**Paying More for Less**

The Number of Medicare Beneficiaries Who Will See Higher Drug and Health
Care Costs Under Proposed Medicare Reforms

National and State Data

**October 2003**

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height="0.6284722222222222in"}

*Education Fund*

1341 G Street, NW 10^th^ Floor, Washington DC 20005 (202) 624-1730
[www.usaction.org](http://www.usaction.org/)

**Paying More for Less**

The Number of Medicare Beneficiaries Who Will See Higher Drug and Health
Care Costs Under Proposed Medicare Reforms

National and State Data

**Introduction**

In July of 2003, both houses of Congress enacted legislation to add a
prescription drug benefit as a new Part D of Medicare. While the House
and Senate passed different bills, both propose to spend \$400 billion
on a prescription drug benefit.

Medicare currently provides health coverage to some 40 million Americans
over the age of 65 and Americans with disabilities. However, Medicare
does not currently cover prescription drugs, except as required when
provided as part of in-patient hospital care. The Congressional Budget
Office (CBO) calculates that Medicare beneficiaries will spend \$1.84
trillion over the next decade on prescription drugs. About one-fourth,
\$400 billion, of those costs would be covered by the Congressional
budget for the House and Senate-passed bills.

This report calculates the number of Medicare beneficiaries who will
have to pay more for certain health care services under the Senate bill,
S.1, and the House bill, H.R.1.

**Background on Key Elements of S.1 and H.R.1**

[Benefit Structure]{.underline}: While the Senate bill (S.1) and the
House Bill (H.R.1), differ in many crucial elements, the drug benefit in
both bills share several characteristics, including:

-   A monthly premium on Medicare beneficiaries who are not low-income;

-   A deductible for Medicare beneficiaries who are not low-income;

-   Co-payments, which may be reduced for some low-income beneficiaries;
    and

-   A "donut": no coverage for drug expenditures after the beneficiary
    has spent a certain amount on pharmaceuticals, with 90% to 100%
    coverage resuming after additional expenditures. In the House bill,
    low-income beneficiaries are subject to the donut; they are exempt
    from the donut in the Senate bill.

This benefit is considerably less generous than that generally offered
under standard health coverage plans offered at work, which do not have
a separate premium or deductible for prescriptions, have more modest
co-payments than those in the Senate bill (50%) and do not have a donut.
Because of the high out-of-pocket costs incorporated in the proposed
Part D benefits, a substantial portion of Medicare beneficiaries will
not save any money under the proposed bills.

[Retiree Benefits]{.underline}: The proposed Medicare part D benefit is
also of much less value than the drug benefits generally provided to
retirees by their former employees, which are similar to benefits for
active workers. Even though the coverage in both bills is significantly
inferior to most employer-coverage, CBO asserts that making any coverage
under Medicare available would accelerate the pace at which employers
drop retiree coverage. CBO estimates that under the Senate bill, 37% of
Medicare beneficiaries would lose employer coverage and under the House
bill, 32% of Medicare beneficiaries would lose employer coverage.

[Low-Income Coverage]{.underline}: The low-income provisions in S.1 and
H.R.1 differ in both structure and in benefit level, but both are
inadequate.

The Senate bill does *not* provide prescription drug coverage to the 5.8
million people who are also enrolled in Medicaid. While the coverage
offered to low-income beneficiaries in S.1 is much more affordable for
beneficiaries than that offered under H.R.1, S.1 will give states an
incentive to reduce or drop Medicaid coverage for seniors and people
with disabilities. In these cases, the beneficiaries would lose other
essential health coverage provided by Medicaid (nursing home, home care,
vision, dental and hearing) and to pay more for services provided
through Medicare (doctor, hospital, lab).

The House bill does cover Medicaid beneficiaries, but makes them
vulnerable to very high out-of-pocket costs. A low-income senior or
person with disabilities, who has \$3,000 of prescription drug costs,
would still have to pay about \$1,114 in drug costs under the House
bill. In addition to imposing the donut on all low-income beneficiaries,
H.R.1 provides only meager assistance to low-income Medicare
beneficiaries who earn under 135% of the federal poverty level, while
S.1 provides substantial assistance up to 160% of the federal poverty
level. H.R.1 also has an asset limit that will prevent many low-income
people from receiving assistance.

