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Public Statements

Hearing of the Senate Special Committee on Aging

Location: Washington DC

July 19, 2004 Monday








SEN. DEBBIE STABENOW (D-MI): Thank you, Mr. Chairman. And I apologize for not being here in time to hear your testimony. And I may in fact be a little redundant but I appreciate your time. Mr. Chairman, this is an extremely important subject and so I appreciate the fact that you're holding this with my colleague as well, Senator Breaux.

First, I would say, Mr. McClellan, would you agree that this is a pretty complicated process for seniors to wade through?

DR. McCLELLAN: Senator Stabenow, it's good to see you again. And we are, as we've just been discussing, trying to take all the steps that we can to make it as straightforward as possible. It doesn't have to be complicated. Seniors who call us can now generally get the information they need in well under 20 minutes to find out, not just about which card can help them save a lot of money, but how much they can save and what it exactly takes to start getting those savings.

So we don't want it to be complicated. We want to do everything we can. We've tried to learn from comments, suggestions and so forth to make as straightforward as possible to start getting help right now.

SEN. STABENOW: Well, of course, the best way to make it the least complicated would be to have one card and for Medicare to be able to negotiate a group discount to get the maximum discount possible as the VA does. And so that's not what this law does. Instead we have multiple cards. And on the cards, for a moment, wouldn't you agree that it's a concern.

I'm wondering how you're going to handle when people sign up for an individual card based on the medicine that they need and with the help of your agency work through which card gives them the best coverage for maybe five medicines that they're on, but then what happens when they find out that the discount list can change every seven days? Or the price can go up every seven days? Do you have a plan for how you're going to address or have you already had calls from people who are locked into a card for a year and find that the five medicines that were covered are now maybe only three medicines that are covered?

DR. McCLELLAN: Senator, it's very important to us that benefits that beneficiaries expect to get under this program actually do come through. And that's why we've been monitoring closely what's been happening to prices, what's been happening to drugs covered and monitoring closely all calls and complaints that we get and handling them promptly. On prices, it's been the case in this program from the beginning that they can only go up when costs go up, not for any reason which is the case outside of Medicare today. And we've seen prices for brand name drugs actually come down on average since the program was started. We're going to continue to monitor that closely.

And in terms of drugs that are covered, we've had virtually no complaints. I don't know of any complaints about a particular drug that was listed as being on the formulary not being there for a discount. And, in fact, in monitoring what the card sponsors have been doing over time, we've seen no cases, no significant cases of drugs that were listed coming off. And talking with the card sponsors, many of them are saying, well, the only times that we think we might even think about changing some of the drugs that we cover are if a generic version is approved, in which case, seniors will get a lot more savings for it, or if the FDA changes the reasons that it thinks the drug should be used, in which case there will be a good medical reason for a change.

But we're monitoring that closely and so far, we've not seen any substantial complaints about either prices, because they've been coming down, or drugs covered, because they've been staying stable under this program.

SEN. STABENOW: Well, I think that's good news if, in fact, the drugs don't change once a senior signs up. Wouldn't you agree that that would not be a very fair situation if somebody signed up for a card based on certain medicines being discounted and then found that that changed down the road? Wouldn't you agree that that would not be-would not be fair even though right now, it may be legal?

DR. McCLELLAN: That's right. That's why we made clear to the companies that we will be monitoring them for any kind of bait and switch activities and tracking customer complaints which we're doing now and we're also making sure that customers know about it. The companies that are doing-the cards that are doing a good job of keeping prices down and offering a broad range of prescriptions. Those cards are the ones that attract beneficiaries.

That's why it's so important, I think, to get good information out about actual prices that people are paying and actual drugs that are being covered so that if people don't just have a discount card and they don't know what it means. That's the way that too many of the existing discount cards have operated before this program came along.

SEN. STABENOW: You speak about the prices having gone down since the program was instituted. Have you monitored or looked at the studies that-AARP has done a study, Families USA and others about the dramatic increases in prices before the discount card came into being.

