and under different circumstances.

Medicare Catastrophic Coverage Act of 1988

In 1988, Congress added a catastrophic benefit to Medicare that would have provided comprehensive coverage for outpatient drug expenses greater than $600 in 1991 with a 50 percent coinsurance, and those greater than $652 in 1992 with a 40 percent coinsurance. The coinsurance was to be lowered to 20 percent in 1993. The intent was to revise the deductible  annually, providing 16.8 percent of beneficiaries with benefits each year. The new coverage was to be entirely financed by  Medicare beneficiaries through an increase in the Part B premium and a supplementary surcharge. The surcharge was to cost higher-income beneficiaries those with incomes greater than about $40,000as much as $800 in 1989 and $1,050 in 1993 (Congressional Quarterly 1988, Coster 1990). Opposition to the new benefit was fueled by confusion about the specifics of the financing (many lower-income beneficiaries thought they had to pay the full surcharge), as well as other concerns.

First, enrollment in the program was mandatory, but many beneficiaries would never receive any benefits because their drug costs would never exceed the cap. Second, beneficiaries who already had drug coverage, from either Medigap or an employer-sponsored retiree plan, would be required to pay twice for the same benefit; these people also were the ones most likely to pay the maximum premium surcharge (although it is likely that retiree insurance premiums would either decline due to Medicare coverage or be a wrap-around benefit). Third, beneficiaries were required to start paying the supplemental premium in 1989, two years before the full benefit began. The law was ultimately repealed in 1989; few benefits had taken effect by this time.

Health Security Act of 1994

The Health Security Act, which was never enacted, proposed a new
Medicare prescription drug benefit that would have included a $250
deductible, 20 percent coinsurance and an annual limit of $1,000 on
out-of-pocket expenses. The deductible and out-ofpocket limit were to
be indexed to ensure that the same proportion of eneficiaries received
the benefit each ear. It was estimated that 58 percent of bneficiaries
would use the proposed drug benefit. The new coverage was to be added
to Medicare Part B; approximately 75 percent of the benefit would be
financed through general revenue and 25 percent through beneficiary
premiums. Opposition to this benefit focused on its complex
cost-containment mechanisms and potential for price controls that pharmaceutical
research and dvelopment. For example, the Health Security Act would
have limited Medicare drug spending by requiring manufacturers to
provide a rebate in order for their drugs to be covered under the
Medicare program. (No rebates would be required for generic drugs or
for drugs used by beneficiaries enrolled in managed care.) The rebate
was equal to the greater of the difference between average wholesale
and retail prices or 17 percent of retail. An additional rebate would
have been required for drugs with prices that increased faster than the
rate of inflation. Because new drugs often initially have very high
prices, the Secretary was to have the authority to negotiate special
prices for breakthrough drugs considered overpriced and could exclude
these new drugs from coverage if a rebate agreement could not be
reached. The Act also would have created an Advisory Council on
Breakthrough Drugs, which would advise the Secretary on the
reasonableness of launch prices of new drugs representing significant
advances over existing therapies. Although the findings of the council
would not be binding, they would influence the Secretary and the drug
payments of other entities with purchasing power. Most of the
controversy over the Health Security Act focused on its means of
achieving universal health insurance, but its prescription drug
provisions and other cost-containment mechanisms contributed to the
failure of this bill to become law.


Meanwhile, here’s the right wing Heritage Foundation which opposes
Part D as a a "big governement" entitlement program, said about Medicare Catastrophic


Recalling Medicare Catastrophic. Congressional experience with
the Medicare Catastrophic Coverage Act of 1988 directly relates to the
current Medicare debate. That bill passed by huge majorities in the
House and Senate, and enjoyed the Reagan Admin­istration’s support. It
also included a prescription drug benefit.

However, there is a
major ironic difference between that Medicare drug benefit and today’s
drug entitlement, which was cobbled together by a Repub­lican
congressional majority. The 1988 bill was self-financing; those who
would receive the drug benefits would pay for them. The 2003 bill is
not self-financ­ing; it is an open-ended entitlement, largely financed
by the taxpayers out of general revenues.

Although the 1988
Medicare drug provi­sion was designed to be self-financing, its costs
ballooned out of control, and the Medi­care Catastrophic Coverage Act
of 1988 was repealed after a little over a year. Contribut­ing factors
included growing senior opposi­tion and exploding cost estimates, but
the exploding cost estimates are positively minuscule compared to the
enormous obliga­tions that the Medicare Modernization Act of 2003
imposes. As Robert E. Moffit, Director of the Center for Health Policy
Studies at The Heritage Foundation and a Reagan appointee at the
Department of Health and Human Ser­vices in 1988, recalls:

Congressional Budget Office’s (CBO) estimate of the annual cost of the
1988 drug benefit jumped from $5.7 billion when the bill was passed to
$11.8 billion just twelve months later. The CBO raised the cost of a
new skilled nursing benefit from $2.1 billion to $13.5 billion, or by
642 percent, in just 14 months.[10]


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