The 2003 Medicare Prescription Drugs Law Achievement or Political Liability

Moreover, since in congressional races domesticissues usually prevail over foreign policy, Medicare prescription drugs could become very important in tight congressional races, particula

The 2003 Medicare Prescription Drugs Law:

Achievement or Political Liability?

Prepared for the Congress Project Seminar on Congress and Healthcare Policy

Woodrow Wilson International Center for Scholars

Monday, September 13, 2004

Sorina O Vlaicu, MD, MPH, PhD Assistant Professor of Health Policy Department of Political Science/ Department of Epidemiology and Biostatistics

The University of Western Ontario

svlaicu@uwo.ca

From a budgetary perspective, the Medicare Prescription Drug, Improvement, and Modernization Act of

2003 (MMA) is the most significant piece of health legislation since Medicare was enacted in 1965 Its implications go beyond the 41 million Medicare beneficiaries; the costs will be shared, sooner or later, by all taxpayers, and the law also establishes new directions of reform for Medicare and health policy in general.1

In addition, the new law—or rather seniors’ lack of enthusiasm for it—could become an important issue

in the November 2004 campaign, especially if either of the two sides fail to take the lead on other major issues such as the economy, terrorism, or the war in Iraq Moreover, since in congressional races domesticissues usually prevail over foreign policy, Medicare prescription drugs could become very important in tight congressional races, particularly in regions with a higher than average proportion of seniors.2

More than a year before the drug benefit is scheduled to go into full effect, many seniors and disabled already hold strong negative views of the new law, arguing that it is too complex and does not go far enough in helping them offset the escalating prescription costs Democrats seized the opportunity and have painted the new law as a Republican give-away to special interests While only a fraction of seniors (10%) support an outright repeal of the law, the idea started to be debated in Washington days after the legislation passed Hearings are still held on Capitol Hill and initiatives to ‘fix’ the law keep pouring in What is certain is that the new Medicare prescription drug benefit is far from being the advantage that President Bush and Congressional Republicans hoped for Polls show that, come November, the law could

be a liability rather than an asset.3

Many analysts point out that peoples’ discontent about the new prescription drug benefit originates in the serious gap between what people expect—especially from the very popular Medicare program—and whatthe politicians can deliver.4 In the political process, the main goal is coalition building through bargaining,and obtaining maximum results under the circumstances—i.e., budgetary constraints, specific provisions added to gain support—with the understanding that a major piece of legislation, once passed and

successfully implemented, will be easily added on if necessary

On the other side, people have completely different expectations of what the policy-making process should focus on Most of the time, groups of potential beneficiaries would like to see benefits that are generous and easy to understand, and are rarely concerned with policy and political tradeoffs, budgetary

or legal constraints

Hence, politicians and policy analysts look at the total bill of more than $500 billion dollars and see the largest expansion of Medicare ever, and the most significant investment into health care in a long time Then why are the seniors not in the street celebrating? Because from where they stand, individual

beneficiaries see a complicated process that would not bring, for many, the financial relief they were hoping for For many elderly and disabled, the specifics of the new Medicare drug benefit are

disappointing, particularly after so many years of debates and electoral promises The $500 or $2000 drugbill they are left with at the end of the year is a much more concrete reality than the $500 billion the program will cost over the next ten years

The debate on Medicare prescription drugs will likely continue beyond November 2004 with an outcome that will depend not only on the party that gets the White House, but also on how many congressional races are run and won on this issue

This paper provides a detailed analysis of the debate on Medicare prescription drugs in the 108th Congress

In addition, it goes back and reviews what happened with the Medicare Catastrophic Act of 1988, the firstattempt to introduce drug coverage in Medicare In a rare move, the 1988 legislation was repealed under the pressure of interest groups, energized—and misinformed—seniors, and budgetary strains resulting from escalating cost estimates The analysis relies on multiple data sources, from legislative history and

CQ analyses to public opinion polls, media coverage, as well as public statements put forward by various interest groups involved in the debate

To summarize, analyzing the debate on the MMA of 2003 is important for several reasons: a) it is the onlynon-incremental piece of health care legislation in decades; b) it is the first major expansion of Medicare since its enactment; c) its total cost (recalculated) exceeds $500 billion dollars over ten years in an era of deficit politics

The debate also illustrates essential characteristics of the health policy-making process, many negative: a)the ideological gap between constituencies, politicians, and policy solutions employed by the two parties and supported by major interest groups is widening; b) health care’s ‘big money’ (drug companies and insurance industry) maintain their significant role in how policies are shaped; c) insufficient resources (budgetary deficits) and the fragmentation of political institutions can lead to painful tradeoffs and compromises that could leave all sides unhappy; d) policy-makers sometimes learn from their mistakes (using what happened with the MCCA of 1988 to inform the development of the MMA of 2003); e) even after the window of opportunity opens, both capable policy entrepreneurs in key positions and a skillful use of institutions (rules and procedures) are needed to secure passage of controversial legislation; f) evenexpansion of benefits to groups that vote in large numbers can sometimes be politically risky

The Medicare program – brief overview

Enacted in 1965 after years of fierce debate and a decisive Democratic electoral success, Medicare is the only component of the American health care system that resembles a national health insurance scheme The federal insurance program is targeted to people over 65 (about 35 million) and to younger Americans with disabilities (about 6 million) The structure of the program is mostly that of traditional insurance with fee-for-service reimbursement Medicare pays for: inpatient hospital services, skilled nursing

facilities and home health care (Part A); and physician and outpatient hospital services, laboratory

procedures and medical equipment (Part B) There are co-payments and deductibles for both Part A and

B Medicare beneficiaries also have access to private alternatives to the traditional Medicare—managed care plans—that provide the same services and usually additional coverage which includes coverage for prescription drugs (Medicare+Choice) Due to low Medicare reimbursement rates, many

Medicare+Choice plans, however, have left the program and the availability of these alternatives,

especially in rural areas is decreasing

There are two major gaps in the very popular Medicare program: the lack of coverage for outpatient prescription drugs and long-term care (nursing homes) While more than half of the people on Medicare have at least some supplemental insurance to offset the skyrocketing costs of prescription drugs, almost 40% lack any form of Rx coverage The poor, the oldest old, and those with multiple chronic illnesses are more likely to need expensive prescriptions and also lack coverage Coverage is eroding even for those

who have prescription drug benefits, especially for individuals who obtained the coverage as a retirement benefit from their former employers.5