DR. McCLELLAN: They are looking at a slightly different thing. They've been tracking before and during the list prices for brand name medicines. Seniors should never be paying anything close to the list price for brand name medicines with the programs out there, thanks to us and thanks to the other options that are available to them as well. We have looked at prices for brand name-commonly used brand name drugs, going back as far as early 2003, compare them to the discounts that we're seeing now. And again, we're seeing savings of 10 to 30 percent for commonly used brand name drugs, even compared to the list prices, the list retail prices from way back before this program started in early 2003. But that's why it's so important for seniors to get into a card program like this so they never have to pay anything close to retail prices again.

SEN. STABENOW: Well, this reminds me a little of some of the price increases I've seen. It reminds a little bit, Mr. Chairman, of a store who ups their prices 30 percent and then puts a sign up and then says 15 percent off. There's a lot of concern about that kind of thing happening since between the time the law was passed and the discount cards.

But a couple of other questions, if I might, Mr. Chairman.


SEN. STABENOW: Regarding the assets test-and again, I apologize if you spoke to this and I didn't hear your comments earlier-but when we look at the fact that, for $6,000 for a low income senior, they can be removed from what is really the maximum help. And we all agree that, under this legislation, while I would certainly design the entire bill differently, do it differently, we, I think, all agree that for our low income seniors, there is the maximum amount of help and we would want that to be for low income seniors. I have to say, as a caveat, that it very much disturbs me in a state like Michigan where someone under Medicaid is going to go under Medicare and actually pay a bigger co-pay than they did under Medicaid.

But could you speak to the fact that right now, we're looking at a calculation for a low income senior at an assets test that basically says, if you have $2,000, if you exceed $2,000 on household goods or personal effects-and that could be your wedding ring, that could be your furniture-if you exceed $1,500 on a life insurance policy which, my guess would be, most people today, if you have life insurance, it would be more than that, or funds set aside for burial expenses that would exceed $1,500, you are disqualified as a low income senior for the help. So that you maybe have a small insurance policy put aside a little bit so your children don't have to pay for your burial, you have a wedding ring, maybe you have a little bit of furniture and this program doesn't help you. Does that make sense?

DR. McCLELLAN: That wouldn't make sense and that's why I want to make sure we implement the assets test effectively. You know, the point of this legislation, as you said, was among other things to target the best, the most comprehensive assistance that people have the least ability to pay and, while there are many seniors that have some ability to pay because they've got a lot of financial assets and other resources available, there are millions who don't. And that's why, under our estimates, I think that's going to definitely be borne out in practice, a third of all Medicare beneficiaries are going to qualify for this comprehensive low income help.

Now we've got some work to do to make sure that we implement this assets test effectively. But I can tell you right now, even before we go through the full notice and comment, have some discussions about what should count and what shouldn't count, I'm not going to be taking away benefits based on seniors keeping their wedding ring. That is not the way that this program, I think, was intended to operate and it's not the way it's going to operate. There may well be some other financial assets, you know, if they've got tens of thousands of dollars in the bank, yeah, I think that's an area that we're worried about, not spending too much money in federal government programs that might not be the best person to target all this comprehensive assistance to.

But we're going to be very careful about doing this assets test in a way that's fair, in a way that focuses on seniors' true ability to pay not because they've got a family heirloom or a wedding ring or some other special prized asset. That should not be counting for purposes of these important benefits.

SEN. STABENOW: Well, you may make light of that. But the law doesn't say that.

DR. McCLELLAN: Well, that's why it's very important for us to implement the law effectively. We have some discretion within the law on how to interpret things, like what counts for an asset.

What I think and what we'll ask for comment about is that Congress intended for us to do a reasonable application of an assets test for people that aren't truly of limited means just because they happen to have low income in a particular year. They might be expected to contribute to some of the cost, 25 percent of the cost for premium, just like higher income beneficiaries would. But for beneficiaries that are truly low income but for a small life insurance policy or a wedding ring or something like that, that's who we really want to help.

SEN. STABENOW: But the law refers to categories and calculations regarding funeral plots and life insurance policies and by definition, let's say someone gets to keep their wedding rings, thank goodness, you're saying and the law says that if you have $6,000 worth of assets, you don't qualify as a low income senior. That's not very much, is it?

