by Stephen H. Gorin

The debate over adding coverage for outpatient prescription drugs to Medicare has intensified in recent months. A Kaiser/Harvard School of Public Health survey found that this was one of the most closely followed health stories of 2000 (Kaiser Family Foundation [KFF], 2000c). In a postelection survey, 56 percent of voters supported adding partial prescription drug coverage to Medicare (KFF, 2001). In January 2001, President Bush released a prescription drug proposal, and a few days later, a group of progressive Democrats followed suit.

PRESCRIPTION DRUGS AND OLDER ADULTS

At the time of Medicare's enactment, prescription drugs did not play a significant a role in the care of older adults. "In the late 1960s comparatively few of the prescription drugs available had clinical significant effects on the chronic diseases that are prevalent among the elderly" (Steinberg et al., 2000, p. 199). Between 1968 and 1978 the percentage of Medicare beneficiaries' incomes going to prescription drugs actually fell (Medicare Payment Advisory Commission [MedPAC], 2000).

In recent years, however, pharmaceuticals have played an increasingly important role in health care. Today, older adults "are far more likely to suffer from chronic conditions for which drug treatment are an important part of care, such as arthritis, diabetes, high blood pressure, heart disease, Parkinson's disease, and depression" (MedPAC, 2000, p. 4). In 1998 Medicare beneficiaries' spent 4.1 percent of their incomes on prescription drugs, up from around 1.9 percent in 1978 (MedPAC). Although older adults make up 13 percent of the population, they account for more than one-third of the nation's prescription drug expenditures (MedPAC). According to a recent estimate by the Congressional Budget Office, between 2002 and 2011, prescription drug spending for elderly people will total $1.5 trillion (Pear, 2001b).

Prescription drug expenditures have increased dramatically in recent years. Between 1990 and 1998, overall spending on drugs more than doubled (KFF, 2000b). The Congressional Budget Office also projects that expenditures per Medicare beneficiary will triple (Pear, 2001b).

What explains these spending increases? One factor has been increasing prices. Between 1991 and 1998 the average retail price of prescription drugs rose at an annual rate of 6.7 percent (compared with a general inflation rate of 2.6 percent a year) (KFF, 2000a). From 1999 to 2000 prices for half of the 50 drugs prescribed most often for older adults increased at double the rate of inflation; prices for one-half of these drugs grew at double the rate of inflation, and 15 increased at triple the rate (Families USA, 2000a). Increased prices accounted for 18 percent of the growth in prescription drug expenditures between 1993 and 1998 (KFF, 2000b).

A second factor has been increased use. Between 1992 and 2000, the average number of prescriptions per older adult grew from 19.6 to 28.5 (Families USA, 2000a). Increasing use explains 43 percent of the growth in prescription drug expenditure (KFF, 2000b).

A third factor has been the replacement of less-expensive drugs with more-expensive ones. This accounts for 39 percent of the growth in spending (KFF, 2000b). Unfortunately, it is not clear that the newer medications are superior to the ones they replaced. In 1990 David Pryor (DAR), chair of the Senate Special Committee on Aging, noted that many new medications failed "to live up ... to their manufacturers' claims of superior safety and efficacy" and had "little or no therapeutic advantage over already marketed drugs" (Pryor, 1990, p. 107). Data from the 1990s suggests that "half of industry research is aimed at developing me-too drugs (Goozner, 2000, p. 28).

Advertising also influences the use of drugs and their replacement. Between 1995 and 1998, drug companies tripled their spending on direct advertising to consumers (KFF, 2000b). In one study, almost one-quarter of participants said that they had asked their physician for a drug "they had seen or heard advertised," and "three-quarters reported that their doctors provided the requested prescription" (Wilkes, Bell, & Kravitz, 2000, p. 111). Although the clinical effect of direct-to-consumer advertising is unclear, it seems certain to increase in the future (Berndt, 2001).

How do older adults pay for prescription drugs? Thirty-one percent of Medicare beneficiaries have coverage through employer-sponsored plans (KFF, 2000a). Unfortunately, employer-sponsored coverage is relatively unstable. Between 1995 and 1996, 11.3 percent of beneficiaries covered by an employer lost their coverage (Stuart, Shea, & Briesacher, 2001). The number of individuals with employer-sponsored coverage is likely to decline in the future. In 1999 only 66 percent of big businesses offered coverage to individuals over age 65 (compared with 80 percent in 1991) (KFF, 2000a).