After an initial contentious start, Medicare policy-making has been, with two major exceptions in 1988 and 1995 low-key and bipartisan, focusing on the necessity of cost-containment and complex technical changes, such as the introduction of new methods of payment for physicians and hospitals:

“Policymaking centered on technical issues of the most efficient means to pay for Medicare services Political disputes were contained in a bipartisan consensus in which both parties accepted Medicare existing structure and the need to control costs The politics of management, however, has now receded, and with it, so has the era of consensus in Medicare.” 6 In other words, Medicare is back where it started several decades ago Debates are ideologically charged and the politics had become “a battle of ideas about the role of markets and government in public policy,” similarly to what happened in the late 1950s and early 1960s when the Medicare program was born “The new politics of Medicare is an echo of the past,” notes a scholar 7

Medicare has again become part of the symbolic politics realm in which supporters and opponents are so far apart that compromise is often unacceptable and stalemate is the only option (e.g., abortion, gay marriage, taxes, or gun ownership) When dealing with these issues, it is politically risky to make any policy The two sides feel so strongly about their ‘truth’ that any compromise solution has the potential of leaving everybody unhappy.8 The most recent example is that of the new Medicare prescription drug law, which has been equally criticized from the left, because the legislation does not go far enough, and from the right, because it expands governmentally-provided entitlements and costs American taxpayers too much

Medicare as an electoral issue

Since 2000, health care has been the second highest ranked issue mentioned by voters in presidential and congressional elections, outranked only by economy and concerns related to employment Even before

2000, health care also ranked among the top five concerns expressed by voters.9 Compared to other policydomains, people relate to health care more easily because “it is part of their daily lives.”10 Individuals know whether they get good health care; they know whether they get health care quickly in emergency situations.”11 Although people do not always understand the very technical details of health policy

decisions, they can still invest values and bring ideas to the table In contrast, if the interest is there but theunderstanding of the details is not, people can be persuaded to fight against laws that could actually benefit them, through ideologically-charged, value-driven advertising campaigns financed by the

opposing groups

Polls conducted in 2004 indicated that Americans ranked health care issues (19%) as having more

influence over their vote in the November election than issues such as terrorism (14%), the war in Iraq (11%), education (10%) or taxes (4%) The only issue that elicits more concern is the state of the

economy and employment – 36%.12

Compared to other demographic groups, Democrats, the uninsured, and those over 65 are more likely to see health care as a major problem In the last presidential election, Democrats were more likely to mention health care in general and Medicare prescription drugs in particular as being the most important issue in deciding their vote Similarly, there are striking differences between opinions voiced by those 65 and older and younger voters

The elderly tend to vote in higher numbers, thus making their positions on these issues even more

significant About 90% of those over 65 are registered to vote; 87% voted in the 2000 presidential

election, while 70% participated in the 2002 mid-term elections Although recognized as a disadvantaged group, the 40 million uninsured Americans seem to lack the political power necessary to influence the health care policy agenda Less than half of this group voted in 2000 and 30% reported voting in the 2002congressional elections This is one of the reasons why major plans to deal with the problems of the uninsured make great political rhetoric and electoral promises, but are less likely to become policy than adding benefits to the highly-popular Medicare program As the population becomes older and the wealthier, politically-savvy Baby Boomers retire, ignoring the needs of Medicare beneficiaries or

championing major cuts in the program’s benefits are more likely to be perceived as political suicide on Capitol Hill.13

Americans still trust the Democrats to do a better job in health care policy than the Republicans (about 2:1) However, the Democratic lead is down to 32% from 46% in October 2002 People also trust

Democrats (51%) over president Bush (35%) to do a better job in providing prescription drugs to the elderly (January 2004) Overall, polls have shown constant public support for providing a prescription drug benefit in Medicare (about 8 to 9 in 10 adults) The level of support remains high—about 70% evenafter the costs of such a program are explained.14

While opinions are convergent on identifying the problem –the lack of drug coverage in Medicare—the public is divided over the best available policy options to address this problem Between 50 to 60% of Americans surveyed would prefer to see the drug benefit provided through an expansion of existing Medicare, while about 35% would like to see the government help seniors buy drug coverage through private insurance plans Support for governmental price controls for drugs in Medicare is significantly weakened by arguments that price controls might lead to less opportunities for drug research and

development.15

The public is also divided over—and confused by—the variety of coverage options:

 targeted to low-income seniors or universal benefit;

 paid by seniors through premiums or entirely funded by the federal government from general revenues

Even after the new Medicare drug law passed and despite the high level of media attention at the end of

2003, polls show that a majority of seniors entered the 2004 electoral year without a clear understanding

of what the new prescription drug law would bring them In February 2004, less than 40% of the seniors surveyed and about 30% of those in the 18-64 age group reported they understood the new benefits ‘very well’ or ‘somewhat well.’ More importantly, only 32% of the seniors interviewed had any knowledge of the Medicare prescription drug bill having passed the Congress and being signed into law Those over 65 who knew about the new benefit were also more likely to report an ‘unfavorable impression’ of the law (73%), compared to the 46% who did not even know that the bill had passed.16

Focus groups conducted in May 2004 showed that seniors are confused and have limited knowledge about the new Medicare benefits; this confusion plays a significant role in determining their negative feelings about the new law Participants cited family and friends as their most likely sources of

information, and viewed the news and advertising as the least reliable sources of data The study found that, while Medicare beneficiaries recognize the value of the new law for the poor and those without any form of current coverage, they generally have a neutral to negative view of both the discount card

program and the 2006 full drug benefit Provided with a detailed description of the benefits, most

beneficiaries employ a more positive view, although the enthusiasm remains low People do like the preventative benefits included in the law, as well as the idea of being able to choose among different plans They are worried, however, about the complicated structure of the prescription drug benefit,

monthly premiums, and penalties for late enrollment Beneficiaries with current coverage that includes prescription drugs are more likely to believe that the plans they already have are better Nevertheless those who lack any form of drug coverage are more likely to consider signing up for the new benefit Finally, most participants in these focus groups welcomed the fact that the new benefits are voluntary, so they can choose to enroll or not.17

