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Flawed Medicare Reform Bill Enacted

Roy Braunstein,
Legislative & Political Department Director

(This article was first published in the January/February 2004 issue of The American Postal Worker magazine)

Congress gave final approval late last year to a controversial bill that fundamentally changes Medicare and provides senior citizens with a prescription-drug benefit.

Following a contentious vote in the House of Representatives four days earlier, the Senate approved the bill by a vote of 54-44 on Nov. 25, handing the president and Republican leaders a dubious victory on an issue they hope will resonate with older Americans, a powerful voting bloc. President Bush signed the bill into law on Dec. 8, 2003, however, the Medicare reforms and drug benefit will not take effect until 2006 — well after 2004 elections.

Unusual Procedures

The Medicare legislation barely made it through the house, passing 220-215 in the wee hours of Nov. 21. Democrats complained that not only were they excluded from negotiations over the bill's final contents, but that they were given only hours to review the $400 billion, 681-page bill before the vote. They also cried foul when the House Republican leadership invoked the unusual parliamentary procedure of extending the time allotted to vote way beyond the customary 15 minutes.

The unprecedented three-hour-long vote gave the GOP leadership and President Bush time to pressure several Republican members who had been opposing the bill. The Republican strategy paid off, with Reps. C.L. "Butch" Otter (R-ID) and Trent Franks (R-AZ), among those switching their votes from "no" to "yes."

Far-Reaching Changes

The legislation will make the most sweeping changes in Medicare since the program was created in 1965. Though it adds a federally subsidized prescription-drug benefit for lower-income seniors, the new law encourages private companies to create new "preferred provider organizations," or PPOs, to compete with the government-run program.

Harmful Side Effects

While the 40 million seniors who rely on Medicare will be getting a prescription-drug benefit, the new law opens the door for privatization, and it may undermine the viability of a program that seniors have trusted and relied upon for nearly four decades. According to the Alliance for Retired Americans and the AFL-CIO, the Medicare changes and prescription drug program come with the following harmful side effects:

  • No Drug Cost Reduction: A central flaw of the "reform" legislation is that it allows private insurance companies to negotiate drug prices for its customers, but it prohibits Medicare from doing so, placing the traditional program that seniors rely on at a competitive disadvantage. This also undermines the principle of standard benefits at uniform prices for all senior citizens - the very foundation of the Medicare program.
  • Higher Drug Prices for Medicare Enrollees: Because private plans may be able to offer prescription drugs at a lower cost, many seniors will be lured away from the government program, but those who do not want to join a PPO will be forced to pay more for drugs.
  • Financial Threat to Medicare Program: The legislation fails to include regulatory safeguards that prevent private plans from "cherry picking" customers - siphoning off healthier seniors while leaving Medicare to cover only the poorest and sickest. This could easily cost the government-run Medicare program billions of dollars, creating a funding crisis that could be used as a justification for further privatization and budget cuts.
  • Threat to Employer-Provided Retiree Health Benefits: One of the biggest dangers of the legislation is that it gives employers strong incentive to eliminate drug benefits, cap contributions to health plans, and to drop retiree coverage altogether. America's retirees in overwhelming numbers rely on employer-sponsored health benefits, which currently provide drug coverage for one in three Medicare beneficiaries.
  • Coverage Gaps: According to the independent Center on Budget and Policy Priorities, "many of the nation's poorest and sickest Medicare beneficiaries would end up with less drug coverage under the Medicare drug agreement than they now have through Medicaid." According to this group's research, 6.4 million "dual eligibles" (Medicare beneficiaries poor enough to qualify for Medicaid) will end up worse off two years from now when the reform legislation takes effect.
  • Stealth Privatization: The new law draws seniors away from the traditional program in pursuit of cheaper prescription drugs then places them "at the mercy of private insurers. According to the Alliance for Retired Americans, "Private insurers do not guarantee premiums, can drop patients, change coverage and often are at risk of going out of business."

A Helping Hand for Whom?

The legislation caters to the pharmaceutical industry and private health care providers at the expense of the seniors and people with disabilities the program was created for. It will divert $139 billion federal health care dollars — more than a quarter of the money set aside to help senior pay their drug costs — into profits for private drug companies over the next decade.

"Instead of creating a much-need prescription drug benefit, Congress has rewarded the drug companies and HMOs at the expense of senior citizens," said APWU President William Burrus. "Many older Americans could lose their retiree prescription drug coverage or will be forced to pay increased Medicare premiums if they refuse to join an HMO," he said.

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