![](media/image1.png){width="6.938888888888889in"
height="2.488888888888889in"}

September 11, 2003

TO: Members of the Subcommittee on Human Rights and Wellness

House Committee on Government Reform

FROM: Dan Burton, Chairman

SUBJECT: Subcommittee Hearing, entitled: "A Medicare Prescription Drug
Safety Net: Creating a Targeted Benefit for Low-Income Seniors"

The Subcommittee on Human Rights and Wellness will hold an oversight
hearing on **[Tuesday September 16, 2003, in Room 2154 of the Rayburn
House Office Building at 10:00a.m.]{.underline}**

# 

# **BACKGROUND** 

This hearing is a follow-up to the Subcommittee's hearing of July 17,
2003 examining the short and long-term financial costs of adding a
prescription drug component to the Medicare program.

On June 27, 2003, the House of Representatives responded to the growing
prescription drug crisis by passing "*The Medicare Prescription Drug
Modernization Act"* (H.R.1), the single largest expansion of Medicare
since its inception in 1965. At first glance, H.R. 1 appears to answer
the prayers of every senior who has been faced with paying outrageous
prices for prescription drugs. In reality, the bill creates an
ill-conceived and incredibly expensive new open-ended entitlement
program that places a tremendous financial yoke around the neck of
American taxpayers for decades to come.

Supporters of the legislation contend the new Medicare prescription drug
program will cost an estimated \$400 Billion over the next 10 years.
However, the history of Medicare has always been one of financial chaos,
with the actual costs always far exceeding the projected costs.

When the program was first launched in 1967 at a cost of \$3.4 Billion,
it was estimated that by 1992 it would only require Federal funding of
up to \$15 Billion annually. In reality, Medicare expenditures reached
nearly \$90 Billion for Fiscal Year (FY) 1992, almost six-times as much
money as was originally predicted. Just ten years later, those costs
have ballooned to an astounding \$267 Billion each year, according to
the Heritage Foundation. And the figures for FY 2003 will surely be even
higher still.

Estimates of the government's unfunded obligation for prescription drugs
over the lifetime of the proposed Medicare prescription drug program
range from a low of \$6 Trillion to a high of approximately \$12
Trillion. That is on top of Medicare's existing unfunded liability,
already estimated at \$30 Trillion in today's dollars.

The Subcommittee has heard testimony over the course of several hearings
on the prescription drug needs of America's seniors, and is acutely
aware that something needs to be done to provide seniors some relief
from the high costs of prescription drugs. Nevertheless, the
Subcommittee strongly believes that responsible Medicare prescription
drug reform should include sound financial planning, and that a costly
open-ended prescription drug benefit is a potential financial disaster.

Rather than craft a one-size-fits-all program that may undermine the
benefits of those Medicare beneficiaries who currently have more
comprehensive coverage, a better solution is to target the benefit to
seniors who are truly in need of prescription drug assistance.

Of the just over 40 million Medicare beneficiaries, almost half (46
percent) already have fairly comprehensive drug coverage. About 4.6
million have drug coverage through Medicaid, and another 12 million or
so have coverage through an employer-sponsored retirement plan.

Another 29 percent of Medicare beneficiaries have some drug coverage
from another private or public source; they include the 4.8 million who
have individually purchased Medicare supplemental insurance (Medigap)
policies with limited, front-end drug coverage, as well as the 6.8
million who have limited coverage through a Medicare HMO or through a
State or Federal program other than Medicaid.

It is only the remaining 25 percent of Medicare beneficiaries (about 10
million) who have no drug coverage at all.

The Subcommittee will hear testimony from experts with the CATO
Institute, American Enterprise Institute, and the Progressive Policy
Institute regarding the viability of enacting a Medicare prescription
drug safety net program focused exclusively on meeting the needs of the
most vulnerable Medicare beneficiaries. The Subcommittee may also hear
from Congressional and Senate witnesses who have proposed legislation
similar to that outlined below. All of the witnesses have specifically
been asked to comment on the feasibility of a program laid out along the
following parameters:

## ELIGIBILITY:

-   65 years of age or older.

-   A Medicare beneficiary (Part A or Part B eligible).

-   Income below 250% of the Federal poverty line.

-   Ineligible for any other form of prescription drug coverage (i.e.
    Medicaid, group health plans, individual health insurance, Medigap,
    Veterans Affairs, or a State pharmaceutical assistance program).

-   Eligibility subject to annual review.

## BENEFITS:

-   A Federal contribution into a Federally-maintained and administered
    Senior Rx Account, which can ONLY be drawn down by the individual to
    buy prescription drugs. The Federal contribution breaks down as
    follows:

    -   Not more than 100 percent of the poverty line, the annual
        Federal contribution amount is \$2,500.

    -   More than 100 percent, but less than 125 percent, of the poverty
        line, the annual Federal contribution amount is \$1,500.

    -   More than 125 percent, but less than 175 percent, of the poverty
        line, the annual Federal contribution amount is \$1,100.

    -   At least 175 percent, but less than 250 percent, of the poverty
        line, the annual Federal contribution amount is \$600.

-   Federal coverage of prescription drug costs beyond an annual
    catastrophic threshold of \$3000.

-   Federal contribution is provided in one lump sum at the beginning of
    each calendar year and pro-rated for beneficiaries who join after
    January 1^st^ of any calendar year.

-   Federal contribution can be rolled to subsequent years, provided the
    individual remains eligible for the program, up to a maximum of
    \$3000 (equal to the catastrophic coverage threshold).

## COST CONTAINMENT MEASURES:

-   The Secretary of HHS would have the authority to negotiate reduced
    prices for prescription drugs purchased through the Senior Rx
    program.

-   For non-Senior Rx individuals, the legislation would require the
    Secretary of HHS to promulgate regulations to safely allow
    individuals, pharmacists and drug wholesalers to purchase
    FDA-approved prescription drugs from FDA-approved facilities in
    specified industrialized countries and reimport them to this
    country; with the exception of "recreational or lifestyle" drugs
    such as Viagra and RU-486.

**[WITNESSES:\
]{.underline}**

The Subcommittee will hear from several witnesses on the topic. These
witnesses include:

**[Panel One]{.underline}**

## Congressman Calvin Dooley (D-CA)

## Del. Donna Christensen (D-VI)

**[Panel Two]{.underline}**

 **Joseph Antos, American Enterprise Institute**

 **Thomas Miller, CATO Institute**

-   **Jeff Lemeiux, Progressive Policy Institute**

-   **Ed Haislmaier, Heritage Foundation**

**[STAFF CONTACTS:]{.underline}**

Brian Fauls, Professional Staff Member

\(202\) 225-6427

[brian.fauls@mail.house.gov
\<mailto:brian.fauls@mail.house.gov\>]{.underline}

Mindi Walker, Professional Staff Member/Subcommittee Clerk

\(202\) 225-6427

[mindi.walker@mail.house.gov
\<mailto:mindi.walker@mail.house.gov\>]{.underline}