The latest survey conducted by the Kaiser Family Foundation and the Harvard School of Public Health also shows that, at the end of July 2004, more than a quarter of people on Medicare (26%) still mentioned they do not have sufficient information about the law to form an opinion Nearly half (47%) have an overall unfavorable opinion, while 26% report a favorable impression Unfavorable views are driven by the perception that the law does not provide enough coverage (81% of those reporting unfavorable views)

or is too complicated (72%) Only 10% of the Medicare beneficiaries surveyed reported strong negative views and called for repealing the legislation A majority agreed that the law could be fixed, and the lawmakers in Washington should work on fixes such as using the federal government’s bargaining power

to negotiate lower drug prices (80%) and allowing reimportation (79%).18

The new Medicare prescription drug benefit

The new Medicare Prescription Drug, Improvement, and Modernization Act (MMA), enacted in

December 2003 (P.L 108-173) creates a Part D within Medicare, to provide the new drug benefit The coverage will be phased-in over 2004 and 2005, and be fully functional by January 2006 Starting in June

2004, Medicare beneficiaries are eligible for a transitional discount card that is expected to save them

between 10 and 15% of the cost of the drugs Also in 2004 and 2005, the federal government will pick up the drug bill up to $600/year for enrollees with incomes below 135% FPL19 who lack prescription drug coverage from other sources The full outpatient drug coverage for all Medicare beneficiaries will be available in 2006 and be provided through competing private plans Beneficiaries will have the option of remaining in the traditional, fee-for-service Medicare program and using private plans for prescription drugs only, or migrating to private, managed care plans for all covered services, including prescription drugs (these are the former Medicare+Choice plans, now renamed Medicare Advantage plans) To get the drug benefit, Medicare enrollees will have to pay a premium of approximately $35/month, in addition to the other premiums and deductibles they have already been paying in Medicare Part A and B For those with low incomes, there will be supplementary financial support up to full payment of premiums and deductible, plus no cost-sharing over the out-of-pocket spending threshold This additional help will be available, on a sliding scale, for beneficiaries with incomes up to 150% of FPL

The structure of the benefit itself is even more complicated than eligibility and payment schemes The beneficiary will pay the first $250/year in drug costs Then, the new Medicare part D program will pay 75% of the drug costs between $250 and $2,250/year Next, the beneficiary is entirely responsible for the following $2,850 (above $2,250) – the ‘hole’ in the coverage doughnut Finally, above $5,100/year in total drug costs, Medicare will come in again and pay 95% of the incurred drug expenses, while the beneficiaries will be responsible for 5% As previously mentioned, low income beneficiaries will get 100% Medicare coverage above this threshold, instead of 95% for the rest of the enrollees

Other provisions of the new law refer to co-payments for each prescription filled; an increase in MedicarePart B premiums for wealthy seniors and supplemental preventive services for all, such as routine

physicals and blood screening tests and services Medicaid will no longer pay for prescription drug costs

of low income, dual eligible Medicare-Medicaid beneficiaries.20,21,22

Source: Kaiser Family Foundation Medicare Fact Sheet: The Medicare Prescription Drug Law, March

2004

The 2003 Medicare prescription drug benefit – how the MMA became law

After cost constraints and cuts in early 1990s, Medicare spending decreased in 1999 for the first time since the program was enacted In addition, the economic boom and growing federal surplus presented an opportunity to expand Medicare and address one of its major shortcomings – the lack of prescription drugcoverage The general public also became more supportive towards providing drug coverage for seniors, even at an increased overall cost.23 Building on this favorable environment, President Clinton proposed the first stand-alone prescription drug benefit in his 1999 State of the Union Address The new benefit was supposed to help mainly poor Medicare beneficiaries and those with catastrophic drug bills While unsuccessful, the initiative helped defining the Medicare prescription drug issue as a major topic of debate

in the 2000 presidential election

Conservative, market-driven prescription drug bills had been pushed by Republican majorities through the House of Representatives in the 106th and 107th Congresses, but initiatives died in the Senate both times The issue jumped at the top of the political agenda in the 2000 presidential elections, when

pressures for fiscal restraint were gone As a consequence, the politics of Medicare in the 2000 election campaign revolved “around something that had rarely happened in the program’s history: a bidding war toexpand benefits.”24 Nevertheless, the philosophical differences between the two sides remained visible,

especially in the choice of public vs private administration of the new benefit (see Appendix) and

precluded bipartisan compromises

The 2002 elections brought Republicans in full control of the Congress and the White House, signaling anextraordinary window of opportunity for policy change in 2003 Since "political and economic forces outside Medicare have as much or more influence on policies as do conditions inside the Medicare program itself,” shifts in the political control of the Congress or the White House not only define if the reform is possible, but also determine the range of policy options under consideration.25 Moreover, Republicans with a long-standing interest in Medicare reform were found in key positions—e.g., Senate

Majority Leader, chairs of committees of jurisdiction in the House—to help moving the issue up on the decisional agenda, and also link a market-oriented prescription drug benefit to broader Medicare

reforms.26

Thus, in the 108th Congress, Medicare drug benefits faced a more favorable environment Counting on thepopularity of a war president and taking advantage of the regained control over the Senate, Republicans placed the Medicare prescription drug benefit at the top of their domestic policy agenda The issue was identified as the number one domestic priority in the 2003 State of the Union Address The closeness of the 2004 elections reminded both Democrats and Republicans of their unfulfilled electoral promises to deliver prescription drug coverage for seniors Already chastised as ‘obstructionists’ on judicial

nominations and several other issues, Democrats in the Senate tried to avoid open opposition to an initiative that could prove popular among the nation’s seniors Both sides agreed on the problem

definition and acknowledged budgetary realities that would limit potential solutions In short, it became clear that it was an idea whose time had come