[Physician and Other Health Costs]{.underline}: While the focus of the
proposed legislation, and of public attention, has been on the
prescription drug provisions in the bill, other provisions also change
the amounts Medicare beneficiaries pay for health services. **Medicare
beneficiaries will pay more for health services because both bills
increase the cost of current Medicare services.** Both bills increase
the Part B deductible for doctor visits and, for the first time, require
annual increases in the deductible. Co-payments will rise, too. S.1
imposes a co-payment for laboratory services for the first time. H.R.1
imposes co-payments for home health care for the first time.

**Findings**

This report calculates the number of Medicare beneficiaries who will
have to pay more for certain health care services under the Senate bill,
S.1 and the House bill, H.R.1. It provides an estimate of the number of
Medicare beneficiaries nationally, and in each of the fifty states, who
will pay more for health services in the following areas:

-   [Prescription Drugs:]{.underline} The number of seniors and disabled
    on Medicare who are likely to pay more for prescription drugs under
    S.1 and H.R.1 than they pay now, because the cost of the new
    Medicare part D benefit (premiums, deductible and co-payment)
    exceeds their current expenditures on prescriptions.

-   [Retiree Coverage:]{.underline} The number of retirees who may lose
    current retiree drug coverage because their former employers will
    drop the coverage once Medicare coverage is available.

-   [Low-Income Coverage:]{.underline} The number of low-income
    beneficiaries who may have to pay more for prescription drugs or
    other health services because of various low-income provisions in
    S.1 and H.R.1.

-   [Physician Services:]{.underline} The number of beneficiaries who
    will pay more for physician services because S.1 and H.R.1 both
    raise the deductible for physician visits.

-   [Home Health Care:]{.underline} The number of beneficiaries who will
    pay more for home health care under H.R.1 and lab services under
    S.1, each of which institutes co-payments for such services for the
    first time.

The following table summarizes the national data presented on the
following pages. The detailed tables present the data for each state and
explain the methodology and data sources.

+-----------------------+------------------------+--------------------+
| **Summary of Data for |                        |                    |
| United States**       |                        |                    |
+-----------------------+------------------------+--------------------+
| **Health Service**    | **Number of            | **Number of        |
|                       | Beneficiaries**        | Beneficiaries**    |
|                       |                        |                    |
|                       | ### Senate Bill -- S.1 | **House Bill --    |
|                       |                        | H.R.1**            |
+-----------------------+------------------------+--------------------+
| Number who will pay   | 13.4 million           | 11.1 million       |
| more for              |                        |                    |
| prescriptions         |                        |                    |
+-----------------------+------------------------+--------------------+
| Number who will lose  | 4.5 million            | 3.9 million        |
| employer coverage     |                        |                    |
+-----------------------+------------------------+--------------------+
| Number of low-income  | 5.8 million            | 5.8 million        |
| who may pay more for  |                        |                    |
| prescriptions or      |                        |                    |
| other health services |                        |                    |
+-----------------------+------------------------+--------------------+
| Number who will pay   | 32.5 million           | 32.5 million       |
| more for doctor       |                        |                    |
| visits                | *cost: \$10.6 billion* | *cost: \$11.2      |
|                       |                        | billion*           |
+-----------------------+------------------------+--------------------+
| Number who will pay   | None                   | 1.7 million        |
| more for home health  |                        |                    |
| care                  |                        | *cost: \$2.1       |
|                       |                        | billion*           |
+-----------------------+------------------------+--------------------+
| Number who will pay   | 32.5 million           | None               |
| more for lab visits   |                        |                    |
|                       | *cost: \$18.6 billion* |                    |
+-----------------------+------------------------+--------------------+

  --------------------------- ------------------- -----------------------
  **State**                   **Paying More Under **Paying More Under
                              S.1 (48%)**         H.R.1 (40%)**