Thirteen percent of Medicare beneficiaries obtain prescription drug coverage through HMOs (KFF, 2000a). These individuals are among the poorest older adults. At the same time, more than one-half of Medicare beneficiaries with incomes below the federal poverty line are not enrolled in Medicaid, and many beneficiaries with low incomes are ineligible for Medicaid (KFF, 2000a).

Roughly 10 percent of beneficiaries obtain drug coverage through Medigap policies (KFF, 2000a). (The 10 percent figure is from 1996; a study by MedPAC, 2000, of more recent data found that only 4 percent of beneficiaries obtained coverage through Medigap policies.) These policies have $250 deductibles and, depending on the policy, cover one-half of drug costs up to $2,500 (Plans H and I) or $6,000 (Plan J) (KFF, 2000a). The cost of Medigap policies has increased dramatically in recent years, largely because of increases in prescription drug costs (Freudenheim, 2001). According to Diane Archer of the Medicare Rights Center, it has become "increasingly clear that private health insurers cannot offer affordable prescription drug coverage even to middle-income older and disabled Americans" (quoted in Freudenheim, 2001, p. C15).

Thirty-one percent of Medicare beneficiaries have no drug coverage (Kaiser Family Foundation, 2000a). This figure underestimates the scope of the problem, because it falls to include individuals with unstable coverage. In 1996, 20 percent of beneficiaries with coverage "had it for only part of the year" (Stuart et al., 2001, p. 86). Beneficiaries without coverage tend to be nearly poor, over age 85, and residents of rural areas. (KFF, 2000a).

Not surprising, coverage--or lack of it--affects beneficiaries' drug purchases. Individuals without coverage fill fewer prescriptions (16.0) than individuals with coverage (21.1) and have higher out-of-pocket costs (Poisal & Chulis, 2000). Blustein (2000) found that beneficiaries with hypertension who had prescription drug coverage were much more likely to buy medication for their condition than individuals with hypertension who lacked coverage. Among low-income people, copayments of as little as $3 per prescription led to reduced use (MedPAC, 2000).

LEGISLATIVE PROPOSALS

In response to concern about prescription drug costs, George W. Bush has introduced the "Immediate Helping Hand Plan," a stopgap measure to provide immediate assistance to the poorest older adults (Congressional Progressive Caucus, 2001). Under Bush's proposal participating states would receive a block grant, which they could use to subsidize drug coverage to low-income beneficiaries. Individuals and married couples with incomes up to 135 percent of the federal poverty line would have their full premium covered; individuals and couples with incomes between 135 percent and 175 percent ($15,000 for individuals, $20,300 for couples) would have at least half their premium covered (Pear, 2001a). Bush's plan would also cap out-of-pocket drug costs at $6,000 per year (Pear, 2001a).

This approach, which Bush introduced during the presidential campaign, has numerous problems. First, it would exclude millions of beneficiaries who earn more than 175 percent of the poverty income, including 8.2 million who have no prescription drug coverage (AARP Public Policy Institute, 2000). Although the Bush administration has claimed that the president's proposal would cover 9.5 million people, Thorpe estimates that Bush's plan would cover only 625,000 additional beneficiaries (cited in "Medicare at a Crossroads, 2000).

Second, Bush's plan would result in skewed and uneven coverage ("Medicare at a Crossroads," 2000). The Immediate Helping Hand gives states wide latitude in whether and how they would organize a drug assistance program (Pear, 200la). In October 2000, 16 states had drug assistance plans for Medicare beneficiaries who were ineligible for Medicaid (KFF, 2000a). Most drug assistance programs limit the type or number of prescriptions beneficiaries can fill and make it difficult for beneficiaries to enroll ("Medicare at a Crossroads," 2000). Many states are unwilling or unable to provide prescription drug coverage to older adults (MedPAC, 2000).

