House, Senate Medicare Bills Both Exceed $400B Limit, According to New CBO Estimate

The House and Senate Medicare bills (HR 1 and S 1) both would surpass the $400 billion over 10 years limit set by President Bush and approved by Congress in the fiscal year 2004 budget, according to estimates released July 22 by the Congressional Budget Office, the Wall Street Journal reports. A House-Senate conference committee has been working to reconcile the bills, both of which would offer beneficiaries a drug benefit and encourage them to join private health plans, but they vary in their approaches (Lueck, Wall Street Journal, 7/23). The CBO estimates the House bill would cost a net of $567 billion over 10 years, including $174 billion in lost revenue because of a provision that would create health savings accounts for people under age 65. The Senate bill would cost a net of $437 billion over 10 years, including $40 billion from a single provision that would require pharmacy benefit managers, which are expected to administer any Medicare drug benefit passed by Congress, to disclose to Medicare officials their discounts to drug manufacturers, according to the CBO. The agency estimates the drug benefit in the House bill would cost $408 billion over 10 years, and the Senate plan's drug benefit would cost $422 billion over the same period (Rovner/Heil, CongressDaily, 7/22).

Few Will Join Private Plans, According to CBO
The CBO report also says that the proportion of Medicare beneficiaries in private health plans will be lower in 10 years than it is now, despite efforts in both the House and Senate bills to encourage beneficiaries to join private plans, the Washington Post reports. According to the analysis, an estimated 11% of Medicare beneficiaries would be enrolled in private health plans in 10 years if the House reform bill becomes law. The report estimates that 9% of beneficiaries would be enrolled in private plans in 10 years if the Senate plan is enacted. Currently, 12% of Medicare beneficiaries are enrolled in HMOs, and 1% is enrolled in various other private health plans, according to CMS statistics. In a June 26 memo, Richard Foster, the CMS chief actuary, estimated that "roughly 43%" of Medicare beneficiaries would enroll in a private health plan by 2010. CMS Administrator Tom Scully said, "I've never seen such a big difference in judgment." Scully added that the disparity stems from a disagreement over whether private plans would be less expensive than traditional Medicare, which would allow private plans to offer lower premiums to entice beneficiaries to enroll. Although the CBO's estimate disagrees with Foster's, the CBO report "lends support to a central aspect of a blueprint for revising Medicare that [President] Bush proposed last winter," which would have given beneficiaries who joined a private plan more generous drug benefits (Goldstein, Washington Post, 7/23). The CBO also estimates that the House provision that calls for competition between private plans and traditional Medicare beginning in 2010 would raise Medicare spending by $7.5 billion over 10 years. Further, the CBO report says that the Senate's bill, which would give additional subsidies to private plans to encourage participation and include new benefits for beneficiaries remaining in fee-for-service Medicare, would cost $18 billion over the same period (CongressDaily, 7/22). The CBO report is available online. Note: You must have Adobe Acrobat Reader to view the report.

Effect on Conference Committee
The CBO report, the first "comprehensive critique" of both bills since they passed each chamber in June, comes as conference committee negotiations have "reached a delicate phase," the Post reports. The CBO report and cost estimates "cast doubt" on whether either bill would achieve the basic goals of creating an affordable Medicare prescription drug benefit and encouraging Medicare beneficiaries to join private plans (Washington Post, 7/23). According to the AP/Las Vegas Sun, the new CBO spending estimates mean that House-Senate conferees must either reduce spending or find savings to comply with the $400 billion, 10-year spending limit (Espo, AP/Las Vegas Sun, 7/23). In a joint statement, House Ways and Means Chair Bill Thomas (R-Calif.) and House Energy and Commerce Chair Billy Tauzin (R-La.) said, "As co-chair[s] of the House [conference committee] delegation, we pledge to keep the cost of the Medicare conference report under the $400 billion figure agreed up in the [fiscal year 2004] budget resolution" (CongressDaily, 7/22). The AP/Sun reports that the $40 billion provision regarding PBMs will likely not be included in the final bill. Sen. Maria Cantwell (D-Wash.), who sponsored the provision, called the CBO estimate "absurd," according to the AP/Sun (AP/Las Vegas Sun, 7/23). A Cantwell aide said, "It's unclear to us how disclosure can cost $40 billion" (Wall Street Journal, 7/23). Cantwell said, "Holding PBMs accountable will save seniors and the government money" (AP/Las Vegas Sun, 7/23). But Daniel Mendelson, president of Health Strategies Consultancy, which advises PBMs, said, "The confidentiality of price negotiations is fundamental to the ability of PBMs to get lower prices for Medicare beneficiaries. If this information becomes public, drug manufacturers will know what their competitors are charging and may be less willing to discount prices" (Pear, New York Times, 7/23).

Other Conference Action
House-Senate conferees on July 22 reported progress toward an agreement on a "technical, relatively uncontroversial section" of the bills that concerns Medicare contracting, patient appeals and regulatory matters. Conferees said they hope to announce a tentative agreement on that section of the legislation "within a day or two" to "demonstrate tangible progress" before Congress begins its August recess (AP/Las Vegas Sun, 7/23). Bush administration officials on July 22 said that the conference committee negotiations are taking longer than expected. In a meeting with reporters, HHS Secretary Tommy Thompson said, "I am personally concerned about losing momentum. This is not a done deal, but it's something that needs to be done." Thompson added that Bush "wants this bill passed very badly." According to the New York Times, Bush administration officials had hoped the conference committee would agree on a final bill before the August recess; however, with legislators scheduled to end work at the end of this week, that appears unlikely. Bush administration health policy coordinator Doug Badger, who also met with reporters July 22, said it is "more important" for conferees to craft a "workable bill" than to "win an ideological debate," the Times reports (New York Times, 7/23). Bush has invited "key lawmakers" to the White House today to discuss progress on the negotiations and "underscore his determination" for a final bill this year, the AP/Sun reports (AP/Las Vegas Sun, 7/23). Senate Finance Committee Chair Charles Grassley (R-Iowa) said he hopes Bush will use the meeting to set a "firm date" for conferees to complete negotiations. He added, "We will have a conference report. It's only a question of when" (Rovner/Heil, CongressDaily/AM, 7/23). However, Thompson said Bush is not likely to set a deadline for a final bill but instead will "place pressure" on conferees to complete negotiations, the Post reports (Washington Post, 7/23).