  Alabama                     220,774             183,978

  Alaska                      13,326              11,105

  Arizona                     256,624             213,854

  Arkansas                    127,537             106,281

  California                  1,376,392           1,146,994

  Colorado                    168,408             140,340

  Connecticut                 193,262             161,052

  Delaware                    40,749              33,958

  DC                          20,523              17,103

  Florida                     964,560             803,800

  Georgia                     286,210             238,508

  Hawaii                      57,645              48,038

  Idaho                       61,370              51,142

  Illinois                    590,150             491,792

  Indiana                     296,897             247,414

  Iowa                        180,828             150,690

  Kansas                      134,652             112,210

  Kentucky                    208,997             174,164

  Louisiana                   184,687             153,906

  Maine                       70,631              58,859

  Maryland                    225,780             188,150

  Massachusetts               331,670             276,392

  Michigan                    508,004             423,336

  Minnesota                   257,806             214,838

  Mississippi                 126,199             105,166

  Missouri                    333,131             277,609

  Montana                     49,572              41,310

  Nebraska                    96,804              80,670

  Nevada                      90,815              75,679

  New Hampshire               63,456              52,880

  New Jersey                  415,859             346,549

  New Mexico                  69,987              58,323

  New York                    903,726             753,105

  North Carolina              352,499             293,749

  North Dakota                37,321              31,101

  Ohio                        607,835             506,529

  Oklahoma                    174,608             145,507

  Oregon                      186,691             155,576

  Pennsylvania                777,881             648,234

  Rhode Island                55,937              46,614

  South Carolina              165,948             138,290

  South Dakota                42,089              35,074

  Tennessee                   247,820             206,517

  Texas                       727,615             606,346

  Utah                        77,126              64,272

  Vermont                     29,977              24,981

  Virginia                    305,682             254,735

  Washington                  274,291             228,576

  West Virginia               111,866             93,222

  Wisconsin                   299,556             249,630

  Wyoming                     23,541              19,617

  **United States**           **13,425,317**      **11,187,764**
  --------------------------- ------------------- -----------------------

