AARP’s Policy on Prescription Drugs in Medicare

Medicare does not typically cover the cost of prescription drugs dispensed in an outpatient setting. As a result, Medicare beneficiaries spend more out of pocket for prescription drugs, on average, than they do for hospital care, physician services or other health care goods and services. In 2000 Medicare beneficiaries spent an estimated $480, on average, in out-of-pocket costs for prescription drugs. High out-of-pocket prescription drug spending is not merely a problem for lower-income beneficiaries. Those with high out-of-pocket drug spending (exceeding $500 in 1999) are neither disproportionately low income nor high income. More than 70 percent of beneficiaries who lack drug coverage have income exceeding 175 percent of the federal poverty level; more than 50 percent of beneficiaries who lack drug coverage have incomes exceeding 250 percent of the federal poverty level. In 2001, the federal poverty level for a family of four was $17,650; for a single person it was $8,590.

While about two-thirds of Medicare beneficiaries have some form of supplemental coverage for prescription drugs, 40 percent or more lack coverage at some point during the year. Furthermore, supplemental coverage can be expensive and does not always protect beneficiaries from high out-of-pocket drug costs. Of the estimated 25 percent of beneficiaries who spent more than $500 out of pocket for prescription drugs in 1999, more than half had some form of drug coverage. This can be explained in part by differences in supplemental coverage among Medicare beneficiaries. For example, beneficiaries who have employer-provided or HMO coverage often have lower than average out-of-pocket drug costs, in part because of the generosity of many of those plans. However, beneficiaries who have drug coverage through private Medigap plans– which have $250 deductibles, 50 percent coinsurance and benefit caps- have substantially higher average out-of-pocket drug costs.

In addition, current prescription drug coverage may not be stable or dependable. Medicare+Choice plans can change their benefits or even withdraw from the program on an annual basis. Employer-sponsored prescription drug coverage is becoming less generous and less common. And annual increases in Medigap premium costs are making those policies less and less affordable.

The lack of a Medicare prescription drug benefit can have adverse effects on both quality of care and costs of treatment. Some beneficiaries forgo prescription drug treatment or use less than the fully prescribed dosage because they are unable to afford the price of their drugs. To the extent that the lack of treatment or incorrect dosage worsens beneficiaries’ medical condition and requires further care, higher Medicare costs for some treatments could result. Evidence from the Medicaid program suggests that lack of access to prescription drugs can increase other health care costs for the elderly. Although the magnitude of the impacts for Medicare is uncertain, health care analysts are increasingly able to show how certain prescription drug treatments improve health outcomes and in some cases, reduce other drug costs.

Medicare’s benefit package should assure access to the most effective medical treatments and therefore should include prescription drug coverage available to all beneficiaries, without regard to their income, geographic location, health status or choice of Medicare plan. While AARP recognizes that the Medicare program requires some additional reforms, it supports the provision of prescription drug coverage that meets our Medicare principles, even in the absence of such reforms.

AARP POLICY

AARP believes that Medicare should provide a prescription drug benefit to all beneficiaries that:

• Is available to all beneficiaries, without regard to income, geographic location or health status;
• Is available without regard to a beneficiary’s choice of Medicare plan, including original Medicare;
• Is voluntary, so that beneficiaries can choose between keeping their existing drug coverage or enrolling in the Medicare drug benefit;
• Minimizes incentive for employers to drop prescription drug coverage for the insured retirees;
• Is part of a defined benefit package, so that prescription drug benefits are guaranteed over time and beneficiaries understand what is included in their benefit;
• Includes a government contribution that minimizes risk selection through an affordable beneficiary premium and a benefit design attractive to all beneficiaries;
• Ensures that each beneficiary has access to drug therapies that his or her physician determines to be medically appropriate and necessary;
• Provides additional subsidies for low-income beneficiaries to protect them form unaffordable costs and ensure that they have access to the benefit;
• Uses Medicare’s aggregate purchasing power to obtain discounts and/or rebates from drug manufacturers and pharmacies;
• Relies on stable, broadly based and equitable financing; and
• Protects Medicare beneficiaries from exorbitant costs.
• Include quality improvement components to reduce medical error and to encourage appropriate prescribing, monitoring and use of medications.