Kingdon defined a national mood that policy-makers act upon when they sense the time is right The national mood goes beyond public opinion polls and refers mostly to a general sense among Washington policy players that a lot of things and events lead into the same direction and that action would bring political gain, while inaction is risky.27 As Kingdon explains, a “shift in climate…makes some proposals viable that would not have been viable before, and renders other proposals simply dead in the water.”28 A favorable ‘national mood’ can also help overcome strong ideological positions and party polarization in Congress Politicians with strong views on one side or the other are more prone to compromise when theyfeel that the shift in the national mood and control of political institutions will lead to change with or without them They jump on the wagon and try to influence the outcome from the inside rather than criticizing it from the outside and risk going against what could be perceived as a positive policy

This particular reality of the American political system was what made the prescription drug bills of the

108th Congress so different and pushed liberal Democrats in the Senate towards compromise They recognized that, after the November 2002 elections, the opportunity for Medicare reforms was high as well as the likelihood of market-based solutions, but wanted to be a partner at the table and have a say in how the new benefits are shaped Without this shift in Democrats’ position in the Senate and strong Republican leadership in the House, the MMA of 2003 would not be on the books today

By positioning Medicare prescription drugs at the top of their domestic agenda, Republicans in Congress and the White House hoped to score significant electoral points in a traditional Democratic domain, or at least avoid losing ground for unfulfilled electoral promises in 2004 What seemed to be an inspired political move in 2003 has become a political nightmare in 2004, with the White House getting more blame than glory for pushing the Medicare legislation through Republicans and President Bush were expecting to get credit even if the legislation was blocked by the Democrats in the Senate (and blame them for burying it) Signing into law the most significant expansion of benefits in the history of the program was supposed to bring President Bush important seniors’ votes in a close presidential election Moreover, since the new prescription drug plan was intended to be fully implemented in 2006, any negative effects of the new law would have been visible long after the 2004 elections, thus, a potential win-win situation for Bush’s team Top health policy analysts also believed in 2003 that by pressuring Congress to “iron out the differences and get a good bill to my desk,”29 President Bush could potentially gain important political capital

Passing the MMA was not an easy task In addition to high beneficiary expectations and budgetary constraints, the Medicare prescription drug benefit was a highly visible, controversial issue that could have been easily blocked at various levels along its journey through the Congress Moreover, Republicansinsisted to paint this law as a bipartisan initiative, so they could split the blame if something went wrong

They could have forced the initiative through in a more partisan way, such as a budget reconciliation bill Instead, the Republican leadership had a hard time finding support for a final piece of legislation that in the end lost most of its bipartisan claims.

It is widely accepted among political scientists that, with the near disappearance of Southern Democrats

on one side, and moderate Republicans on the other side, American politics is more polarized than ever Adding to this underlying trend, the proximity to the 2004 presidential elections put even more strains on bipartisan attempts to Medicare policy-making The Congressional Quarterly voting record confirms this:

“In 2003, Congress as a whole was, indeed, more polarized than it has been in five decades that

Congressional Quarterly has been analyzing party unity votes.”30 Both parties stuck tightly together Republicans in the Senate set the record, with 94% of their votes along party lines, while House

Democrats “were more unified than at any time since 1960.” 31

CQ estimates that the Senate has been similarly divided along party lines only once in 50 years, and that was in 1995 CQ’s John Cochran32 also cites a Pew Center recent survey that found that Americans are also equally divided and “further apart than ever in [their] political values.” It is difficult to say if the divided electorate is the result of polarized, more ideologically-charged politics, or if politicians have just responded to the deep divisions present in the American public In this electoral year in particular,

sharpened rhetoric and symbolic political discourse thrive

The fact that the debate over the Medicare prescription drugs has continued after the bill was signed into law is one of the best examples of polarizing issues in electoral politics “When the parties are so closely balanced in Congress—and in the country as a whole—the imperative for political leaders on both sides is

to play up differences, not find commonalities, in the hope of tipping the closely balanced electorate their way,” concludes the CQ study on 2003 party unity votes

As mentioned, the two previous attempts to pass prescription drug legislation died in the Senate in the

106th and 107th Congresses, due to clashing ideological differences between the supporters of public program expansion and those advocating market involvement and private plan competition

In 2003, once the window of opportunity opened, both institutions and people, procedures and leadership,joined together to lead the initiative through the policy-making process Both parties signaled a

heightened interest in adding a prescription drug benefit to Medicare On the Republican side, House Speaker Dennis Hastert put together a “prescription drug action team” with 49 members to push for the passage of a prescription drug benefit under Medicare On the Democratic side, Senate Minority Leader Tom Daschle appointed a “prescription drug task force” to ensure the Democrats’ position is heard.33The assignment of bill numbers in both the House and Senate also came to confirm that Republicans viewed the Medicare prescription drug benefit as their top priority: initiatives were introduced as H.R.1 inthe House and S.1 in the Senate By custom, first several numbers are reserved by the majority party’s leadership to reflect the priority agenda items.34

A compromise was worked out from the beginning in the Senate Finance Committee, resulting in S.1, sponsored by the committee chairman, Republican Charles Grassley, and the ranking Democrat, Max Baucus Recognizing the necessity of compromise in a closely divided Senate, the bill’s sponsors adopted

a “split the difference” strategy to develop a bill that would appeal to both Democrats and Republicans.While Senators on both sides denounced the bill as being either ‘too conservative’ or ‘too liberal,’ the initiative gained the unexpected support of Sen Edward Kennedy, the Massachusetts liberal known for his health policy leadership and his preference for governmental program expansion While he recognizedthat the proposal did not go far enough, he threw his support behind the bill as representing “a major

breakthrough in our effort to give the senior citizens the prescription drug coverage they need and

deserve.”35 Kennedy’s support not only gave the bill credibility, but also convinced the Democratic leadership not to oppose it Sensing the window of opportunity, Sen Kennedy was willing to relax his usually more liberal position on Medicare just to see the bill passed In a closely split Senate where the bill had to survive the possibility of a filibuster and ‘killer’ amendments, his support mattered a lot Later, Sen Kennedy expressed regrets that he helped passing the bill and compromised with the Republicans and the Administration on Medicare and the No-child-left-behind legislation

The unprecedented and unexpected bipartisan approach to the Medicare prescription drugs was also evident on the Senate floor, where both sides accepted the compromise as a decent start and tried to avoid,for the most part, an ideologically-charged debate The bill passed the Senate on June 27, 2003, with overwhelming support: 72 to 21 Thus, one of the major obstacles that blocked similar legislation in the past was out of the way

