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Medi-Scare

The newly passed Medicare law is bad medicine, with provisions that will erode traditional health insurance for active employees and undermine the safety net Medi care provides for retirees. And that's just for starters.

Illustration by Digitalvision

You're getting squeezed—and everyone knows it. Health care premiums are swallowing larger and larger chunks of the compensation pie at the bargaining table. Teachers and ESPs foot a bigger share of the prescription drug bill at the pharmacy. And retired members' pension checks get lighter each year as premiums and out-of-pocket costs go through the roof.

It's no wonder Congress last year turned its eye to health care. Promising a revamped Medicare program, lawmakers seemed poised to bring much-needed relief from rising drug costs and gap-riddled health insurance coverage.

Instead, NEA experts and other analysts say, provisions in the Medicare law signed by President Bush in December, once in place, could have Active and Retired members alike reaching for the aspirin—or something stronger. In addition to privatizing Medicare and gifting $12 billion in subsidies to private insurers to enable them to "compete" with government-run Medicare, Congress slipped in a provision for new tax breaks that experts say could cause the premiums for traditional comprehensive health insurance to soar.

The Medicare Prescription Drug and Modernization Act's 678 pages stray so far from the original goal of helping seniors with high drug costs that some irate Retired members say it's No Child Left Behind all over again—a lofty plan, bound to wreak havoc as the fine print of the law spins itself out.

"NEA lobbied very hard for a strong Medicare bill, but we wound up opposing passage of the present law because we feel it will do more harm than good," says NEA's Lynn Ohman, citing the provisions to privatize Medicare and the inclusion of tax-free Health Savings Accounts (HSAs) as particularly dangerous. "The law takes government assistance with health care costs in the wrong direction."

The Medicare law's passage rankles all the more because the bill was held hostage to politics, with many analysts contending that President Bush and congressional leaders were determined to push through a bill—no matter how flawed—before the 2004 elections. They got a big boost when the AARP swung its support to the bill in a highly controversial endorsement that upset many of its 35 million members. Even with AARP's endorsement, the Medicare bill was dead in the House of Representatives until—in a bitterly contested move—Republican leaders dragged out a roll call vote for close to three hours in the middle of the night before convincing two of their party to switch votes.

Traditional Plans Eroding

Nobody is more irked by the deal Congress cut than teachers and ESPs, who deal every day with skyrocketing drug costs and gaps in health insurance.

Take Billings, Montana, elementary teacher Allan Audet. "When I started teaching 12 years ago, my insurance was 100-percent paid [by the school district] for my entire family," says Audet, currently president of the Billings Education Association (BEA). "And we had great pharmacy benefits—you paid $7 for every prescription."

But those days are long gone. Health insurance for BEA members who elect a plan offering family coverage with a $500 deductible has climbed to $782 a month, of which the district pays only $300. Premiums have gone up steadily by 10–15 percent a year, Audet says, but jumped by 40 percent one year. The latest danger: health care costs are rising so much that some BEA members have hit the

$1 million lifetime benefit maximum on their policies due to a serious illness. Even so, Audet says Billings employees have better insurance than many other Montanans. "Some of Montana's small towns are paying premiums that are twice what we pay now," he says.

The seriousness of the health insurance crisis in Billings and across the country (see "Vital Signs") explains why experts are so concerned the new Medicare law will worsen existing problems.

Among the problems in the law:

No controls on runaway drug costs. In negotiating the Medicare bill's provision for prescription drug coverage for seniors, Congress had the opportunity to use the leverage of 40 million Medicare beneficiaries to negotiate lower prices from drug manufacturers. Since rising drug prices are one of the chief drivers of overall health care cost increases, price controls would have helped both Active and Retired members keep expenses down. Instead, in the face of fierce lobbying by the drug industry, the new law specifically forbade the federal government from negotiating with suppliers to rein in drug costs. Congressional negotiators also declined to include a provision that would have made it easier to reimport drugs from Canada (which has been used as a stopgap measure to bring cheaper drugs to U.S. citizens). No wonder Larry Koenck, a Retired member of Education Minnesota, called the new Medicare law "a blank check for drug companies to rip off the American consumer."

The actual prescription drug benefit for seniors—which will cost $400 billion over 10 years—attracted the bulk of media attention on the Medicare debate. But seniors say the benefit, which won't even be available until 2006, falls far short. Those on Medicare who choose the new insurance will pay premiums of at least $35 per month for a benefit that pays only some of their drug bill—and pays nothing at all for expenses between $2,251 and $5,100 per year. Those who lack any prescription drug coverage could benefit, but many others will continue to absorb huge out-of-pocket costs.

Threats to retiree health coverage. The Congressional Budget Office estimates 2.7 million retirees stand to lose their employer-sponsored prescription drug coverage once the bill takes effect. Since many employers already are slashing or eliminating their retiree health insurance, the new law will punch another hole in the safety net.

