Medicare Prescription Drug Coverage for Beneficiaries: Background and Issues

Publication Date: January 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

Medicare is a nationwide health insurance program which offers health insurance protection for 40 million aged and disabled persons. The program provides broad coverage for the costs of many, primarily acute, health services. However, there are many gaps in program coverage. The most notable shortcoming is the fact that Medicare has a very limited prescription drug benefit.

Most beneficiaries have some form of private or public health insurance to cover expenses not met by Medicare. However, many of these plans either do not offer drug coverage or offer very limited protection for drug expenses. Though 73% of beneficiaries had some drug coverage in 1998, they paid approximately 44% of their total drug expenses out-of-pocket. The total average annual drug expenditure for Medicare enrollees living in the community was $878 in 1998. Total spending for persons with some drug coverage was $999 compared to $546 for those with no coverage. Furthermore, out-of-pocket costs were higher for those without coverage ($546) than those with coverage ($325).

These spending patterns have suggested to policymakers the need for better drug coverage for the Medicare population. On several occasions, the Congress has considered adding coverage for at least a portion of beneficiaries' drug costs. In the summer of 2002, the House passed a prescription drug measure. The Senate spent several weeks debating various proposals, but were unable to come to an agreement on a plan. The 107th Congress did not take final action on a prescription drug measure. It is expected that the issue will be considered again early in the108th Congress. In part, this reflects the prominence that this issue has assumed over the last couple of years. In part, it also reflects the likely continued attention that will be focused on the prices seniors pay for drugs and the inability of some seniors to pay these drug bills.

There are a number of design issues facing the development of a drug benefit for the Medicare population. First are several of broad organizational and administrative questions. These include whether a drug benefit should be enacted prior to or as part of overall structural reform of the Medicare program; whether the new benefit should be part of the Medicare program itself or administered as a separate program; and the degree of reliance that should be placed on the private sector, both for administering the benefit and assuming a portion of the financial risk. Another series of issues relate to benefit design. These include: whether the benefit should be extended to the entire population or limited to particular groups such as low-income persons and those with catastrophic expenses; how beneficiary costsharing would be structured; the level of assistance that would be provided for the low-income population; and the definition of covered drugs. Also at issue is what cost control strategies, if any, would be established at the federal level. The final questions relate to the potential costs of a new benefit and how these costs would be financed over time. This report will be updated as additional data become available.