Both Democrats and Republicans agree that the Bush plan is inadequate (Pear, 2001a). As an alternative, the Congressional Progressive Caucus, a coalition of liberal Democrats in Congress, has proposed the Medicare Extension of Drugs to Seniors (MEDS) Plan (Congressional Progressive Caucus, 2001). MEDS would create a voluntary Medicare Part D to cover medically necessary drugs. Beneficiaries would pay a $24 a month premium; the government would subsidize the entire cost for individuals below 135 percent of the poverty level and part of the cost for individuals between 135 percent and 150 percent of the poverty level (Congressional Progressive Caucus, 2001). The government would cover 80 percent of the cost of prescription drugs up to $2,000 and all costs above $5,000.

MEDS contains several important cost containment features. To begin with MEDS would implement the Prescription Drug Fairness for Seniors Act (H.R. 664), a bill introduced by Rep. Tom Allen (D-ME) (U.S. House of Representatives, 1999a). H.R. 664 would require pharmaceutical companies to charge pharmacies the same discounted prices the companies charge federal agencies, such as the Veterans Administration (U.S. House of Representatives, 1999a). Pharmacies, in turn, would pass these discounts on to Medicare beneficiaries (U.S. House of Representatives, 1999a).

MEDS also would implement the International Prescription Drug Parity Act (H.R. 1885). H.R. 1885 would allow pharmacists to import back into the United States Federal Drug Administration-approved drugs previously exported by U.S. manufacturers to other countries (U.S. House of Representatives, 1999b). Because, unlike many countries, the United States does not regulate drug prices, consumers in this country generally pay higher prices than consumers in other countries. For example, between 1992 and 1997 older adults in the United States spent roughly 1.5 times as much on prescription drugs as their counterparts in Canada, the United Kingdom, and Germany (U.S. House of Representatives, 1 999b). Currently, pharmacies and other wholesalers in the United States cannot import prescription drugs, even those manufactured in the United States, from other countries. H.R. 1885 would remedy this. In addition, MEDS would require pharmaceutical companies to charge reasonable prices for drugs developed with federal assistan ce (Congressional Progressive Caucus, 2001).

The pharmaceutical companies argue that these cost control provisions would hinder their research and development efforts (U.S. House of Representatives, 1 999b). However, this argument is debatable. The pharmaceutical industry is the most profitable in the nation, with profits of $26.2 billion in 1998 (U.S. House of Representatives, 1999b). Although the industry spent $17 billion on research and development, it also spent $11 billion on marketing and advertising (U.S. House of Representatives, 1999b).

Although MEDS is clearly superior to Bush's proposal, both plans could be superseded by the Medicare Preservation and Improvement Act (S. 1895), introduced by Senators John Breaux (DLA) and Bill Frist (D-TN) (www.senate.gov/[sim]breaux/releases/991109.html). President Bush has expressed support for 5. 1895 (Hosler, 2001). The Breaux--Frist bill would change Medicare from a defined-benefit to a defined-contribution system and could undermine fee-for-service Medicare plan (Gorin, 2000a). Although S. 1895 would create an outpatient prescription drug benefit, many observers believe it is inadequate (Families USA, 2000b). Breaux and Frist have promoted their bill as a "centrist," bipartisan approach, and it could gain significant support (Hosler).

CONCLUSION

Medicare clearly needs to add prescription drug coverage. Yet, this also seems a temporary solution. Fuchs (1999) warned that, if current trends continue, between 1995 and 2020, annual health care spending per older adult will increase from $9,200 to $25,000 (1995 dollars). "Without a dramatic change in health care costs, income, or both, health spending on the elderly in 2020 is likely to be two to three times the income available for all other goods and services" (Fuchs, 1999, P. 12). For this reason, efforts to preserve social security and Medicare must be "embedded in broader policy initiatives that slow the rate of increase in health care spending and/or increase the income of the elderly" (Fuchs, 1999, p.20).

One way to slow the rate of increase in spending is to keep people healthier longer. A wide range of evidence suggests that poverty and inequality, particularly in childhood, play a central role in the health of populations (Gorin, 2000b). To preserve Medicare for future generations, it seems necessary to address these underlying issues.

ABOUT THE AUTHOR

Stephen H. Gorin, PhD, is professor, Plymouth State College, Plymouth, NH 03624, and executive director, NASW New Hampshire Chapter; e-mail: sgorin@gowebway.com.

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