AARP Tax-Aide: 35 Years, 34 Million Taxpayers and Counting

AARP is pleased with the progress that the Senate has been making to add a prescription drug benefit to Medicare. Relief from the high cost of drugs is long overdue, and our members expect and deserve a bill this year. The Finance Committee bill holds the promise of breaking the legislative stalemate that has led to inaction over the past several years.

We commend you for a number of important components of the pending bill. Your bill would provide a voluntary prescription drug benefit, with equal drug benefit subsidies, to all beneficiaries, whether they choose traditional fee-for-service or enroll in one of the new private plan options. The bill would provide significant additional help for low-income beneficiaries, as well as protection for those with the highest drug costs. We also applaud your decision to avoid payment systems that would raise premiums for those who choose to stay in traditional Medicare, or to reduce prescription drug benefits based on income.

Much has been accomplished, but more needs to be done. We urge you to address a number of issues remaining, primarily issues of affordability and stability.

<b>AFFORDABILITY</b>

Coverage Gap

The ultimate test for the bill is not whether it will achieve enough votes, but whether it will provide needed relief for Medicare beneficiaries. Of primary concern is that the coverage be affordable and attractive enough to ensure enrollment of a large enough pool of beneficiaries to allow the program to work. Attracting only those with the highest drug costs will not create a program that will be sustainable over time. Our research has consistently shown us that our members’ enrollment decisions are influenced by the adequacy and complexity of the benefit. Chief among their concerns is the benefit gap in coverage. We appreciate the efforts made in committee to partially address these concerns. However, AARP believes we should finish the job. The benefit gap is not good policy, is unnecessarily confusing, and will prove to be a disincentive to enrollment. We urge you to further close this coverage gap.

Indexing

A second key affordability issue is that benefit levels are indexed to the cost of drugs. Drug costs have been skyrocketing at levels high above general inflation. Failure to contain the costs of drugs in the future means that the benefit will rapidly become more unaffordable over time. For example, the initial deductible amount of $275 in 2006 is projected to rise to over $500 by 2013. As you well know, older Americans’ cost-of-living adjustments are linked to the general inflation rate, and they will fall swiftly behind a benefit indexed to drug costs. We urge you to index the benefit level to another measure more closely related to the growth in beneficiaries’ ability to pay to ensure that the coverage will remain affordable over time.

Low-Income

The bill provides generous assistance to low-income beneficiaries to ensure that a drug benefit is affordable. Beneficiaries qualified for the current QMB, SLMB and QI1 programs — as well as other low-income beneficiaries with incomes below 160 percent of poverty — are eligible for the Medicare drug benefit and would receive assistance with the premiums and cost sharing. Unfortunately, those in the remaining category of low-income beneficiaries — the “dually eligible” (those beneficiaries eligible for both Medicare and Medicaid) — are treated differently. Dually-eligible beneficiaries will continue to receive the Medicaid drug benefit rather than a Medicare benefit. The Medicare prescription drug benefit should be universal. We urge you to ensure that all Medicare beneficiaries, whether eligible for Medicaid or not, have access to the Medicare drug benefit.

Cost Containment

The high cost of prescription drugs continues to be a top concern of our members. In order to ensure the affordability of the benefit for both individuals and the Medicare program, greater efforts are needed to put downward pressure on health care costs, and in particular, the price of drugs. We applaud the promotion of generic drugs with the inclusion of the generic access amendment in this bill. Additional cost containment strategies are needed, including development and dissemination of comparative effectiveness information, greater authority for states to negotiate lower prices, improvements in safety, quality and prevention, and chronic care management. We urge you to adopt additional measures to control the growth of health care costs.

<b>STABILITY</b>

Maintaining Current Coverage

Employer plans are the single largest source of prescription drug coverage for Medicare beneficiaries, covering about 12 million people. This coverage is often more generous than that provided under your bill, which does not count such coverage when determining whether beneficiaries receive Medicare’s out-of-pocket cost protection. Any final bill should make every effort to encourage the continuation of such coverage. At the very least, the bill should not encourage employers to dump their retirees on the Medicare program. We urge you to ensure adequate incentives for employers — who are already dropping coverage — to maintain their plans.

Volatility of Private Insurance Market

This bill would create additional private sector options for the delivery of benefits. While many of our members value greater choices, they also value the stability of the current Medicare program. Our particular concerns include the availability and stability of private plans, as well as the variability of premiums. It is therefore critical that your bill include a viable, guaranteed federal “fallback” with a defined benefit and a defined premium where private plan options do not exist. However, as drafted, if there is instability of private sector plans in a region, beneficiaries will have to alternate between public and private sector plans on a frequent basis. We urge you to address this instability. In addition, the private plan options may vary greatly by region, thus leading to large differences in premiums across the nation. We urge you to minimize the level of premium variability.

In closing, we again applaud the bipartisan efforts made thus far to reach agreement and to move towards enactment of an affordable, meaningful prescription drug benefit. We are pleased at the progress that has already been made, and we urge continued improvement, followed by enactment — this year — of the best bill possible to fulfill the promises made to older Americans.

Sincerely,

William D. Novelli