+-------------------------------+------------------+------------------+
| **State**                     | **Losing Under   | **Losing Under   |
|                               | S.1 37%**        | H.R.1**          |
|                               |                  |                  |
|                               |                  | **32%**          |
+-------------------------------+------------------+------------------+
| Alabama                       | 74,594           | 64,514           |
+-------------------------------+------------------+------------------+
| Alaska                        | 3,891            | 3,365            |
+-------------------------------+------------------+------------------+
| Arizona                       | 74,104           | 64,090           |
+-------------------------------+------------------+------------------+
| Arkansas                      | 52,317           | 45,247           |
+-------------------------------+------------------+------------------+
| California                    | 351,204          | 303,744          |
+-------------------------------+------------------+------------------+
| Colorado                      | 51,034           | 44,137           |
+-------------------------------+------------------+------------------+
| Connecticut                   | 74,511           | 64,442           |
+-------------------------------+------------------+------------------+
| Delaware                      | 12,229           | 10,576           |
+-------------------------------+------------------+------------------+
| DC                            | 8,015            | 6,932            |
+-------------------------------+------------------+------------------+
| Florida                       | 304,554          | 263,398          |
+-------------------------------+------------------+------------------+
| Georgia                       | 100,107          | 86,579           |
+-------------------------------+------------------+------------------+
| Hawaii                        | 14,945           | 12,925           |
+-------------------------------+------------------+------------------+
| Idaho                         | 18,085           | 15,641           |
+-------------------------------+------------------+------------------+
| Illinois                      | 230,582          | 199,422          |
+-------------------------------+------------------+------------------+
| Indiana                       | 120,656          | 104,351          |
+-------------------------------+------------------+------------------+
| Iowa                          | 38,914           | 33,656           |
+-------------------------------+------------------+------------------+
| Kansas                        | 31,834           | 27,532           |
+-------------------------------+------------------+------------------+
| Kentucky                      | 67,568           | 58,437           |
+-------------------------------+------------------+------------------+
| Louisiana                     | 71,679           | 61,992           |
+-------------------------------+------------------+------------------+
| Maine                         | 31,646           | 27,370           |
+-------------------------------+------------------+------------------+
| Maryland                      | 70,239           | 60,748           |
+-------------------------------+------------------+------------------+
| Massachusetts                 | 138,731          | 119,984          |
+-------------------------------+------------------+------------------+
| Michigan                      | 198,816          | 171,949          |
+-------------------------------+------------------+------------------+
| Minnesota                     | 53,756           | 46,492           |
+-------------------------------+------------------+------------------+
| Mississippi                   | 45,435           | 39,295           |
+-------------------------------+------------------+------------------+
| Missouri                      | 70,559           | 61,024           |
+-------------------------------+------------------+------------------+
| Montana                       | 14,836           | 12,831           |
+-------------------------------+------------------+------------------+
| Nebraska                      | 20,731           | 17,929           |
+-------------------------------+------------------+------------------+
| Nevada                        | 26,883           | 23,250           |
+-------------------------------+------------------+------------------+
| New Hampshire                 | 24,921           | 21,553           |
+-------------------------------+------------------+------------------+
| New Jersey                    | 156,392          | 135,258          |
+-------------------------------+------------------+------------------+
| New Mexico                    | 25,582           | 22,125           |
+-------------------------------+------------------+------------------+
| New York                      | 353,401          | 305,644          |
+-------------------------------+------------------+------------------+
| North Carolina                | 123,917          | 107,171          |
+-------------------------------+------------------+------------------+
| North Dakota                  | 8,394            | 7,260            |
+-------------------------------+------------------+------------------+
| Ohio                          | 239,770          | 207,368          |
+-------------------------------+------------------+------------------+
| Oklahoma                      | 41,561           | 35,945           |
+-------------------------------+------------------+------------------+
| Oregon                        | 44,019           | 38,070           |
+-------------------------------+------------------+------------------+
| Pennsylvania                  | 271,361          | 234,691          |
+-------------------------------+------------------+------------------+
| Rhode Island                  | 24,794           | 21,443           |
+-------------------------------+------------------+------------------+
| South Carolina                | 62,191           | 53,787           |
+-------------------------------+------------------+------------------+
| South Dakota                  | 9,770            | 8,449            |
+-------------------------------+------------------+------------------+
| Tennessee                     | 90,375           | 78,162           |
+-------------------------------+------------------+------------------+
| Texas                         | 272,273          | 235,479          |
+-------------------------------+------------------+------------------+
| Utah                          | 22,576           | 19,525           |
+-------------------------------+------------------+------------------+
| Vermont                       | 12,994           | 11,238           |
+-------------------------------+------------------+------------------+
| Virginia                      | 97,593           | 84,405           |
+-------------------------------+------------------+------------------+
| Washington                    | 66,232           | 57,282           |
+-------------------------------+------------------+------------------+
| West Virginia                 | 36,466           | 31,538           |
+-------------------------------+------------------+------------------+
| Wisconsin                     | 110,714          | 95,753           |
+-------------------------------+------------------+------------------+
| Wyoming                       | 7,129            | 6,166            |
+-------------------------------+------------------+------------------+
| **United States**             | **4,474,881**    | **3,870,167**    |
+-------------------------------+------------------+------------------+

