California and the West : Clinton Medicare Drug Plan Moot for Many in State

WASHINGTON — Almost all Californians enrolled in Medicare HMOs already have prescription drug benefits more generous than the new Medicare pharmaceutical benefit proposed by the Clinton administration, a special survey will report today.

Still, the president’s proposal might have a significant political and economic impact in the state. It could help limit the reduction in benefits that California health maintenance organizations will soon begin imposing on their members. Next week, the HMOs are expected to announce higher co-payments and stricter limits on drug spending for Medicare subscribers. But presumably the health plans will not go too far, because they would risk losing some clients.

California HMOs are scrambling to reduce their drug benefits because drug prices are rising 15% or 20% a year, far faster than the general rate of medical inflation.

Officials at California HMOs said that, although costs are rising, they will try to moderate the impact. For instance, although PacifiCare will impose higher co-payments on members of its Secure Horizons HMO, these clients “will still be far better off” than they would be if they got only the benefits in Clinton’s plan, said Nick Franklin, a PacifiCare vice president.

Under the regular Medicare program, there is no coverage for drugs. Clinton wants to create a new entitlement for the 40 million Medicare beneficiaries, a guarantee that they will have drug coverage whether they are in the conventional Medicare program or in an HMO.

About 40% of California’s Medicare recipients are in HMOs, compared with a nationwide figure of about 15%. The new study by the California Medicare Project, which is financed by the nonpartisan Oakland-based California HealthCare Foundation, shows that the Clinton plan would do nothing to help 98% of the California recipients.

Typically, the California Medicare HMOs offer higher maximum benefits in a year and charge lower co-payments than would the Clinton plan.

But the ability of California HMOs to offer enriched benefits--such as prescription drugs--is linked to payments from the federal government, which are being squeezed. Reimbursement to HMOs will be slowing down at the same time that the cost of drugs is accelerating.

Thus, even if California has a temporary advantage, “all the cost trends are going in the wrong direction,” Chris Jennings, deputy assistant to Clinton for health care policy, said Tuesday.

The administration is arguing that Medicare needs a new voluntary benefit that would pay 50% of the cost of any prescription, with maximum covered outlays of $2,000 a year starting in 2002 and increasing to $5,000 by 2008. That means that a person who had total drug bills of $2,000 in 2002 would have $1,000 of the cost paid by Medicare.

The premium paid by beneficiaries would be $24 a month in 2002, rising to $44 monthly by 2008. The federal government would provide the benefit free or at sharply reduced cost for some low-income people.

The administration has said that the new benefit could be financed by savings and efficiencies in Medicare and through the use of part of the federal budget surplus.

But Republicans and some Democrats say it is fiscally irresponsible to create a new benefit in a program facing long-range financial difficulties. The retirement of the baby boom generation will bring a huge increase in the number of people drawing Social Security and Medicare benefits. The population over the age of 65, now 34 million, will double by 2030.

“Everybody is profoundly worried about the rise in the price of prescription drugs,” said Dr. Mark D. Smith, president of the California HealthCare Foundation. “Health plans and doctors and purchasers are all worried. They don’t know where this is going, and they don’t have any confidence [that] they know how to control these costs,” he said.

Some insurance plans will impose new limits of just $500 or $1,000 a year in total benefit payments for drugs, according to Jennings, the Clinton administration official.

By contrast, California HMO members now receive more substantial benefits. In Los Angeles and Orange counties, for example, Secure Horizons, the biggest Medicare HMO, allows unlimited spending on drugs, with a $10 co-payment for a brand name prescription and a $5 co-payment for a generic drug.

The California market, with a long history of managed care, is unusual.