However, the bipartisan pursuit was not replicated on the House side The bill under discussion departed from the Senate bipartisan deal, and Democrats went strongly against it, while the Republican leadership faced opposition from both moderate and conservative Republicans

When it was reported out of the Rules Committee, H.R.1 was coupled with another bill, H.R.2596

(establishing health savings accounts) into a ‘bifurcated’ rule, with a modified closed rule for H.R.1 and a closed rule for H.R.2596 After adoption, H.R.2596 was to be appended to H.R.1 This entire move was intended to attract votes from conservative Republicans who backed medical savings accounts.36 In contrast to the Senate, House rules can restrict debate time and amendments to be offered In this case, thedebate was restricted to 3 hours No motions were allowed except motions to recommit, and only one amendment, offered by a Democrat, was to be offered and debated for an hour Rep Charles Rangel’s (D-NY) amendment, in the nature of a substitute, failed 175 to 255

In a dramatic move and under significant pressure from the leadership, Rep Jo Ann Emerson (R-MO) cast the winning ballot around 2:30 am, and more than 40 minutes after the usual 15-minute vote time hadexpired The bill passed 216 to 215.37 Rep Emerson changed her vote after she obtained a written promise from the House Speaker Dennis Hastert that there will be a future floor vote on a prescription drug reimportation bill, which Rep Emerson supported Other arms were twisted as well The Republicanleadership and the White House worked hard to deliver this vote, especially to convince conservatives worried about the costs of the bill

Analysts on both sides of the political spectrum met the two bills with widespread skepticism One of the most compelling arguments against the legislation at that point was that, since the Republican lead was weak, this would result in awkward, unworkable compromises with the Democrats, and “neither side’s goals will be realized.”38 Using similar reasoning and his unique, direct style, the Democratic Senator Robert C Byrd of West Virginia explained his vote against the bill: “This is no way to legislate on a program of such great importance to the citizens of the country They may revolt and members of

Congress could be back here scratching their heads and scrambling to find a solution and save their seats.”39

The bipartisanship that characterized the passage of the bill in the Senate was gone by the time both houses were scheduled to meet in the conference committee to work out the differences between the two versions There were eight conferees appointed on the House side (5 Republicans and 3 Democrats) and nine conferees appointed on the Senate side (5 Republicans and 4 Democrats) Party leaders (e.g., Frist, Daschle) were among the conferees, another indication of how important the issue was to both parties The first meeting of the conference committee still enjoyed some of the bipartisanship that characterized the Senate debates, but from that point on, ideologies started to clash along party lines Democrats and

Republicans publicly expressed their reluctance to compromise on key issues, such as competition between private plans and the traditional governmentally-run Medicare Serious ideological differences

marked the dispute over targeted vs universal benefits and private vs public delivery of the new

coverage It became obvious that the conference was going to become the scene of highly partisan

debates On July 8, 2003, 37 Senate Democrats sent a letter to President Bush making clear they would not support any agreement that would include the House language forcing the traditional Medicare to compete with private plans On the other side, 42 House Republicans wrote to their leadership to

emphasize that they would not support any compromise unless “it promotes private plans.”40

While negotiations continued through the fall of 2003, the chances of a compromise being reached seemed remote The divide between the two groups was aggravated by the decision of the Conference Chairman Bill Thomas (R-CA) to exclude all but two Democrats from the committee (Senators Baucus and Breaux), arguing that the others were not willing to compromise Conferees are called to uphold the position of their chamber, not party The conference report is ready to be sent out when a majority of the appointed conferees from each chamber are ready to sign it Thus, the exclusion of most Democrats did not stop the conference committee to reach an agreement, on November 15, 2003 The report was signed

by all Republicans and no Democrats on the House side and all Republicans and two Democrats (Baucus and Breaux) on the Senate side Keeping the two Democrats in helped the Administration argue later that the bill was bipartisan and thus, if something is wrong with it, it was not only Republicans that should be blamed

The interest in the conference committee deliberations on the Medicare prescription drugs bill went beyond the appointed conferees A bipartisan group of ten senators got together in an informal ‘working group’ to monitor the activity of the committee so that the final product would reflect the bipartisanship evident in the Senate bill.41 Once born however, the conference report was not destined to an easy passagethrough Congress, especially after the ideological swords were sharpened during the conference

committee debates

Interest groups aggregated on both sides Opposition was particularly strong, with liberals (AFL-CIO, Consumers Union, Families USA, American Nurses Association and the Association of Federal, State, County, and Municipal Employees) and conservatives (the National Taxpayer Union, Heritage

Foundation) coming together to oppose a law they believe was fundamentally flawed

What gave the bill a significant boost was the last-moment endorsement of the American Association of Retired Persons (AARP) Going against the public opinion and against what many of its members

believed, AARP announced its support on November 17, 2003, right before the House debate on the conference report The endorsement of the AARP, an organization with 35 million members, and its commitment to spend $7 million to promote the new program among seniors was essential in securing some last minute support As one analyst notes, it provided “political cover against charges by some Democrats that the bill would undermine the federal insurance program for the elderly and disabled.”42 Asexpected, the AARP’s endorsement together with that of the American Medical Association (AMA) were mentioned by most speakers supporting the bill as a proof that passing the bill was the right thing to do Inturn, Democrats accused the AARP—one of their traditional allies in trying to expand Medicare for

‘being in bed with the insurance companies.’

Undoubtedly, the AARP’s support helped deliver several more votes in the House, but the Republican leadership and the White House had to employ extraordinary measures and unprecedented pressure to get the conference report through the House of Representatives The roll call vote was delayed until 3 am, andthen left open for almost 3 hours compared to the customary 15 minutes, “the longest recorded tally in thehistory of electronic voting.”43 Party leaders, President Bush, and the HHS Secretary Tommy Thompson assiduously ‘worked the phones’ to pressure members to change their vote Around 6 am, Speaker Dennis

Hastert, R-Ill., squeezed out a 220-215 victory, after 3 Republicans and 3 Democrats switched their votes

to Yes.”44

In the Senate, the conference report had to face a completely changed environment Sen Kennedy, who initially supported the bill, threatened a filibuster, while the Democratic leadership strongly opposed the plan Democrats saw the conference report as a ‘backroom deal’ from which most of them where

excluded, including the Senate Minority Leader Tom Daschle The bill was characterized as being a “big, sloppy kiss to the pharmaceutical and insurance industries.” Sen Daschle, joined by the House Minority Leader Nancy Pelosi protested all procedural maneuvers Republicans employed to pass the bill In particular, what happened in the House of Representatives was characterized as “an abuse of institutions and rules.” During the Senate floor debate, Sen Daschle also predicted that the debate on Medicare prescription drugs was not over: “I predict that 12 months from now we are going to be back to fix this.”