+-----------------------------------+----------------------------------+
| ## State                          | **Number of Beneficiaries**      |
+-----------------------------------+----------------------------------+
| Alabama                           | 145,670                          |
+-----------------------------------+----------------------------------+
| Alaska                            | 9,500                            |
+-----------------------------------+----------------------------------+
| Arizona                           | 75,561                           |
+-----------------------------------+----------------------------------+
| Arkansas                          | 82,171                           |
+-----------------------------------+----------------------------------+
| California                        | 897,019                          |
+-----------------------------------+----------------------------------+
| Colorado                          | 58,051                           |
+-----------------------------------+----------------------------------+
| Connecticut                       | 60,461                           |
+-----------------------------------+----------------------------------+
| Delaware                          | 13,369                           |
+-----------------------------------+----------------------------------+
| DC                                | 15,065                           |
+-----------------------------------+----------------------------------+
| Florida                           | 368,387                          |
+-----------------------------------+----------------------------------+
| Georgia                           | 186,818                          |
+-----------------------------------+----------------------------------+
| Hawaii                            | 21,853                           |
+-----------------------------------+----------------------------------+
| Idaho                             | 19,812                           |
+-----------------------------------+----------------------------------+
| Illinois                          | 162,428                          |
+-----------------------------------+----------------------------------+
| Indiana                           | 96,069                           |
+-----------------------------------+----------------------------------+
| Iowa                              | 54,690                           |
+-----------------------------------+----------------------------------+
| Kansas                            | 43,277                           |
+-----------------------------------+----------------------------------+
| Kentucky                          | 122,483                          |
+-----------------------------------+----------------------------------+
| Louisiana                         | 120,533                          |
+-----------------------------------+----------------------------------+
| Maine                             | 39,822                           |
+-----------------------------------+----------------------------------+
| Maryland                          | 70,354                           |
+-----------------------------------+----------------------------------+
| Massachusetts                     | 164,166                          |
+-----------------------------------+----------------------------------+
| Michigan                          | 153,136                          |
+-----------------------------------+----------------------------------+
| Minnesota                         | 70,804                           |
+-----------------------------------+----------------------------------+
| Mississippi                       | 126,465                          |
+-----------------------------------+----------------------------------+
| Missouri                          | 93,847                           |
+-----------------------------------+----------------------------------+
| Montana                           | 13,407                           |
+-----------------------------------+----------------------------------+
| Nebraska                          | 22,139                           |
+-----------------------------------+----------------------------------+
| Nevada                            | 22,439                           |
+-----------------------------------+----------------------------------+
| New Hampshire                     | 9,261                            |
+-----------------------------------+----------------------------------+
| New Jersey                        | 152,097                          |
+-----------------------------------+----------------------------------+
| New Mexico                        | 41,538                           |
+-----------------------------------+----------------------------------+
| New York                          | 410,898                          |
+-----------------------------------+----------------------------------+
| North Carolina                    | 234,137                          |
+-----------------------------------+----------------------------------+
| North Dakota                      | 6,314                            |
+-----------------------------------+----------------------------------+
| Ohio                              | 183,922                          |
+-----------------------------------+----------------------------------+
| Oklahoma                          | 68,957                           |
+-----------------------------------+----------------------------------+
| Oregon                            | 66,626                           |
+-----------------------------------+----------------------------------+
| Pennsylvania                      | 219,259                          |
+-----------------------------------+----------------------------------+
| Rhode Island                      | 23,065                           |
+-----------------------------------+----------------------------------+
| South Carolina                    | 118,643                          |
+-----------------------------------+----------------------------------+
| South Dakota                      | 13,619                           |
+-----------------------------------+----------------------------------+
| Tennessee                         | 188,421                          |
+-----------------------------------+----------------------------------+
| Texas                             | 383,317                          |
+-----------------------------------+----------------------------------+
| Utah                              | 17,546                           |
+-----------------------------------+----------------------------------+
| Vermont                           | 14,700                           |
+-----------------------------------+----------------------------------+
| Virginia                          | 116,666                          |
+-----------------------------------+----------------------------------+
| Washington                        | 100,094                          |
+-----------------------------------+----------------------------------+
| West Virginia                     | 47,826                           |
+-----------------------------------+----------------------------------+
| Wisconsin                         | 75,310                           |
+-----------------------------------+----------------------------------+
| Wyoming                           | 7,107                            |
+-----------------------------------+----------------------------------+
| **United States**                 | **5,829,119**                    |
+-----------------------------------+----------------------------------+

  ------------------------------------- ---------------------------------
  **State**                             **Number of Beneficiaries**

