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MEDICARE DRUG BENEFIT COST PLACED AT $ 3.7 BIL. PER YEAR IN HOSPITAL ASSOCIATION HEALTH CARE REFORM PLAN; CONGRESS WOULD SET HEALTH SPENDING TARGETS

Executive Summary

Medicare outpatient prescription drug coverage would cost about $ 3.7 bil. annually as sketched in the American Hospital Association's health care reform plan issued July 2. Entitled "National Health Care Strategy: A Starting Point for Debate," the plan would establish a single public health coverage program consolidating Medicare and Medicaid. The program would cover "a broader scope of services than government programs now provide, in particular long-term care and outpatient prescription drugs," a plan summary explains. In addition, "the same broad scope of basic benefits would be required as a minimum for private health insurance coverage." Thus, Medicare drug coverage would have a ripple effect, establishing more uniformity in Medicaid drug benefits and private insurance coverage. The AHA plan is the latest of a flurry of health care financing reform proposals put forth for discussion but appears to be the first specifically to highlight drug coverage. The plan was drafted over the past year-and-a-half by the association, which represents 5,300 not-for-profit hospitals. Like some of the other proposals, the AHA plan is "pay or play" -- employers must provide a minimum set of health benefits or contribute half of employees' costs for buying into the public program. Congress biennially would set spending targets for the public program, aided by a national health care commission. While the absence of drug and long-term care coverage has been a key motivation in efforts to revamp Medicare, coverage proposals have been hampered by the hard-to-predict costs of those benefits. AHA said details of its prescription drug benefits have not been established, but the national commission would be involved in defining the basic benefits. In comparision to AHA's cost estimates, Rep. Stark's (D- Calif.) Medicare drug coverage bill (HR 2500), which would provide drug reimbursement after a $ 650 deductible is met, has been estimated by Project HOPE to cost $ 8-$ 10 bil. in 1993. About 33%-48% of beneficiares would receive payments that year. The AHA cost estimates were developed by the research and consulting firm Lewin/ICF using its Health Benefit Simulation Model. Lewin/ICF also conducted cost analyses for other reform plans, including the largely similar one proposed recently by the AFL-CIO. The labor group's plan, together with the goals established by the congressional Pepper Commission, have been incorporated into the proposal advocated by Senate Majority Leader George Mitchell (D-Maine) and Sen. Rockefeller (D-W. Va.). Other elements of AHA's basic health package include a $ 500 combined inpatient/outpatient care deductible, a separate $ 5,000 long-term care deductible, and 20% patient copayments for services. Annual private insurance premiums would be about $ 1,200 per individual, split between employer and employee. "Overall, there will be a $ 55.9 bil. increase in federal public program spending, offset by the $ 4.3 bil. reduction in private insurance spending by employers, the $ 13 bil. reduction in state and local government spending, and the $ 15.6 bil. reduction in direct household spending, resulting in a net national health spending increase of about 4% ($ 23 bil.) under the AHA plan," the summary says. "This is a relatively small increase in health spending" considering the fact that 33 mil. Americans are uninsured and treatment is often delayed due to lack of preventive and primary care coverage, the hospital group contends. AHA Chairman Thomas Smith, who is president of Yale-New Haven Hospital, said at a same-day press briefing that the added federal costs would be raised through broad-based tax increases to be determined by Congress. Among the specific strategies that AHA believes would yield some of the projected savings are: increased use of managed care programs ($ 16.9 bil. in annual savings), dissemination of guidelines for medical practice ($ 4.9 bil.), technology assessment and data dissemination ($ 1.1 bil.), and increased provider competition ($ 1 bil.).

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