To counteract a potential Kennedy filibuster, Senate Majority Leader Bill Frist introduced a cloture motion to limit debate The motion passed 70 to 29 Supporters of the bill did not enjoy the victory for long The Democratic leadership came back and invoked a budgetary point of order against the legislationthat almost brought the bill to its knees Democrats argued that the Health Savings Accounts provision introduced by the House was not assessed by the CBO, and that a new evaluation would show a total cost

of the bill that exceeded the $400 million dollars allocated through the budget resolution More heated debates followed, and the point of order was waived 61 to 39 In the end, the conference report passed 54

Previous attempts to introduce prescription drug coverage in Medicare –

Lessons learned

The MMA of 2003 is not the first time a prescription drug component was added to the Medicare

program The Medicare Catastrophic Coverage Act of 1988 (MCCA), later repealed, represented a first attempt to expand and improve the coverage offered by Medicare, including a prescription drug benefit.Similarly to the MMA, the MCCA also departed from the technical, low-key politics that characterized most of the post-1965 Medicare policy-making Trying to regain some electoral clout among the elderly –after proposing cuts in Social Security—the Reagan Administration looked for new domestic issues that could deliver that

In 1986, over half the elderly with incomes of $10,000 or less had out-of-pocket spending totaling more than 15% of their incomes to meet their health needs.45 Wealthier seniors were able to offset the gaps in Medicare by purchasing additional health insurance known as Medigap plans (approximately 70% of seniors) - a majority through former employers, with the other half purchased privately.46 The

Administration sensed a ‘national mood’ favorable to offering support to those with catastrophic expensesunder Medicare

Trying to seize the opportunity, Reagan directed the then-secretary of HHS, Otis Bowen, to analyze how the public and the private sector can work together to address the needs of those with serious financial problems due to catastrophic illness Bowen put together an advisory committee on Catastrophic Illness that looked at consequences of catastrophic medical expenses for both Medicare beneficiaries and those under 65 Only one viable proposal, however, emerged out of this commission, and that referred to extending coverage for Medicare part A to address some of the high deductibles and coinsurance for hospital stays, as well as capping out-of-pocket expenses under Medicare part B

The Bowen Commission produced a legislative proposal limited to solely addressing the gap in acute carefor Medicare beneficiaries The proposal entailed a two billion dollar increase in Medicare spending which was to be funded through a flat $59 annual premium assessed on all Medicare enrollees.47 Despite the improvements offered in respect to acute care, the Bowen proposal lacked increased benefits in other critical areas, most notably long-term care and prescription drugs These are the areas where

Congressional Democrats would try later to supplement the new benefit

Launched in the 1986 State of the Union Address, the initiative to provide protection against catastrophic expenses in Medicare was received with significant interest on Capitol Hill The Democratic position to improve upon the Bowen proposal was strengthened after the party regained control of the Senate in the mid-term elections of 1986.48 Led by Sen Edward Kennedy, a longtime advocate of national health insurance, Congressional Democrats viewed their political victory as an opportunity to make substantial improvements to the health care system.49 As one expert explains, “After six years of retrenchment under Reagan and the conservatives, the Democrats were eager to get back to pushing their agenda, rather than simply defending existing programs from dismantlement.”50 However, Democrats remained aware that any attempt to create legislation that deviated too widely from the Bowen proposal’s provisions may result in a presidential veto over the MCCA

After all, the MCCA emerged under an administration that had consistently sought reductions in Medicarespending in its annual budgets Furthermore, the legislation stood in stark contrast to the political

ideology of the Reagan Administration which promoted free enterprise and the reduction of federal spending as a solution to the increased costs of federal programs such as Medicare and Social Security.51 However, several events lessened the likelihood of a presidential veto over the MCCA First, the

legislation was being debated at the same time the Iran-Contra scandal was unfolding, causing the

Administration’s approval ratings to plummet Second, Reagan’s ability to govern came into question following the President’s slow recovery after prostate surgery.52 Thus, the Administration’s support of the MCCA became an avenue to shift the public’s focus away from the White House’s problems and

consequently reduced the threat of a presidential veto over the legislation

Despite Bowen’s contribution to the new initiative, the 'single most important individual' in the creation

of MCCA was not 'Bowen, Reagan, nor Rostenkowski,' but the Rules Committee Chairman Claude Pepper (D-FL), a very powerful liberal who was pushing for significantly expanding Medicare benefits 'The President calls this a giant step forward This isn't a step taken by a giant, it's one taken by a pygmy,'

he apparently said when he heard about the Bowen plan and its endorsement by the White House.53Pepper was not only very popular among seniors but, as chairman of the Rules Committee, he was in the position to influence how the final bill would look like And he pushed relentlessly for expanding the Bowen plan Democrats had one problem, though – given the high federal deficit, both the White House and many members in Congress insisted for the self-financing of any new benefits Democrats agreed thatthe new benefits should be paid for exclusively by Medicare beneficiaries through premiums, as opposed

to the 'traditional' Medicare costs, which are spread among taxpayers While these new fees were

obviously not popular with most seniors groups, the "AARP, the National Council of Senior Citizens, and Villers…soon realized that if Medicare beneficiaries did not pay the costs, there would be no bill."54 The National Committee to Preserve Social Security and Medicare, however, came out as strongly opposing this financing scheme from the beginning, and played a significant role later in shifting seniors' opinions about the new law

