Medicare Reform Bill – Why is it such a big deal?

The new Medicare Reform Bill in the conference committee will be a big help – to both the patients and to the pharmaceutical industry. To see how beneficial it will be to the industry, lets take a look at the Insurance coverage of Rxs in United States.

Medicare is a federally funded health insurance program that covers folks over the age of 65, a few disabled young people, and people with End Stage Renal Disease. In United States, the Medicare eligible population, and beneficiaries are listed at 37 million. But Medicare does not cover all the medical coverages, and requires copayments. Among the benefits not covered under Medicare, were the drug benefits.

Most medicare beneficiaries already receive prescription drug coverage from some source or the other. About 31% get it from Employer based coverage, about 11% get it from Medicaid, and about 27% get it from Individually purchased drug coverage, Medicare Risk HMO or some such plan. Owever, according to one study, about 31% of the Medicare population currently does not have any prescription drug coverage at all. That means, there are between 9 and 10 million medicare beneficieries that currently lack prescription drug coverage.

The current bill in House-Senate conference committee is designed to address the prescription drug coverage of these 9 to 10 million medicare beneficieries. The bill sets aside $400B over the next 10 years to accomplish drug coverage in two ways. Medicare beneficieries could choose to stay with the “fee for service” plan (as most of them do currently), and buy seperate drug benefit coverage insurance, or beneficiaries could decide to enrol in private health plan that offers drug benefit along with other healthcare
coverage.

Under both the plans, the beneficiary would have a co-pay, and meet the annual deductible before the government subsidy kicks in. Besides, the drug benefit would be capped for most beneficiaries except a few patients who would be disadvantaged due to extremely large drug expenses.

The drug benefits bill should add about $40B per annum to the drug industry sales. So why hasn't the drug industry thrown their weight wholly behind the bill? Because the devil is in the details. Both the drug industry, and the insurance industry is eying this bill with suspicion. The drug industry is particularly concerned about provisions that might limit its ability to price the drugs, or negotiate discounts with PBMs, and the competitive disadvantage any form of price control this bill might cause. On the other hand, the insurance industy is skeptical of government reform that gives patients the choice of joining or not for the fear that they might end up with only high risk patients who have large prescription bills already.

The details of the bill are still being negotiated, so it is hard to say what the final outcome would be. One thing is clear. If the bill ends up restricting pharmaceutical companies ability to negotiate the terms of the deal, it will end up being a bad prescription for both the elderly, and the drug industy.