issue guide: Medicare Prescription Drug Act

The Skinny

see also background & facts, pro & con, links

What's Up

To ease the pain of surging prescription drugs costs for seniors, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act in 2003, giving aid to millions of elderly who previously had no prescription drug coverage. The act went into effect in two stages, with the most seniors getting the benefit of the plan starting in 2006. Although the act passed with the support of AARP, the country’s largest seniors organization, and was at first seen as a victory for a Republican controlled Congress, it’s come under criticism by those who say that it’s confusing, too expensive and doesn’t go far enough to bring down drug costs for seniors.

Tweaking the act: A newly democratic Congress tried in '07 to rein in the act's costs by telling Medicare to negotiate down drug prices (which Medicare was kept from doing in the original act), but their efforts got stymied in the Senate (WP). Congress may try in '08 to increase the number of seniors eligible for the low-income program, which doles out drugs practically for free.

What the Debate's About

For years both the Democrats and Republicans had wanted to take on a broader Medicare/Medicaid prescription drug system. For good reason. Prior to the 2003 act, over one-third of seniors had no coverage for drug costs; Medicare, which provides health coverage for 96%
(pdf) of America’s elderly, just didn’t pay for out-patient prescription drugs (elderly who were covered had other public or private plans). Not being covered could mean the difference between spending $1356 out of pocket a year (the average for the non-covered) and $780 a year (the average for those covered by other plans).

Though the act may be flawed, its supporters say it goes a long way to help out those who are uninsured. In its first stage, seniors immediately signed on for discount cards, which could save them up to 25% on prescription drugs. Lower income seniors were also immediately eligible for $600 in subsidies. In the second stage - that started January 2006 - seniors can sign up for coverage with a $35 monthly premium and get significant coverage for their drug costs. Low income seniors with few assets are eligible for even greater coverage either with no premium or premiums on a sliding scale.

The act’s critics say the flaws are nothing to scoff at. Because the plan has a complicated formula for coverage (based on how much a senior spends on drugs each year), advocates worry that seniors will be confused and may choose to join the plan although it makes little economic sense for them. They also believe the government could have done more to bring down drug prices by giving the federal government the power to bargain with drug companies, much as they do with drugs for veterans. Then there are those who think the act just costs too much: $27 billion in 2006 and growing to $65 billion in 2013 - for a total of $395 billion over 10 years. (Those numbers according to the Congressional Budget Office; Medicare accountants put the 10 year number at $534 billion and an internal memo suggest the price tag could be higher at $576 billion.)

Where Things Stand Now

Prescriptions started being filled under the act in January, 2006 - with a bumpy start and states jumping in to pay for drugs that seniors were being denied. In '07 Congress was pushing to pass a bill that would make Medicare negotiate lower prices with drug companies; the House passed a version of the bill in January 2007, but the Senate's bill got stopped by a filibuster (it's version wouldn't have ordered Medicare to negotiate - it would've only given Medicare that option) (WP). In '08 Congress may vote to expand eligibility for seniors to join the low-income plan, which covers prescription drugs almost entirely for free.

Written by Courtney Doggart, November, 2004 (Updated - April, 2008)

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