Flawed Analysis of Part B and D Premiums and Social Security COLAs
Statement of Finance Committee Chairman Chuck Grassley
regarding the flawed analysis of Part B and D Premiums and Social Security COLAs
presented by Senate Minority Leader Tom Daschle and House Minority Leader Nancy Pelosi
Wednesday, July 21, 2004
When Congress passed the Medicare Modernization Act last year, it was the result ofyears of work by Republicans and Democrats. The Senate bill was bipartisan and it passed by avote of 76 to 21. The bill that emerged from conference was bipartisan and passed by a vote of 54to 44 with the support of 11 Democrats and one Independent.
The latest charge by Democratic opponents of the Medicare drug benefit is misdirectedand erroneous. The real issue here is that many beneficiaries have not had coverage forprescription drugs which have been eating up seniors’ incomes for years. No drug coveragemeans that many seniors’ incomes can be wiped out, leaving many with little to pay for food,housing and to make ends meet. That's precisely why Congress passed the new drug benefit inthe Medicare Modernization Act. For the first time ever, the Medicare program will offersignificant protections targeted to seniors with low incomes and those with high drug costs.Consider the alternative. Without the Medicare drug benefit, beneficiaries would continue to paythe entire cost out of pocket. Without this protection and a 74 percent federal subsidy forcovered drugs, Social Security COLAs would continue to be swallowed by their uncoveredprescription drug costs.
What's more, the Democratic Joint Economic Committee staff analysis is flawed. In theexample provided by the staff they show an individual whose entire COLA is consumed by theincrease in Part B premiums in 2004. This same individual would actually receive COLAs overthe next ten years larger than the combined increases in Part B and Part D projected by theCongressional Budget Office. Moreover, assuming this beneficiary is relying solely on SocialSecurity income of less than $400 per month, this individual’s Part B and Part D premium wouldbe covered by the government because of their low income, so their Social Security COLAwould be unaffected.
The analysis of the Democratic staff of the Joint Economic Committee points out thatPart B premiums have risen faster in the last few years compared to previous years. This is notonly due to the new benefits in the Medicare Modernization Act. Several factors are drivingthese increases. First, physician payments were increased in 2003 to preserve access to physicianservices and ensure quality of care. In addition, to protect the solvency of the Medicare TrustFund, Congress transferred Home Health services into Part B. Finally, spending for durablemedical equipment and physician-administered drugs have risen rapidly in recent years, whichhas driven up spending in Part B of Medicare.
The Democrats concern for Part B premium increases is a newly found reversal ofposition. The fact is that last year numerous proposals offered or supported by Senate Democratswould have increased Part B spending by billions. Some of these proposals would haveincreased payments to home health providers and physicians and established new Part B benefitsand covered services. Many of these ideas are, in fact, laudable and had bipartisan support, butthey all increase Part B premiums.
Part B premiums will increase in 2005 due, in part, to enhanced benefits for beneficiariesincluded in the Medicare Modernization Act with bipartisan support. These include valuablenew screening benefits for cardiovascular disease, diabetes and the new initial physical.
The new Democrat proposal would add tens of billions of dollars to Medicare costs. Thisnew proposal is from the same members who have been complaining about the higher costestimate from the Centers for Medicare and Medicaid Services for the Medicare ModernizationAct, and now they propose to throw that concern out the window and instead add tens of billionsto that cost.
The fact is that this new law offers an affordable, universal prescription drug benefit thatwill cover about half the cost of prescriptions for the average beneficiary. It offers coverage of85 percent to 95 percent of the cost of prescription drugs for 14 million lower income seniorswith lower or no premiums. And, the new Medicare drug benefit is voluntary—no one is forcedto enroll in this benefit. Seniors can stay in traditional Medicare just like they have today andhave access to prescription drug coverage.
Through this new drug benefit, Medicare plans will leverage the purchasing power ofmillions of beneficiaries to negotiate lower prices from drug manufacturers. This new law alsolowers drug costs by speeding the delivery of new generic drugs to the marketplace, loweringcosts for all Americans, not just those on Medicare.
After years of hard work on both sides of the aisle, Republicans and Democrats cametogether to pass this legislation. There are people on both sides of the aisle that would like tomake changes and you can be sure than this will not be the last time Congress passes Medicarelegislation. Now is not the time to reopen Medicare, however. The ink is barely dry on thePresident’s signature. The Centers for Medicare and Medicaid Services is working to implementthe new program. Any changes at this point will almost certainly delay the drug benefit fromimplementation. The time for delay is over.
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