  Alabama                               537,985

  Alaska                                29,751

  Arizona                               579,393

  Arkansas                              350,700

  California                            2,908,136

  Colorado                              417,147

  Connecticut                           455,442

  Delaware                              97,580

  DC                                    54,030

  Florida                               2,467,488

  Georgia                               722,270

  Hawaii                                146,297

  Idaho                                 148,589

  Illinois                              1,424,366

  Indiana                               744,553

  Iowa                                  422,950

  Kansas                                345,712

  Kentucky                              490,995

  Louisiana                             473,710

  Maine                                 171,950

  Maryland                              562,051

  Massachusetts                         789,271

  Michigan                              1,229,395

  Minnesota                             589,005

  Mississippi                           282,122

  Missouri                              755,963

  Montana                               122,612

  Nebraska                              227,425

  Nevada                                215,102

  New Hampshire                         157,559

  New Jersey                            1,031,288

  New Mexico                            180,145

  New York                              2,248,527

  North Carolina                        907,837

  North Dakota                          95,360

  Ohio                                  1,515,325

  Oklahoma                              425,727

  Oregon                                428,649

  Pennsylvania                          1,853,680

  Rhode Island                          148,608

  South Carolina                        446,664

  South Dakota                          101,612

  Tennessee                             636,843

  Texas                                 1,833,882

  Utah                                  192,468

  Vermont                               71,958

  Virginia                              769,877

  Washington                            624,455

  West Virginia                         279,178

  Wisconsin                             707,147

  Wyoming                               56,306

  **United States**                     **32,475,086**
  ------------------------------------- ---------------------------------

  ----------------------------------- -----------------------------------
  **State**                           **Number of Beneficiaries**

  Alabama                             30,282

  Alaska                              1,000

  Arizona                             16,295

  Arkansas                            16,044

  California                          130,760

  Colorado                            15,927

  Connecticut                         32,866

  Delaware                            6,355

  DC                                  2,872

  Florida                             139,503

  Georgia                             37,499

  Hawaii                              2,585

  Idaho                               7,036

  Illinois                            79,509

  Indiana                             31,297

  Iowa                                16,713

  Kansas                              11,179

  Kentucky                            31,372

  Louisiana                           32,457

  Maine                               12,310

  Maryland                            31,530

  Massachusetts                       57,534

  Michigan                            82,316

  Minnesota                           18,671

  Mississippi                         22,381

  Missouri                            47,200

  Montana                             5,340

  Nebraska                            10,203

  Nevada                              6,916

  New Hampshire                       9,970

  New Jersey                          57,336

  New Mexico                          7,572

  New York                            114,702

  North Carolina                      50,460

  North Dakota                        4,490

  Ohio                                70,950

  Oklahoma                            26,549

  Oregon                              17,036

  Pennsylvania                        112,700

  Rhode Island                        8,000

  South Carolina                      22,957

  South Dakota                        3,812

  Tennessee                           39,625

  Texas                               103,682

  Utah                                10,883

  Vermont                             6,634

  Virginia                            43,838

  Washington                          25,137

  West Virginia                       12,058

  Wisconsin                           25,763

  Wyoming                             2,270

  **United States**                   **1,712,377**
  ----------------------------------- -----------------------------------

  ------------------------------------- ---------------------------------
  **State**                             **Number of Beneficiaries**

