Democrats Face Hurdles in Bid to Close Medicare Gap
Eliminating Hole in Drug Coverage Would Require Tax Increases or Spending Cuts to Avoid Expanding Budget Deficit

By Christopher Lee
Washington Post Staff Writer
Sunday, January 7, 2007

Democrats face a difficult time delivering on their pledge to eliminate the "doughnut hole" in Medicare's drug benefit, despite having used the unpopular coverage gap as a rhetorical club against Republicans in regaining control of Congress in the fall elections.

Requiring Medicare to negotiate lower drug prices from pharmaceutical companies -- a popular idea that nevertheless faces significant political hurdles -- will not produce enough savings to fill the doughnut hole, experts say. And making up the difference would require big tax increases or spending cuts elsewhere if Democrats are to keep another campaign promise, to be fiscally responsible and avoid increasing the federal budget deficit.

"I think the Democrats are going to shy away from it because it's very costly," said Sen. Charles E. Grassley (R-Iowa), who was chairman of the Senate Finance Committee when it crafted the Medicare drug benefit in 2003. "I think you'll find out that closing the doughnut hole would have just about doubled what we were going to put into the whole program. So you're talking about hundreds of billions of dollars."

Democrats are still determined to eliminate the gap, said Brendan Daly, spokesman for House Speaker Nancy Pelosi (D-Calif.). The House is expected to vote this week on a bill Democrats introduced Friday that would require the secretary of health and human services to negotiate the prices of drugs covered by what is formally known as Medicare Part D.

"We're hoping to get some savings, obviously, from the price negotiation, and then we can try to use some of that to start to close the doughnut hole," Daly said. "I don't think we're going to have enough to close it entirely. It's a difficult task. . . . We are committed to doing it, though."

The doughnut hole refers to a coverage gap in which Medicare beneficiaries must pay for 100 percent of their drug purchases, even as they continue to pay monthly premiums. An estimated 3 million to 4 million people fell into the gap last year. In 2007, under the standard plan, the gap opens when a senior's total drug costs reach $2,400 and closes when out-of-pocket expenses total $3,850. Medicare then picks up most additional costs.

The Congressional Budget Office has informally estimated that filling the hole would cost $450 billion over 10 years, but the agency has no estimate of how much government price negotiations might save. A study released in October by Rep. Henry A. Waxman (D-Calif.), the new chairman of the House Government Reform Committee, estimated that the savings would range from $61 billion to $96 billion.

Even before the elections, Democrats began to acknowledge that they would not be able to eliminate the coverage gap right away. But in months of campaigning, party leaders and candidates fanned public anger over the doughnut hole and accused Republicans of selling out to the pharmaceutical industry.

At a senior center in Sunrise, Fla., on Oct. 3, Pelosi touted government drug-price negotiations as a solution and pledged to make them happen as part of the Democrats' agenda for the first 100 hours of the new Congress.

"We will use that money to fill the doughnut hole so that seniors will have affordability, they will have reliability, and will not be caught in this trap of the doughnut hole," Pelosi said. " . . . You pay [premiums] in, they get the money, you get no benefits back. How could that be a good idea unless you're writing the bill for the HMOs and the pharmaceutical companies, and not for America's seniors?"

In July, Rep. Steven R. Rothman (D-N.J.) issued a statement calling the program "broken" and the doughnut hole one of its "most glaring failures."

"The Republican majority created a terrible mess with Medicare Part D," Rothman said. "We can fix Medicare Part D by providing a prescription-drug benefit through Medicare, ending the subsidies for insurance companies, and allowing the government to negotiate lower drug prices. Doing so will eliminate the doughnut hole and provide a benefit worthy of our seniors."

Back in 2003, proponents, mainly Republicans, saw the unusual setup as a way to provide some help to all beneficiaries, and substantial help to those with catastrophic drug costs, and yet not break the bank with the new benefit. Lately, GOP lawmakers have contended that the doughnut hole is not a problem because it does not apply to low-income beneficiaries, and because other seniors can choose more expensive drug plans that offer coverage without the gap.

Filling the hole soon is unlikely, many analysts say. The White House's opposition means that drug-price negotiations are not likely to be enacted even if the idea manages to win approval in the Senate, where the going is likely to be tougher than in the House, they say.

Even if it were to pass and escape a presidential veto, the House bill would not authorize the health and human services secretary to limit Medicare coverage to a list of approved drugs -- called a formulary -- a tool that some experts say would be necessary to win major price concessions. The legislation would also not explicitly require that any savings be applied to filling the doughnut hole.

"There is virtually no chance that we are going to see any change to the doughnut hole in the foreseeable future," said Robert Laszewski, a nonpartisan health policy consultant in Washington. "The doughnut hole is sort of institutionalized now. . . . It's there for a reason. It's there because that's the kind of plan design the Congress could afford. And just because you change the Congress doesn't mean the affordability changes."

John Rother, policy director for AARP, the powerful seniors' lobby, agreed that substantial changes to the doughnut hole are unlikely this year. But he does not think that Democrats would pay a political price for that.

"It's not an overriding, intense concern for most seniors," Rother said. "What we get a lot from our members is concern about overall drug costs, not just the doughnut hole."

House Energy and Commerce Committee Chairman John D. Dingell (D-Mich.) said requiring government negotiations is just the "first step."

"I plan to hold hearings early in the new Congress to identify additional changes needed to improve the Medicare drug program, and reviewing the donut hole will be part of that process," he said in a statement.

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