Because of an editing error in yesterday's editions, a provision in the catastrophic-illness insurance bill relating to spousal impoverishment and Medicaid when a person must enter a nursing home for long-term care was incorrectly identified as relating to Medicare. (Published 10/29/87)

The Senate last night approved, 86 to 11, a landmark bill designed to protect the nation's elderly against "catastrophic" health care expenses.

Passage of the bill, which authorizes the biggest expansion of Medicare since the program was enacted in 1965, occurred after the Senate voted 88 to 9 to add an outpatient drug benefit strongly favored by organizations of the elderly.

Because catastrophic-illness insurance would greatly expand Medicare coverage, concerns have been raised about its potential cost. But the White House agreed to support the Senate version after weeks of closed-door negotiations. The House version differs on the scope of the drug benefit, and a conference committee will be necessary before a bill is sent to President Reagan.

Under the Senate bill, Medicare's 32 million elderly and disabled beneficiaries would be entitled to up to 365 days of free hospital care a year (compared with 60 days under current law) after payment of a deductible.

In addition, no Medicare beneficiary would have to pay more than $1,850 yearly in out-of-pocket costs on nondrug-related services covered by Medicare.

Sponsors of the drug amendment and the bill's sponsor, Finance Committee Chairman Lloyd Bentsen (D-Tex.), said the new benefits would not add to the federal deficit or deplete Medicare trust funds because new premiums on Medicare recipients would cover all costs.

"This legislation does not add to the federal deficit," said Sen. George J. Mitchell (D-Maine), a sponsor of the drug benefit. "This is budget neutral."

But Sens. Don Nickles (R-Okla.), Steve Symms (R-Idaho), Malcolm Wallop (R-Wyo.) and Jesse Helms (R-N.C.) indicated they still had substantial doubts. "It has a lot of potential for costing a lot of money," Nickles said. "The demand for this program will be such that costs will greatly exceed" estimates, he predicted.

Under the drug amendment, Medicare would pay for 80 percent of outpatient drug costs in excess of $600 a year. Benefits would be phased in between 1990 and 1993 and would be calculated separately from the $1,850 out-of-pocket provision. The House version of the bill has a drug benefit with a $500 cutoff.

"There is no greater miracle than the drugs used in combating and controlling disease," said Sen. John Heinz (R-Pa.), "but for millions of older Americans this miracle becomes a nightmare of costs."

He said about 5 million Medicare patients a year would qualify for the drug benefit, and estimated the cost of the benefit at $2.3 billion over five years.

Secretary of Health and Human Services Otis R. Bowen first proposed catastrophic-illness insurance last year, then became concerned about the possibility of ballooning costs because of the drug benefit. But Heinz told the Senate yesterday that "I am authorized to say . . . that the White House supports the underlying bill . . . plus the drug amendment."

Under the basic bill, each Medicare recipient would pay $4 a month in added premiums (on top of the current $17.90 premium) for catastrophic benefits, plus a small extra premium of 60 cents in 1990, $1.40 in 1991, $2.20 in 1992 and $3.80 in 1993 for the drug benefit.

In addition, about two-fifths of the 32 million beneficiaries would be subject to an income-related premium of about $1.08 a year for each $150 of federal income tax liability. The income-related premium would be subject to an $800 ceiling in 1988, rising to $1,000 by 1992. Only a handful would reach the ceiling.

High-income couples could pay about $1,700 a year in new family premiums in 1988. However, they would be able to save large amounts on private "Medigap" policies many now buy to provide some of the benefits in the catastrophic bill.

Backers of the drug amendment said safeguards had been crafted to keep its costs down. Among them:

A $600 drug deductible that will rise annually to keep pace with program costs.

A funding arrangement providing that if costs exceed premium caps written into the bill, the secretary of health and human services would be authorized to take steps to reduce costs.

A program to encourage use of lower-cost generic drugs.

The Senate also approved on voice vote:

An amendment by Sen. David H. Pryor (D-Ark.) and Pete V. Domenici (R-N.M.) that allows federal and state government retirees whose main income is from non-Social Security pensions to pay the same income-based premiums for the new Medicare benefits as retirees whose incomes come mainly from Social Security. This would adjust for the fact that government pensions are generally fully taxable but Social Security benefits are only partially taxable.

An amendment by Sen. Ted Stevens (R-Alaska) and Pryor providing that where a retired federal worker has Medicare and federal retiree health benefits, the Office of Personnel Management must reduce the rates charged for the federal retiree benefits to take into account the fact that Medicare will be paying for services previously covered by the federal plan and must submit to Congress proposed federal retiree health plans covering only those items that are not covered by the new Medicare benefits so that a retiree does not have to pay twice for overlapping coverage.

An amendment by Sen. Donald W. Riegle Jr. (D-Mich.) providing that where an employer or the federal government cuts back on Medicare retiree health benefits because Medicare's catastrophic insurance comes into effect, the employer or government must for at least one year rebate any savings to the retiree or use them to provide benefits not covered by Medicare or the retiree plan.

An amendment by Mitchell and Sens. Barbara A. Mikulski (D-Md.) and Edward M. Kennedy (D-Mass.) to guarantee that when one spouse goes to a nursing home the remaining spouse doesn't become impoverished by the costs until Medicare starts paying for the nursing home bills. The amendment allows the at-home spouse to keep up to $12,000 in assets and $750 a month without those amounts being counted in determining Medicare eligibility.

All four local senators voted for the bill.