  Alabama                               537,985

  Alaska                                29,751

  Arizona                               579,393

  Arkansas                              350,700

  California                            2,908,136

  Colorado                              417,147

  Connecticut                           455,442

  Delaware                              97,580

  DC                                    54,030

  Florida                               2,467,488

  Georgia                               722,270

  Hawaii                                146,297

  Idaho                                 148,589

  Illinois                              1,424,366

  Indiana                               744,553

  Iowa                                  422,950

  Kansas                                345,712

  Kentucky                              490,995

  Louisiana                             473,710

  Maine                                 171,950

  Maryland                              562,051

  Massachusetts                         789,271

  Michigan                              1,229,395

  Minnesota                             589,005

  Mississippi                           282,122

  Missouri                              755,963

  Montana                               122,612

  Nebraska                              227,425

  Nevada                                215,102

  New Hampshire                         157,559

  New Jersey                            1,031,288

  New Mexico                            180,145

  New York                              2,248,527

  North Carolina                        907,837

  North Dakota                          95,360

  Ohio                                  1,515,325

  Oklahoma                              425,727

  Oregon                                428,649

  Pennsylvania                          1,853,680

  Rhode Island                          148,608

  South Carolina                        446,664

  South Dakota                          101,612

  Tennessee                             636,843

  Texas                                 1,833,882

  Utah                                  192,468

  Vermont                               71,958

  Virginia                              769,877

  Washington                            624,455

  West Virginia                         279,178

  Wisconsin                             707,147

  Wyoming                               56,306

  **United States**                     **32,475,086**
  ------------------------------------- ---------------------------------

### Conclusion and Recommendations

The primary impetus for the President and Congress to enact a
prescription drug program under Medicare is to reduce the burden of
prescription drug costs on the 40 million seniors and disabled who rely
on Medicare for health coverage. But as the findings of this study
demonstrate, the legislative proposals passed by each house of Congress
will actually raise prescription drug costs for millions of people on
Medicare, and will raise other related costs for more than
three-out-of-four Medicare beneficiaries. The principal reason that drug
costs will increase for so many is that Congress has allocated an
inadequate amount of money for the prescription drug benefit, less than
one-fourth of the total amount that Medicare beneficiaries will spend on
prescription drugs over the next 10 years.

The amount of money available under the federal budget approved by
Congress and President Bush, \$400 billion, is clearly inadequate to
provide an affordable prescription drug benefit to the more than 40
million seniors and people with disabilities who rely on Medicare. There
are two actions that Congress could take to provide a more sufficient
benefit.

> 1\. Increase the amount of money available for the Medicare drug
> benefit. This is a matter of budget priorities. USAction Education
> Fund proposes raising the funds by repealing the federal income tax
> breaks for the wealthiest Americans; and
>
> 2\. Increase the purchasing power of the money available for
> prescription drugs by offering the benefit directly through Medicare,
> rather than private insurers, as is proposed in both bills. By using
> the purchasing power of Medicare, prices can be lowered by 40% from
> retail prices, as demonstrated by the Veterans Administration.

**By undertaking these two measures, Congress can provide a prescription
drug benefit that is both affordable to people on Medicare and to
taxpayers.**

If Congress undertook these measures and made the drug benefit
comparable to those offered to retirees, it would solve the first two
adverse findings reported in this study. First, a reasonable benefit,
with affordable premiums, deductible and co-payments, and no donut,
would provide affordable drugs to everyone on Medicare who is not
low-income. Second, by offering a benefit that is comparable to current
retiree benefits, Medicare beneficiaries would not be harmed if
employers decided to drop retiree drug coverage.

In addition to these overall recommendations on reshaping the drug
benefit proposed in the Medicare reform bills, USAction Education Fund
offers the following recommendations to deal with the specific problems
highlighted in this report:

1.  The proposed Medicare Part D should cover Medicaid beneficiaries. A
    basic tenant of Medicare is that it is a universal program, provided
    to all Americans over the age of 65 and those who are permanently
    disabled. Excluding those Medicare beneficiaries who also receive
    Medicaid, as is done in S.1, violates a core principle of Medicare.
    Covering the prescription drug costs for those Medicare
    beneficiaries that receive Medicaid would relieve the states of
    substantial financial burdens without providing states any incentive
    to remove dual-eligible beneficiaries from state Medicaid rolls.

2.  Low-income beneficiaries should be assured of affordable coverage,
    as is provided in the low-income provisions in S.1. The low-income
    coverage provisions in H.R.1 would create great hardships for
    low-income seniors and people with disabilities who rely on Medicare
    for prescription drugs.

3.  Medicare should make employer prescription drug plans whole
    financially, removing the incentive to drop or lower coverage.
    Similar protections should be made for drug coverage plans offered
    by several states to seniors, a provision which is in S.1 but is
    lacking from H.R.1.

4.  Medicare should not raise costs under Part B by imposing new or
    increased deductibles on physician services or co-payments on other
    services. As it is, Medicare covers a smaller proportion of senior
    health care costs now than before Medicare was instituted.

