The New Medicare Proposal: Trojan Horse or Help to Seniors?

Republicans in Congress announced they had reached an "agreement in principle" with two Democratic senators on a Medicare bill that will provide some prescription drug coverage to millions of elderly people but, according to critics, may also undermine the Medicare program as it is now known.

In June the Senate and House passed divergent Medicare bills, which lawmakers have been struggling to reconcile ever since. Sen. John Breaux (La.), one of the two Democrats who has been allowed to take part in the bargaining over the two bills, said that some liberals and conservatives "will find fault" with the new agreement, but he praised it as "the best and last opportunity to do what is right for seniors."

But most Democratic senators and even some Republicans remain troubled by the provisions of the agreement. The Senate Democratic leader, Tom Daschle of South Dakota, said, "We have not seen all the details, but it sounds like a bad deal for seniors and a good deal for big drug companies and health maintenance organizations." His statement cited three major Democratic concerns: "It keeps drug prices high, causes 2 to 3 million retirees to lose drug coverage and coerces seniors into HMOs."

A key Republican moderate, Sen. Olympia J. Snowe (Maine), said, "I remain deeply concerned about the specific impact this 'agreement in principle' will have in the real world for millions of Americans who count on Medicare for their health coverage."

New York Times columnist Paul Krugman said that Medicare recipients should "beware of politicians bearing gifts" like the bill's limited prescription drug benefit. He likened the drug benefit to a Trojan horse, "a perfect vehicle for smuggling in provisions that sound as if they have something to do with improving Medicare yet are actually designed to undermine it."

Under the new Medicare drug benefit, which would start in 2006. Medicare recipients would have to pay premiums averaging $35 a month. After meeting a $275 deductible, the beneficiary would pay 25 percent of drug costs from $276 to $2,200 a year, with Medicare footing the bill for the other 75 percent. The program would then pay nothing until the beneficiary had spent a total of $3,600 out of pocket, after which Medicare would pay about 95 percent of drug costs.

But the most contentious issue in the bill is a provision that would require direct competition between private health plans and the traditional government-run Medicare program. Under the new agreement, the government would select up to six metropolitan areas to participate in an experiment to encourage Medicare recipients to join private managed care plans. If traditional Medicare costs more than the private health plans, its beneficiaries would have to pay higher premiums in those cities, giving the elderly a financial incentive to join the managed care plans. But those who opt for the private plans would receive a lump sum to buy the private insurance, and Medicare would no longer cover whatever medical costs an individual faced.

Many studies predict that private health plans would "cherry-pick" the healthiest Medicare beneficiaries and leave those with high medical costs to remain in fee-for-service Medicare, a practice that could make traditional Medicare too expensive for many beneficiaries.

The new Medicare agreement also would abandon the program's tradition of providing everyone in the program the same benefits for the same price. People with incomes over $80,000 a year would have to pay higher premiums for Medicare Part B, the portion of Medicare that covers doctors' services and other outpatient care. And, regardless of income, the yearly deductible that patients pay for that outpatient care, fixed at $100 for years, would increase annually starting in 2005.

In another controversial provision of the agreement that should be welcomed by prescription drug companies, the federal government would be forbidden to negotiate directly with drug companies to secure lower prescription drug prices for Medicare beneficiaries.

To read articles in The New York Times and The Washington Post on the Medicare proposal, go to: and (Articles may no longer be available.)