The initial proposal that came out of the House Ways and Means Subcommittee on Health proposed a 'supplemental premium,' in fact an additional tax to be collected by the IRS together with federal income taxes on beneficiaries with incomes over $15,000 The initial proposal was expanded upon by the other House committee with jurisdiction over Medicare, Energy and Commerce, more sensitive to Pepper's calls for more benefits First to be added were a prescription drug benefit, preventive care and outpatient mental health services, and protections for families of dual Medicare-Medicaid beneficiaries Worried about the costs, the HHS Secretary Bowen referred to a potential presidential veto Since the powerful chairman of the Rules Committee, Pepper, could not be ignored, the House Democratic leadership promised a future vote on long-term care to gain Pepper's support on a scaled back bill The deal was successful, and the bill passed the House 302 to 127 on July 22, 1987

In the Senate, the initiative confronted only one committee of jurisdiction, the Senate Finance Committee,packed with conservative Democrats Similar expansions of benefits were discussed, but it was the Republicans that tried to add to the initial bill rather than the Democrats On the floor, a series of

amendments including the addition of a drug benefit made the Senate bill resemble more the one passed

in the House The bill passed the Senate by a very large margin: 86 to 11

But the House and Senate bills were different The new benefits (and premiums) were mandatory in the House version and quasi-voluntary in the Senate version (beneficiaries could drop it together with part B).The new provisions would have increased Medicare enrollees’ benefits by about 7%.55

While the two sides were trying to reach a compromise on the complex technical details of the legislation

in the conference committee, the opposition was sharpening its swords

By 1988, the bill had overwhelmingly passed both houses and was signed into law by President Reagan in

a Rose Garden ceremony P.L 100-360 provided prescription drug coverage and unlimited hospital coverage, and also helped seniors pay for catastrophic home care and other health care expenses

For instance, the Medicaid program was expanded to provide the low-income elderly with relief from Medicare coinsurance and deductible payments as well as enhance the financial security of spouses of nursing home residents.56 In addition, the MCCA offered a more extensive Skilled Nursing Facility

(SNF) benefit package by eliminating the requirement of a 3-day prior hospital stay, extending the

coverage to 150 days per year, and reducing the coinsurance charged to beneficiaries Furthermore, the legislation placed a cap, scheduled to come in effect in 1990 and set initially at $1,370, on the amount beneficiaries would pay for physician and other medical services Finally, the MCCA included a drug benefit package covering outpatient prescription drug costs above a $600 deductible.57

The expanded coverage would have been financed mainly through beneficiary premiums, with a higher burden placed on wealthy seniors, while subsidies were available for the poor The progressive tax allowed individuals with lower incomes to receive higher rates on return for their contribution Seniors whose income tax was assessed at $150 or over were to contribute $22.50 per $150 towards the

program.58 Thus, beneficiaries with incomes of approximately $40,000 were subject to pay the maximumlevel of fees, which was set at $800 per person.59 Couples with incomes of over $70,000 would pay

$1,600 annually to fund the new program Estimates showed that only 5% of the elderly would have beensubject to the maximum tax-level and that only 40% of seniors possessed a high enough level of income

to contribute to the program.60

In addition, the MCCA introduced a “front loading” system of financing, meaning that although seniors were to begin paying premiums in 1989, many of the program’s benefits were scheduled to come into effect years later Consequently, the costs of the program outweighed the benefits for a significant proportion of the elderly early in the program’s implementation However, the front loading system was deemed necessary to allow a build up of financial reserves in case the actual costs of the MCCA exceededinitial estimates.61

The prescription drug benefit may not have been included in the MCCA without the overwhelming political pressure from the AARP to sway the position of those members of Congress who opposed the benefit The AARP’s solid endorsement of the MCCA reflected the organization’s belief that the

legislation could benefit the elderly and that the legislation was viewed favorably by a majority of its members This belief was supported by several public opinion polls conducted by the organization and used on Capitol Hill to rally support around the drug benefit add-on According to an AARP survey, conducted in September 1987, 57% of senior citizens expressed strong support for the legislation while anadditional 23% expressed some support.62 Support for the legislation increased in May 1988, just prior to the passage of the legislation, with a reported 65% of seniors expressing strong support for the legislation and 26% offering some support

Soon after the legislation passed however, surveys released by the AARP indicated that support among the elderly plummeted from 91% in May 1988, to 65% in December 1988.63 Approval of the legislation continued to decrease steadily following the December survey By August of 1989, support for the MCCA plummeted to 40% among the elderly.64 Thus, in just over a year, 51% of seniors had shifted theiropinion from supporting to denouncing the MCCA

As mentioned, following the MCCA’s passage, senior citizens’ concern over the cost of the legislation quickly took over the joy of receiving new coverage under Medicare Several interest groups, led by the Pharmaceutical Manufactures Association and the National Committee to Preserve Social Security and Medicare, played an instrumental role in shifting the focus of the nation’s elderly to the costs associated with the MCCA These groups successfully built opposition against the MCCA by launching a campaign that focused on the $800 premium that a small minority of the wealthiest elderly would be forced to contribute to the program However, the opposition was careful not to emphasize that only approximately

5% of enrollees would be subject to the maximum tax levels.65 Rather, their campaign provided seniors with the impression that any senior citizen could be liable to pay the maximum amount into the program

In fact, more than 60% of seniors were due to receive benefits from the MCCA well in excess of personal costs.66

There are numerous examples which help illustrate how the opposition implemented its strategy For instance, the National Committee sent a letter to its 4.5 million members containing the headline, “1989 Income Taxes for Millions of Seniors will Increase by up to $1600.00 ($800.00 for Singles) – It’s a Tax

on Seniors Only and it Must be Stopped”.67 Although these letters often contained accurate information

on the MCCA’s income based financing scheme, this information was provided in finer print well below the headline

Other key opposition groups followed the National Committee’s lead and distributed similar material For example, a group calling themselves the Seniors Coalition Against the Tax produced a flyer which asked senior citizens: “Will you get an $800 tax bill for Catastrophic coverage this year?”68 The results ofsuch campaigns were a distorted understanding of how the financing scheme of the MCCA worked and who was actually required to pay the maximum $800 tax

Several AARP surveys indicated that the opposition’s campaign was having a substantial impact on seniorcitizens opinion towards the MCCA Of particular surprise was the drop in support for the MCCA amonglow income seniors, the group which stood to benefit the most from the legislation Although 70% of lowincome seniors supported the MCCA in December of 1988, this figure dropped sharply following the bill being signed into law, down to 47% in August of 1989.69

