Prescription Drug Coverage: What's It to You?

As you read this, the election is over. We know who won and who lost. But it's a fair bet as this is written, before the election, that the design of the Medicare prescription drug benefit, even though a dominant issue, was not settled by the election outcome. Nursing homes and assisted living providers have, in any event, a real stake in whether the legislation that eventually passes into law bears a closer resemblance to the prescription drug plans described during the campaign by either George W. Bush or Al Gore.

The main reason for betting in late October why the issue would not be settled on November 7 is that neither political party seemed about to emerge with a sufficiently commanding Senate majority. Effective control of the legislative process requires one party to win the White House, a majority in the House of Representatives and at least 60 of the 100 members of the Senate. Without those 60 votes, the minority party can block passage of major legislation. At the very least, this forces the majority to seek a compromise on the provisions of any bill as sweeping as a major change in Medicare. As of this writing, 60 votes didn't seem to be within reach of either party.

But how would the prescription drug plans, as favored by Bush and Gore, affect the long-term care operator?

The Bush plan certainly falls into the category of a major change in Medicare. In fact, the prescription drug benefit was originally a minor deal in a Republican-sponsored restructuring of the program that assumes older Americans want to choose among private and government-sponsored health plans. These alternative health plans would offer different benefits, including prescription drug coverage, for different premiums. Under the Bush plan, Medicare pays for at least 25% of the health plan premium and the federal government limits the beneficiaries' annual out-of-pocket prescription costs to $6,000 (or, put another way, $500 a month, which seems high for settings other than, perhaps, long-term care).

Bush's major restructuring of the Medicare program would require several years of preparation. As a stopgap, Bush proposed to create a new block grant to the states to fund drug coverage among low-income Medicare recipients. The block grant also could be used for Medicare beneficiaries of any income level who spend more than $6,000 annually on prescriptions. The exact mechanisms of the block grant would differ in each state, depending on the regulations each established to administer the grant (although, as with Medicaid, federal regulations would remain in force, as well). Although Bush stated during the first presidential debate that this temporary block grant would provide "immediate" help for many elderly, the need to establish state regulations to administer the grant might delay its operation in some states for up to two years after its passage by Congress.

Gore's plan was far less sweeping. His proposal would simply add a $25 monthly premium for all Medicare beneficiaries. This premium would pay for covering 50% of the beneficiaries' prescription drug costs. Beneficiaries could also elect to enroll in catastrophic coverage for an additional premium that would pay for drug costs in excess of $4,000 per year (a still very high average of $334 a month). Low-income Medicare beneficiaries could have Medicaid pick up most of the costs of the new premiums.

Gore's proposal also would slightly alter eligibility for Medicare. Early retirees could buy into Medicare coverage through an additional out-of-pocket premium, but all elderly would receive a tax credit of up to 25% of their out-of-pocket costs for Medicare, making this "early purchase" option more attractive for Americans between the ages of 60 and 65 years old.

If the legislation that eventually emerges from the next Congress allows skilled nursing facilities (SNFs) and assisted living organizations to act as buying agents for the government-financed prescription drug benefit for their residents, the long-term care industry could save millions of dollars in drug costs. After all, nearly all residents of these facilities are prescribed drugs-often multiple drugs--for chronic conditions. The amount of the savings, however, and the administrative burden that longterm care facilities would experience depend, again, on whether the prescription drug benefit more closely resembles the Bush or Gore plan.

Without question, the Bush plan involves more uncertainties. If passed, long-term care facilities will have to closely watch what happens in the state legislatures because of the aforementioned need for state regulation. Administrators would also have to closely monitor total drug expenses during this period to track when residents prescription drug costs exceeded $6,000 during the year, so that they know when the stopgap government assistance program would kick in.

The situation becomes more complicated after 2004, when the Republicans expect their reform of Medicare to be in force. Long-term care facilities would then have to track the enrollment of residents in the multiple alternative health plans that would be made available, it is hoped, to Medicare beneficiaries. Presumably, the nursing homes would have to administer payment of the various premiums required by the different plans and track the various levels of prescription drug benefits offered. Furthermore, SNFs and assisted living facilities would probably have to address the annual attempts by competing plans to market to their residents. As we've seen with Medicare + Choice, some of these marketing campaigns can be confusing or even frightening to the elderly.

The Gore plan involves fewer administrative headaches. It does not involve monitoring of enrollment in multiple plans and does not assume 50 different sets of state regulation. Nevertheless, nursing homes and assisted living facilities would need to know which residents had selected the catastrophic coverage that pays for all prescription drug costs in excess of $4,000 per year. Again, for residents who have chosen this option, providers will want to monitor drug costs to determine when the benefit kicks in. Also, cost savings to the long-term care facility would provide strong incentives for nursing homes and assisted living to encourage residents to enroll in the catastrophic coverage option.

There is a third possibility: The prescription drug benefit that emerges from the next Congress will resemble neither the Gore nor the Bush plans. Both plans represent an effort to "do something" about prescription drug costs for the elderly without addressing the market forces that have contributed to the high prices of pharmaceuticals. It's possible that Congress might provide relief by doing something to reduce the basic costs of drug therapy in the United States other than simply subsidizing the payments made by the elderly, e.g., efforts toward pharmaceutical price reductions. That might or might not seem likely. Even so, longterm care providers and all other consumers could benefit from such "prescription drug" legislation without having to deal with the administrative burdens posed by both candidates.