Cost Is a Worrisome Unknown : Medicare Drug Benefit Appears Likely

WASHINGTON — The Senate is preparing to add a new drug benefit to the Medicare program, despite concerns about its ultimate cost and a determined, multimillion-dollar campaign waged against it by the pharmaceuticals lobby.

A bipartisan plan for coverage of medications will be added to legislation for catastrophic-illness care that goes to the Senate floor for debate today, and approval of the amendment is considered likely. With the House already having passed a drug benefit measure, the stage is set for the forging of a compromise to include this feature in what is already the largest expansion of Medicare in the federal program’s 22-year history.

Retired People’s Issue

Uncertainty about the cost of the drug benefit is keeping it highly controversial, however, and senators are grappling with the questions of how much out-of-pocket expense the program’s 31 million beneficiaries should have to bear before reimbursement would begin, and how much Medicare premiums will have to be raised.

Under both the House plan and the Senate’s proposal, all costs of the new catastrophic coverage would be paid through premiums.

Coverage of medicines “is the most important issue for us,” said John Rother, legislative director for the 26-million-member American Assn. of Retired Persons. “It benefits the most people, and the cost of drugs is the fastest growing out-of-pocket medical expense for older people.”

A national survey of 1,000 adults conducted by the association late last month found that a Medicare bill with a drug benefit was strongly supported by 52.6 % of those polled. Without a drug benefit, the level of strong support dropped to 27.2%.

Estimates of what the added coverage would cost vary, from $2 billion a year by the Congressional Budget Office to $6.8 billion by the federal Health Care Financing Administration.

Under the Senate plan, beneficiaries could begin claiming reimbursements in 1989 for a few very costly drugs used for cancer or prevention of infection after organ transplants, and for all drugs within three years. The House measure would cover all medications beginning in 1989.

The Senate is expected to set a deductible of $600 or $700 a year, compared to a $500 deductible in the House bill. After a patient had paid that amount, the program would pick up 80% of further costs.

Both the Senate and House would finance most of their programs with an added premium levied on those who pay federal income tax--about 40% of the over-65 population. The premium would vary according to income.

Some officials have said that the drug portion of the catastrophic-care premium could amount to as much as $17 a month, but the AARP says that for most of the elderly, the cost of the entire catastrophic-care package--which also has extended coverage for long-term illnesses--will be less than $50 a year. About 5 million people covered by Medicare now spend more than $500 a year on medications.

The drug industry has been fighting the proposed new benefit, out of fear that it could lead to federal price controls on pharmaceuticals. The anticipated premiums will not be high enough to cover the government’s costs, the drug lobby warned.

Drug Makers’ View

“If there are cost overruns, we will be a casualty, we will be crunched in the process,” said Jeffrey C. Warren of the Pharmaceutical Manufacturers Assn. Federal limits on the prices of drugs used by Medicare patients could hurt the industry’s ability to spend the billions of dollars needed to develop new drugs, Warren said.

Drug makers support such coverage only for the needy, said Warren. “We want to support any program that helps those who can’t afford drugs.”

“There is a general belief that (pharmaceutical companies) and their backers were responsible for the long delay in bringing up the bill in the Senate,” said Roy Behr, a spokesman for Sen. Thomas Daschle (D-S.D.). The bill was ready for consideration in August, he said.

Although the drug benefit is by far the most controversial element of the catastrophic-care bill, the Senate expects a vigorous debate over the financing of the entire package.

The House bill, approved in July, has a variable premium with a top charge to the individual of $580 a year. This amount would be paid by the 2.4 million people over 65 who earn more than $20,000 a year.

The Senate is expected to adopt a scale for premiums that does not hit middle-income beneficiaries as hard. A plan approved by the Senate Finance Committee has a top rate of $850, but it would be paid by a relatively small group--the 550,000 beneficiaries whose incomes exceed $60,000 a year.