Statement for the Record | Senate Finance Committee
Medicare Drug Card: Delivering Savings for Participating Beneficiaries

June 8, 2004

“Mr. Chairman, we believe the problems evident in the discount card program have provided Congress with a unique opportunity to correct the flaws in the new Medicare bill before it goes into effect.” - - Barbara B. Kennelly

Mr. Chairman and Members of the Committee:

On behalf of the 3.2 million members and supporters of the National Committee to Preserve Social Security and Medicare, we applaud Chairman Grassley and Senator Baucus for holding this hearing today. We have discovered through many meetings with seniors around the country that they remain confused and skeptical about the new discount card program . This is unfortunate, because there are some seniors – particularly those who qualify for the low-income benefit – who will clearly benefit from the new discount cards. In our written materials and many meetings, we have urged seniors everywhere to research the cards and determine whether they will benefit from them. We welcome hearings such as this, because we believe they can provide critical information to millions of seniors struggling to understand the new benefit.

Unfortunately, we believe most of the problems with the new cards are inherent in the design of the program and cannot be corrected by the end of 2005. More importantly, we believe the discount cards are a metaphor for the entire new Medicare law . Unless the law is re-written, the same fundamental flaws that have made the discount cards so frustrating to seniors today will make the new drug benefit equally disappointing when it becomes effective in 2006, and could undermine public support for the entire Medicare program.

The National Committee to Preserve Social Security and Medicare spent the last six years advocating for a comprehensive, affordable prescription drug benefit offered through the Medicare program, because that is what our seniors have been telling us they need and we believe they deserve. If Congress had worked directly through Medicare rather than a system of private providers to provide both the temporary discount card and the permanent drug benefit, it could have taken advantage of the universal, consistent, inexpensive delivery system that is already inherent in the Medicare program. The result would have been a simple, meaningful benefit to seniors.

Unfortunately, that is not what has been implemented through P.L. 108-173. We understand that the wide variety of discount card providers was intended as a service to seniors, to give them the broadest array of card choices. But instead of providing a benefit to seniors, the multitude of options has proved to be extremely confusing, particularly with so few seniors comfortable using the Internet. Allowing sponsors of the cards to change both the drugs covered and the discounts on the drugs weekly was intended to encourage competition between providers, further lowering prices. But experience to date has shown the listed prices can go up as well as down, and even those seniors who research the cards carefully cannot be certain they will end up with the best deal. Meanwhile, because seniors are only allowed to have one Medicare-approved card at a time, and they are locked into their chosen card until the end of the year, they worry about being forced to stay with a plan that ultimately does not provide them with significant benefits. This worry can result in paralysis, with seniors preferring not to purchase a card at all rather than risk buying one that does not serve their needs.

This problem will be exacerbated when the permanent benefit begins . We do not know today how many companies will opt to provide the permanent prescription drug benefit in 2006, so it is not clear whether seniors will be faced with a choice between as many providers. Even if the number of options is smaller, however, their choices will be even more complicated than with the discount card. Not only will they be confronted with a confusing array of multiple providers covering different drugs at a variety of prices, in some cases they will also be faced with choosing between managed care companies with completely different menus of standard health services as well.

If they choose wrong in the case of the discount card, their only loss is the price of the card and whatever discounts they might have received with a different card. But if they pick a health care provider that does not serve their needs once the permanent benefit begins, the financial consequences could be catastrophic . And unlike the discount card, where taking time to make the right choice does not have adverse consequences, seniors delaying enrollment in the permanent benefit could pay increased premiums for the rest of their lives.

But the most significant problem with the new Medicare law , Mr. Chairman, is the lack of cost containment. As you know, most seniors are on relatively fixed incomes, dependent upon Social Security for a significant portion of their income in retirement. They are extremely sensitive to price increases because they rarely have a cushion of disposable income to protect them from the ravages of inflation. They are well aware of the skyrocketing increases in prescription drug costs that have been confirmed in two recent studies. Families USA found prices of the 30 most popular drugs used by seniors increased at four times the rate of general inflation during 2003, and AARP found a 28% increase in a broader list of drugs from 2000 to 2003. Small wonder that seniors are less than impressed by a discount card program that offers reductions of 10 to 25 percent.

CMS has said it intends to monitor the cards to make sure senior discounts are not based on artificially inflated prices, but without a clear definition of what is an acceptable price increase, and considering the issues of artificially inflated prices represented by Average Wholesale Prices, protecting seniors will not be easy. And we are not aware of any federal agency investigating the significant increases prescription drug prices have experienced in recent years, to determine whether those increases were warranted in the first place.

If the new prescription drug benefit is offered through Medicare, the purchasing power of its 41 million seniors can be harnessed to negotiate for the lowest possible prices, with all the savings passed along directly to seniors. But without effective cost containment, the new prescription drug benefit could well turn out to be an illusion for many seniors, offering limited federal assistance in paying for drugs whose cost keeps skyrocketing unchecked, much as the discount card program appears to many seniors today. And unfortunately, the drug benefit that looks meager today will only become worse with time. According to Medicare's own Trustees, within a few short years seniors will need to have over $8,580 in covered drug costs to trigger the catastrophic coverage . At that point, seniors will be paying over $6,000 in out-of-pocket costs, in addition to an estimated $730 in annual premiums, and only $2,500 will be picked-up by Medicare.

Many in Congress, including you, Mr. Chairman, have acknowledged the lack of cost containment in the new prescription drug program by advocating for reimportation of drugs from Canada and other countries. While the National Committee supports reimportation, we believe any relief it offers will be temporary .

Mr. Chairman, we believe the problems evident in the discount card program have provided Congress with a unique opportunity to correct the flaws in the new Medicare bill before it goes into effect. We urge you to revisit the program while there is still time to make the fundamental changes that will be needed to provide seniors with the kind of access to affordable drugs that they truly require. We look forward to working with you toward this goal as the process continues.

Contact:
Pamela Causey
202-216-8405/mobile 202-236-2123

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