Other factors also contributed to the eventual repeal of the MCCA For instance, the program’s front” financing scheme proved unpopular among many seniors Forcing seniors to pay into the program before receiving benefits resulted in prompting wealthier seniors to protest the MCCA immediately while offering little reason for lower income seniors to support the legislation.70

“up-An additional cause of the MCCA’s repeal was the failed attempt by Congress and other organizations to sell the financing of the legislation as a “supplemental premium” rather than a “tax”, while the actual financing of the MCCA closely resembled that of a tax For example, the IRS was responsible for

collecting the funds through the regular income tax structure and the amount which the beneficiary owed was calculated in the same fashion as a regular surtax Thus, the opposition was able to characterize the financing of the MCCA as a “seniors tax” or “AARP tax”, causing widespread animosity toward the legislation among the elderly.71

By November of 1988, senior citizens were openly demonstrating against the MCCA and placing an increasing amount of pressure on Congress to repeal the legislation Senator John Warner commented,

“In my 11 years in the U.S Senate, I have never dealt with an issue which has been met with such

unrelenting opposition”.72

In April and May 1989, Rice et al conducted a survey on a national sample of 500 Medicare

beneficiaries They found that, despite the amount of press coverage and interest group mailings, the elderly did not really understand the new legislation Only about 40% new that MCCA included a

prescription drug benefit Even after informed about some of the new benefits, seniors' level of support remained low, although MCCA would have provided them with additional benefits over what they already had Surprisingly, opposition to the new law was significantly strong among seniors with low incomes, who were supposed to receive many new benefits while not paying much of the costs Authors concluded that it was clear that the intense campaign aimed at repealing the law was successful At the same time, most seniors did not want to pay additional premiums and taxes for benefits they were already

obtaining through private and mostly subsidized Medigap plans The survey also showed that the elderly were mostly happy with their private plans, more than half sponsored by former employers and requiring minimal premiums.73

The outcry from the elderly reached its peak in the summer of 1989 The most infamous incident

occurred on August 19, 1989 when elderly protestors confronted Rep Dan Rostenkowski (D, Chair of Ways and Means) The protestors blocked Rostenkowski’s departure from a town meeting in Illinois angrily shouting “Coward”, “Recall” and “Impeach” at the congressman.74 CNN cameras captured the incident, filming such memorable images as an elderly woman pounding on the hood of Rostenkowski’s car He eventually managed to flee from the protestors and the media on foot

The vivid illustration of elderly displeasure with the legislation reinforced the efforts already taking place

in the Congress to modify the provisions of the MCCA.75 Although attempts were made to salvage at least some of the benefits included in the MCCA, the members of Congress leading the charge against thelegislation proved unwilling to negotiate a compromise

As mentioned, the drug industry on the right and the National Committee to Preserve Social Security and Medicare on the left had been the most vocal opponents The Pharmaceutical Manufacturers Association –today’s PhARMA—was especially loud, fearing that the new prescription drug benefit would also bring governmental price controls and oversight The National Committee strongly advocated for distributing the costs of the new benefits among all taxpayers instead of having the wealthy seniors subsidize their disadvantaged peers These two major opponents, together with other newly-created coalitions, launched powerful direct-mailing campaigns to kill the bill, which continued even after the bill was signed into law.Two features of the new legislation helped the opponents to build a strong case against it:

1 The new benefits were too complex and difficult to understand, while the Administration did not clearly convey its message to the American people

2 The new benefits were to be phased in over several years, while seniors were supposed to start paying supplemental premiums, some of them substantial, soon after passage

As one policy analyst concluded, “the catastrophic coverage experience showed that tackling an

inherently complex issue without adequate public education leaves huge opportunities for those who would mislead [the people], whether intentionally or not.”76 Seniors were frightened into believing they would have to pay huge amounts of money without getting anything back

In addition, soon after the law passed, the costs were recalculated by the CBO and the new cost estimates showed that the total cost of these new benefits was going to be significantly higher than initially

believed Uncertainty about the cost estimates of the new legislation gave the opponents important ammunition First, the Treasury Department announced that more money were to be collected for the reserve fund than anticipated, prompting accusations that the government was trying to make the elderly pay the deficit Calls for reducing beneficiaries' premiums were quick to follow, as well as Congressional initiatives Before the waters stirred by the Treasury's announcement had cooled down, a second

reestimate was made public, this time by the CBO The costs of the new benefits were to be actually much higher than previously thought twice as much for the drug benefit, six times more for the skilled nursing facilities program

In the end, under the pressure of angry seniors and escalating costs, the Congress gave in and repealed thecatastrophic coverage law On October 4, 1989, the House of Representatives voted for repeal of all but the bill’s Medicaid provisions.77 The Senate passed an amendment to salvage some of the program’s benefits; however, it was rejected by the House The Senate eventually followed the House’s lead and voted to repeal all but the Medicaid low-income benefits.78 Thus, on November 22, 1989, the US

Congress officially repealed the MCCA, only 18 months after the legislation overwhelmingly passed bothhouses

While initially supporting the catastrophic coverage bill AARP, the most powerful seniors group, faced a rebellion among its membership and found it difficult to maintain support for the law under the pressure

of its local chapters.79 The wealthier, more powerful seniors and business interests had won a significant victory, with repercussions on future benefit programs financed through redistribution or progressive taxation schemes.80

As a keen observer of health policy and politics noted, this “startling turnaround illustrated even more clearly how hypersensitive members are to voters’ concerns Indeed, Congress folded rather than fight to convince misinformed constituents that the law would actually be a good deal for them…Those who livedthrough this nightmare learned a lot… about the power of direct mailing, the ease of manipulating the public with information that is simply wrong, the resistance recipients of federal entitlement programs feel toward change, and the lack of knowledge Americans have about programs that so directly affect their lives.”81 Even if they wanted, members of Congress could not afford to ignore the message they weregetting from their constituencies

The entire episode of the MCCA repeal “left a powerful impression on chastened policymakers and on theAARP, which could no longer be counted on as a unified voice for Medicare beneficiaries."82