October 13, 2006 | Volume 3, Issue 2
The MMA should be repealed and replaced
As a concerned citizen and a policy student at the H. John Heinz III School of Public Policy and Management, I am writing to oppose the current Medicare legislation. My aim is to reverse the disastrous course that Congress has set our country upon by constructing a universal drug entitlement program, which has been designated The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).
I believe the MMA program needlessly overburdens the federal government and a more targeted drug subsidy for only those without coverage or the means to pay for drugs would be more effective and fiscally responsible.
There are many reasons that the MMA should be repealed and replaced:
- The new program is overburdening, in that it creates the largest expansion of entitlement programs since the Great Society, when a program of this size is not necessary.
- The Congressional Budget Office (CBO) estimates that the Medicare drug program will increase mandatory outlays by $407 billion for years 2004 through 2013 and raise federal revenues by $7 billion over the same period.1
- It is estimated, that while this will benefit many seniors who currently have no coverage for prescription drugs, it may also hurt those who previously were covered by Medicaid, but are now automatically enrolled in MMA and may end up paying more.
- Currently 11.8 million retirees have employer based drug coverage. Many independent analysts believe that most, if not all employers will either drop or reduce drug coverage due to MMA.2
At the same time, a social problem exists that must be addressed. The price of prescription drugs and the cost that seniors bear remains high.
- Prescription drug spending by individual Medicare beneficiaries was estimated by the Congressional Budget Office (CBO) to be about $3,155 in 2006 (in the absence of the MMA).
- Although more than half of all beneficiaries will have a drug spending total of less than $2,000 each, about 20 percent will have spending of more than $5,000.3
An entitlement program for all citizens, not just those in need, is unnecessary. And while those seniors who spend less than $2250 and those whose catastrophic illnesses require medication over $5100 will benefit, a significant number of Americans will fall in between these levels. Millions of seniors will end up in the congressionally designed “doughnut hole” next year and will pay 100 percent of their drug costs until they spend a total of $3,600 (out-of-pocket) and at which point they will qualify for cata¬strophic protection. The Kaiser Family Founda¬tion estimates that roughly 6.9 million seniors will end up in the doughnut hole in 2006.4
The following table illustrates the costs to individuals at different levels of spending. Notice that while individuals at the far ends of the cost spectrum save progressively more as their costs increase, those in the “doughnut” region pay a substantial portion of their costs out-of-pocket, most notably those who approach but do not reach the $5100 level of annual drug costs.
| Annual Drug Costs | Beneficiary Out of Pocket Costs Under the New Benefit | Beneficiary Costs Including Estimated Average Premium of $386.40 Per Year | Share of Drug Expenses Paid Out of Pocket by Beneficiary Under the New Benefit (Not Including Premium) |
| $ 1,000.00 | $ 437.50 | $ 823.90 | 44% |
| $ 1,500.00 | $ 562.50 | $ 948.90 | 38% |
| $ 2,000.00 | $ 687.50 | $ 1,073.90 | 34% |
| $ 2,500.00 | $ 1,000.00 | $ 1,386.40 | 40% |
| $ 3,000.00 | $ 1,500.00 | $ 1,886.40 | 50% |
| $ 3,500.00 | $ 2,000.00 | $ 2,386.40 | 57% |
| $ 4,000.00 | $ 2,500.00 | $ 2,886.40 | 63% |
| $ 4,500.00 | $ 3,000.00 | $ 3,386.40 | 67% |
| $ 5,000.00 | $ 3,500.00 | $ 3,886.40 | 70% |
| $ 5,500.00 | $ 3,620.00 | $ 4,006.40 | 66% |
| $ 6,000.00 | $ 3,645.00 | $ 4,031.40 | 61% |
Assumes a monthly premium of $32.20 per month on average, the first $250 in drug expenses out of pocket, and then, on average, a 25 percent coinsurance until the benefit limit ($2,250). 100 percent of drug costs between limit and $5,100 in total drug spending paid by individual (equal to $3,600 in out-of-pocket spending). Medicare will then pay 95 percent of drug costs above that amount. (All numbers for 2006)5
Based on this and other information, I believe the MMA should be repealed and instead of a universal drug benefit, subsidies should be given to those seniors without coverage, whose costs for prescription drugs exceed a certain point or to those who are unable to pay for them at all. It is estimated that more than 75% of American seniors already had prescription drug coverage prior to the enactment of MMA.6 Thus, access to drug coverage was a problem for only a minority of senior citizens as confirmed by independent analyses, as well as by studies from the Congressional Budget Office and the Joint Economic Committee.7 When the number of seniors who already had prescription drug benefits through their employers is considered, along with those seniors in extreme need who were already receiving drug benefits through Medicaid, and those who are able to pay for their own insurance coverage, a very small portion of the population was left uncovered. It would be more cost effective and less an expansion of government to target these people directly, instead of this enormous experiment in central planning.
Congress should reconsider this plan and join with the movement to repeal this expansion of tax-payer funded entitlements. Instead of going down this difficult path, Congress should instead choose to work towards a plan that helps those who are truly in need and does not eliminate those solutions that already exist in the current system.
1 Congress of the United States Congressional Budget Office, A Detailed Description of CBO‘s Cost Estimate for the Medicare Prescription Drug Benefit. July 2004
2 http://www.heritage.org/Research/HealthCare/bg1860.cfm#_ftnref52
3 Rodgers, Jack and John Stell, The Medicare Prescription Drug Benefit: Potential Impact on Beneficiaries. Health Policy Economics, PricewaterhouseCoopers #2004–13, November 2004.
4 http://www.heritage.org/Research/HealthCare/bg1860.cfm#_ftnref39
5 http://www.kff.org/medicare/rxdrugscalculator.cfm
6 Moffit, Robert E. Ph.D., Paying for Katrina Relief: Cancel or Delay the Medicare Drug Benefit. WebMemo #857. http://www.heritage.org/Research/HealthCare/wm857.cfm
7 Moffit, Robert E. Ph.D., Paying for Katrina Relief: Cancel or Delay the Medicare Drug Benefit. WebMemo #857. http://www.heritage.org/Research/HealthCare/wm857.cfm