The President Talks Prescription Drugs

President Obama hosted a “town hall” discussion on health care reform and senior citizens June 8. Not surprisingly, the plan to fill in the Medicare Part D donut hole was touched on several times. If manufacturers expected credit for giving a 50% discount, they didn’t get it. They did, however, hear some unwelcome discussion of ideas like price negotiation. On the other hand, the President stressed the role of health care reform in assuring access to drugs. Excerpts from the official White House transcript.

President Obama hosted a "town hall" discussion on health care reform and senior citizens June 8. Not surprisingly, the plan to fill in the Medicare Part D donut hole was touched on several times. If manufacturers expected credit for giving a 50% discount, they didn't get it. They did, however, hear some unwelcome discussion of ideas like price negotiation. On the other hand, the President stressed the role of health care reform in assuring access to drugs. Here are some excerpts from the official White House transcript of the event.

The Donut Hole

When Fran was diagnosed with breast cancer, the cost of her medication surpassed the Medicare Part D coverage limit, but it didn't reach the catastrophic coverage threshold. So she found herself in this coverage gap called the "doughnut hole," where she was forced to pay the entire cost of the medicine she needed out of pocket. That came to thousands of dollars, forcing her and her husband to cut back everywhere else.

And I think everybody here understands Fran's story is not uncommon. I've heard others like it all across this country, and I read about it when I read letters from so many of you at night. Those stories -– your stories -– are why we passed this law in the first place, to ensure that we don't have to keep on telling this same story.

Beginning this week, tens of thousands of seniors who fall into the doughnut hole, like Fran, will receive a $250 rebate check to help you cover the cost of your prescriptions. That will happen immediately. That's starting now. (Applause.) Each month, as more seniors hit the doughnut hole, more and more checks will hit the mail, helping more than 4 million seniors by the end of this year.

Beginning next year, if you fall into the coverage gap, you'll get a 50 percent discount on the brand-name medicine that you need -- 50 percent. (Applause.)

And by 2020—it's being phased in, but by 2020 this law will close the doughnut hole completely. The doughnut hole will be gone. It will be gone. (Applause.)

So that's what this law does. Now, some of the folks who were against health reform in Congress, they still think that none of this should have happened. They don't think you should be getting these rebates, don't think we should be closing this doughnut hole. In fact, you have an entire party out there that's running on a platform of repeal.

They want to roll back all these reform efforts. They say they have their own plan, but over the last 14 months of debate, they never seriously advanced it. And when you look at it, you can see why. They'd roll back the rebate to help you pay for your medicine if you fall in the doughnut hole. They'd roll back the free preventive care for Medicare recipients. And then away from seniors, they'd roll back all the insurance provisions that make sure that insurance companies aren't cheating folks who are paying their premiums.

On the Reason the Donut Hole Won't Close Right Away

We're going to be phasing this down. And I'll be honest with you: it's just a matter of money. It's very expensive to close this doughnut hole. When the prescription drug plan was originally passed, frankly, we shouldn't have had a doughnut hole in the first place. But once that hole was created, then each year the budget was assuming that doughnut hole was there. For us to close that right away would have blown a hole through the budget.

So essentially what we said is, how do we provide some immediate assistance to seniors who are falling into the doughnut hole, and then how do we ratchet down the cost to seniors each year so that by the time we get to 2020, the doughnut hole is completely eliminated?

In the meantime, though, you will immediately benefit first from the $250 check that you receive. Next year we then phase in 50 percent discount on the prescription drugs that you're paying. And each subsequent year what you're going to be seeing is, is that the costs are going to be continually reduced.

Now, part of what we still have to do is we still have to work with the drug companies to reduce just the cost of prescription drugs generally. And this is something that Secretary Sebelius takes very seriously.

Are there ways that, for example, we can get generics on the market quicker? Are there ways that we can make sure that the patent laws don't prevent new products from getting to the market the way they should? Are there ways that we can do a better job negotiating for better prices?

So there are going to be a whole host of things that we're going to be doing. It's not like we're going to be standing still during this 10 years. But what this law does is it guarantees that help and makes sure that a decade from now it's going to be completely eliminated.

On Potential Changes to Medicare Advantage

For those who are not familiar with it -- and I want to make sure that I explain this as clearly as possible -- Medicare provides a guaranteed benefit. And then a while back a law was passed saying we're going to have a program called Medicare Advantage in which we pay insurance companies to provide Medicare benefits. So the insurance companies are supposed to manage these Medicare benefits.

There are examples of where Medicare Advantage has been a good deal for some seniors. But, overall, what happened to the program is, is that insurance companies were getting paid on average $1,000 more than the costs of regular Medicare. Okay?

Now, by law these insurance companies were supposed to be providing additional benefits and better services for this $1,000. But a lot of it ended up going to their profits and CEO bonuses and their bottom lines. What's more, if you weren't signed up for Medicare Advantage, you were still paying higher premiums for somebody else's Medicare Advantage. Those of you who aren't in Medicare Advantage, you're actually paying a higher premium for that extra $1,000 going to the insurance companies.

Well, that doesn't seem like a good deal. That doesn't seem fair. So here's what we did under the law. What we said was, you can maintain Medicare Advantage, but we are going to say to the insurance companies that you can't use this just to pad your profits or to pay higher CEO bonuses. Eighty-five percent of what you spend has to actually be for health services. We're going to review the rates that are applied. We're going to set a rate that is fair and appropriate so that Medicare Advantage isn't costing people who aren't in Medicare Advantage.

That is, by the way, where we are obtaining a number of the savings in Medicare. It's by eliminating some of these insurance subsidies that were unnecessary for the program.

But we have not eliminated Medicare Advantage, and insurance companies can still make money operating a well-managed Medicare Advantage program that helps to manage and coordinate the prescription drugs and the dental and all that stuff. So for administrative convenience, Medicare Advantage may still end up being a useful program for some people. We just want to make sure that that money is not just a big giveaway to the insurance companies.

And this was costing Medicare overall I think around $17 billion to $18 billion every year. So part of the way that we pay for the improved benefits and doughnut hole is to say we're going to take some of that money from the insurance companies -- and they'll still be able to make money.

On the Long Term Sustainability of Medicare

We have a genuine long-term problem. And I can describe it very simply: We've got a population that's getting older, so you're going to see a bulge in the number of people who are using Medicare and Medicaid. More recipients and fewer workers to support those programs. We've got more money going out and less money coming in. And that's going to worsen over time.

Now, that has nothing to do with the health care bill. That has to do with the fact that we've got an aging population and health care inflation. The additional cost of health care each year is going up much faster than overall inflation and how fast wages and taxes, et cetera are growing. So you've got this gap between how much we're going to need for Medicare and Social Security versus how much is actually coming into the programs.

That has to be fixed. Now, one way to fix it would be to just say we're just going to cut benefits. If there's going to be a gap between how much Medicare is going to cost and how much we actually have, we just say, you know what, each of you, we're going to have to eliminate some benefits. You get fewer prescription drugs. You got to pay higher co-pays. Certain procedures won't be covered, or maybe some people won't be covered. Or we'll raise the eligibility when you qualify for Medicare. I mean, there are a bunch of adjustments that could be made that essentially come down to cutting benefits. That's one way of dealing with rising costs of Medicare.

Another way, which we think is the smarter way, is to say, where are we getting good value for our money? Where are we not getting good value for our money? How can we design Medicare so that we're reducing the costs going, but people are actually getting better care? Are there ways that we can do that?