Finally, we note that this report has only addressed one set of issues
regarding the Medicare legislation. Neither the House nor the Senate
bill gives Medicare primary power to negotiate drug prices and to
directly pay for prescription drugs, as Medicare does now for other
health services. The Senate bill relies on private drug plans to provide
prescriptions and will only offer a Medicare drug plan if two private
plans are not available in a region. The House bill relies solely on
private plans to provide drugs.

H.R.1 also takes significant steps towards reshaping the entire Medicare
system from one that relies on public insurance to private insurance.
Beginning in 2010, Medicare would be structured to provide competition
between private plans and Medicare. While S.1 does not take the giant
steps in this direction contained in H.R.1, it too includes provisions
that move towards the privatization of Medicare.

There is substantial evidence that Medicare privatization will be a
failure. Beginning in 1982, Medicare began offering seniors the choice
of enrolling in an HMO. Despite the availability of this option, 85% to
90% of beneficiaries have remained enrolled in traditional Medicare
where beneficiaries have a wider choice of physicians and hospitals.
Recent evidence shows that private Medicare insurance plans cost the
government and the elderly more money and undermine continuity of care:

-   From 1998-2000, private Medicare HMOs were paid 13.2% more than
    public Medicare would have spent for the same patients. In 1998
    alone, the excess cost to the federal government was \$5.2 billion.

-   Privatizing Medicare skims off healthy seniors, reducing the
    expenses private insurance companies incur. In 1999, only 7% of
    Medicare enrollees using HMOs were in poor health compared with 13%
    of Medicare enrollees not using HMOs. But for those seriously ill
    seniors who did enroll in HMOs, their choice proved to be a
    financial disaster. In 2001, the average Medicare HMO enrollee in
    good health spent \$1,786 out-of-pocket; for those in poor health
    the out-of-pocket costs were a staggering \$4,783.

-   Despite getting more money from the federal government than
    traditional Medicare would have spent itself, and cherry-picking
    healthier people, HMOs dropped 2.4 million Medicare beneficiaries
    between 1999 and 2003, because the plans could not make sufficient
    profit.

> (Above statistics and other information is included in *The Dismal
> Failure of Medicare Privatization,* Senior Action Network, June 2003.
> www.SeniorActionNetwork.org).

Medicare also has a better record of controlling health care inflation
than private insurance, despite the fact that Medicare covers patients
with much greater health care needs. Between 1970 and 2000, Medicare\'s
average annual per enrollee cost increase was 9.6% compared with 11.1%
for private health insurers, a difference that adds up to tens of
billions of dollars. New data released this May found that since private
health insurance companies pay doctors 15% more than Medicare, expanding
the use of private plans would raise Medicare costs.

Therefore, our final recommendation is that the privatization provisions
in both bills be removed. Medicare should provide all of its benefits,
both the established benefits and the new prescription drug benefit,
directly through the Medicare, public insurance system. Private health
plans should not be used to deliver benefits to people who rely on
Medicare.

**The USAction Education Fund recommends rejection of both S.1 and
H.R.1, for failing to provide affordable prescription drugs and for
seeking to weaken (S.1) or dismantle (H.R.1) Medicare as a public
insurance system that has provided affordable, reliable physician and
hospital coverage to American seniors and people with disabilities for
almost forty years.**

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Paying More for Less: The Number of Medicare Beneficiaries Who Will See
Higher Drug and Health Care Costs Under Proposed Medicare Reforms --
National and State Data

This report was written and researched by Richard Kirsch, Executive
Director of the Public Policy and Education Fund of New York, for
USAction Education Fund (USAEF). Dan Smith, an intern at New Jersey
Citizen Action, provided research assistance. The report is available
on-line at [www.usaction.org](http://www.usaction.org/). Copyright 2003

USAEF is the research affiliate of USAction, the nation's largest
progressive activist organization, dedicated to winning social, racial,
and economic justice for all. USAction represent three million members
in 33 affiliates, with statewide organizations in 23 states.