1. Medicare Reforms LECTURE 15

2. Overview of 2003 Changes “The Medicare Prescription Drug, Improvement and Modernization Act of 2003” More commonly called the “Medicare Modernization Act” Changes included Drug discount cards started in 2004 - temporary Additional preventative benefits in 2005 Rx drug coverage started in 2006

3. Rx Drug Coverage: 2006+ Original Bush Proposal – if you want Rx coverage, you would have to choose a managed care option (Rx is the “carrot”) You may choose to stay entirely within trad’l Medicare, but then would not get Rx benefit Legislation that passed treated Rx as a pure add-on benefit – no managed care provision included in the final bill

4. Designing an Rx Drug Bill Should participation by Medicare beneficiaries be mandatory or voluntary? How would you allocate scarce dollars? Should there be an annual premium to join? Early expenditures vs. catastrophic expenditures? Would you use deductibles or co-pays? Would the politics of coverage influence your design

5. Distribution of Rx Drug Spending for 2006 Medicare Beneficiaries Median = $1,700 Mean = $2,730

6. Rx Coverage (some details vary by plan) Pay premium of about $40 per month Deductible = $295 Medicare covers 75% of costs between $295.01 and $2,700, you pay 25%. You pay 100% of costs between $2,700.01 and $6,153.75 (for a total of $4,350 in out of pocket expenditures) – the “doughnut hole” Medicare pays 95% of costs after the $6,153.75

7. $1000 “break-even with $40/mo premium”

8. Financing Controversy In January 2003 State of the Union address, Bush outlined Rx drug plan that would cost $400 billion over 10 years CBO published similar estimate Became law in Nov 2003 In December 2003, projection increased to $534 billion over 10 years In 2005, estimates of net cost 10year costs grew to $720 billion over 10 years

9. What Happened? Primarily an artifact of 10-year budget window used for federal budget accounting 2004 and 2005 were “no cost” years But 2014 and 2015 costs are over $100 billion per year This was entirely predictable! NPR story

10. Current Status “Liberals have said that Bush devised a ‘stingy’ benefit in which many seniors would be faced with thousands of dollars worth of drug bills.” “Conservatives have argued that an open-ended entitlement to prescription drug coverage would cost far more than the Treasury could afford” –Connolly & Allen, Washington Post, 2/9/05 page A1.