The new law set aside $87 billion in tax breaks and subsidies for private employers to continue providing retiree heath coverage but did not extend all the tax benefits to public employers, who will now pay comparatively more to provide health coverage. More bad news: the final version of the law eliminated Section 631, a vital provision in the Senate bill NEA helped craft that would have protected an employers' ability to provide health insurance benefits to those retiring before they become eligible for Medicare at age 65. Without such a provision, some employers may reduce benefits for pre-Medicare retirees, says Al Campos, an NEA lobbyist.

New tax breaks for the wealthy that could seriously undermine comprehensive health insurance. Under the new law's provision for Health Savings Accounts (HSAs), employers and workers could put money into an individual employee's account. The money would be deposited on a tax-deductible basis, and the employee could withdraw it to pay for health expenses tax free.

HSAs pose a threat to traditional health care coverage, experts say. For starters, HSAs are likely to exacerbate the trend toward plans with larger and larger deductibles, since they can only be used with plans that have a deductible of $1,000 or higher. Moreover, HSAs are more likely to appeal to younger and healthier members, while older and less-healthy members are liable to stick with a more traditional insurance option, explains Tom Bilodeau, a researcher with MEA-MFT.

"It's a built-in adverse selection process," says Bilodeau. "It will make the traditional plans much more expensive for those who remain in them." In fact, the Center on Budget and Policy Priorities, a think tank, predicts HSAs could cause premiums for comprehensive health care to more than double.

Medicare itself is at risk from the law's provisions for privatizing the program. Despite its problems—including higher costs and the influx of retiring baby boomers—traditional Medicare is a tremendous success story. In 1963, only about one-half of the elderly had health insurance; virtually all do now. Medicare has played a key role in reducing the poverty rate among the elderly and increasing life expectancy, adds Chris Jennings, a health care analyst. Moreover, studies show that Medicare "meets or beats the performance of the private sector in managing health care costs," Jennings adds.

But congressional leaders determined to privatize Medicare won out. The new Medicare law sets up a demonstration project that will force Medicare to compete with private plans in six metropolitan areas beginning in 2010. As many as 6 million Medicare enrollees will be forced into the experiment, and premiums for those who opt to remain in traditional Medicare could rise as much as 30 percent, experts say. Meanwhile, the law also gives $12 billion to private insurers to entice them to provide drug coverage in undesirable markets.

"If privatization is such a good idea," wondered Washington Post columnist E.J. Dionne Jr., "why do the private insurance companies need such big subsidies to enter the Medicare market?" Such provisions will put Medicare on shakier footing, advocates fear.

"We fought for a bill that would have placed a prescription drug benefit in the present Medicare program," Barbara Matteson, vice-president of NEA-Retired, concluded when the dust had cleared. "Instead, this law will eventually dismantle Medicare as we know it."

—John O'Neil

For more visit the Medicare Rights Center.

Time To Undo The Damage

Illustration by Keith Skeen

Since 1997, drug companies and their brand-name trade group (the Pharmaceutical Research and Manufacturers of America, or PhARMA), have spent more than $500 million to influence legislation and employed 635 lobbyists—more than one for every member of the U.S. Senate and House of Representatives.

Last year, that investment paid off handsomely.

After years opposing the addition of a prescription drug benefit to Medicare, the drug industry changed course in keeping with the political tide. Then it went to work blocking key measures that would have meant a price break for consumers. The result? Analysts predict the pharmaceutical industry will reap a windfall from the new Medicare law—as high as $139 billion in additional profits over eight years, according to the Health Reform Program at Boston University's School of Public Health.

If that gets your dander up the next time you fork over your cash at the pharmacy counter, you're not alone. NEA and its allies lobbied to strengthen the Medicare bill to help rein in excessive drug costs but, in the end, drugmakers and private insurers carried the day.

The fight's not over yet, though. "NEA will be working with members of Congress to amend the defects in the bill," says NEA lobbyist Al Campos. The chief priorities? Legislation to allow the Department of Health and Human Services to negotiate drug prices for Medicare recipients, just as the Veterans Administration does for veterans (saving taxpayers millions of dollars), as well as provisions permitting the reimportation of drugs from Canada. (Costs for brand-name prescription drugs in Canada, in many instances, are far cheaper than in the United States.)

You can influence the debate on prescription drugs and health care as Congress considers possible changes. NEA's suggestions: Get informed. Learn more about prescription drugs and the health insurance crisis from organizations like Families USA. Then visit NEA's Legislative Action Center. The LAC will carry the most recent news on specific health care legislation and NEA's position. You also can sign up to be a "cyber-lobbyist" at the LAC site.

Share your story. "Write your member of Congress about why adequate health insurance is important for you, and to encourage them to sponsor or co-sponsor legislation to correct defects in the Medicare bill," says Campos. You can also encourage your local media to cover the impact of health insurance cuts.

Hold the politicians accountable. Make sure that your Congressional representatives support NEA's positions on health care issues, and carefully evaluate the health care positions of candidates for this fall's elections.