DR. McCLELLAN: It's not very much but it's much more, Senator, than millions of beneficiaries have today, millions of beneficiaries who are paying full cost for their drugs and who don't have any help right now from Medicare or anybody else with their drug costs. And that's what we're trying to change.

SEN. STABENOW: And you're suggesting that, when you're done, a third of those on Medicare will qualify under your definition of someone who has $6,000 of assets?

DR. McCLELLAN: About a third of Medicare beneficiaries can get the additional assistance envisioned in this law being able to get your drugs for as low as a few dollars per prescription or at most a few hundred dollars a year. That's right.

SEN. STABENOW: Well, I will be watching very closely for that, Mr. McClellan.

DR. McCLELLAN: And I look forward to working with you on this. I know how important that assistance for people of limited means is to you. We're going to have a broad discussion of this when we put out our proposed regulations. We're working with the Social Security Administration, other experts on thinking about what should and shouldn't be counted in terms of coming up with a workable, fair asset test and we're going to do that as effectively as we can under this law.

SEN. STABENOW: Well, just for the record, Mr. Chairman, I don't believe there is a way to come up with a $6,000 assets test that is really fair, no matter how good intentions-how many good intentions there are, that amount is an extremely limited amount of money to say to seniors of this country, in terms of giving them the help that they need.

One other quick question and that is, last week, we read in the paper about another group of people I'm very concerned about and that is those who have private retiree coverage now. There are a lot of those folks in my state, worked their whole life, have retiree coverage, have given up pay raises and given up other kinds of bonuses to be able to get healthcare during their retirement years. Originally we saw numbers, before this bill passed, about 2.7 million people were likely to lose retiree coverage because of the way this is structured. And now we're hearing at least internally that there are numbers that say that that's more like 3.8 million people who will lose retiree coverage.

This is just one of a series of reasons why I did not support the original Medicare bill because I believe, in addition to not really giving the help to low income seniors because of all the bureaucracy and the assets test and so on, I have a very deep concern and belief that first rule should be do no harm and that, if anybody is losing their retiree coverage as a result of this, we are doing them harm. And I'm wondering if you would respond. I understand you had put out a statement that those numbers were not accurate.

DR. McCLELLAN: That's right.

SEN. STABENOW: It's difficult for us, when we look at the budget numbers that were put out that were not accurate and then different numbers came out after the bill passed and we hear from the actuary that he was threatened with losing his job. So it's very difficult-and I certainly want to have confidence in the numbers that come out. But it is very difficult given the kinds of information and changing of numbers and so they have gone on as it relates to this new law. But I wanted to give you an opportunity to speak to why this number evidently put together by someone within the department which is substantially higher-in fact, 1.1 million more retirees that would lose private coverage-why you are indicating that that is not accurate.

DR. McCLELLAN: Senator Stabenow, let me reiterate very clearly that that is not our policy and that what we are doing as the lead-up to implementing this new retiree assistance effectively is considering a range of options and we're going to put out for public comment a range of options about how to best increase the strength and the security of retiree benefits. I've talked to a lot of seniors as well and I probably don't get as much of a chance to in Michigan as you do and I know how worried they are about their benefits and how important-you know, they've seen the trends over the last decade of declines in coverage, less employer contributions and higher costs that they have to pay if they get to continue their benefits at all. We intend to stop that.

We intend to stop that decline. We intend to end up with a policy that not only preserves but increases the support for retiree coverage that adds existing employer contributions to the new help from Medicare, over $70 billion in new assistance for employer programs like GM, Ford and others in your state and we are going to have a very public process. We're getting comment on this from members of Congress like you, from getting comment from retiree organizations, from getting comments from the employers themselves about how we can use all the tools in this bill to get them the maximum additional help and continue to provide strong, effective retiree coverage.

It includes coverage that people would get from the retiree drug subsidy, which is one of the particular subject of that New York Times article. It also includes new assistance that retirees can get by employers wrapping around the Medicare Part D benefit or offering an enhanced Part D benefit themselves, one that is a comprehensive benefit that they will now be able to do for a much lower cost, if they're footing the whole bill on their own. So all of those approaches are important ways of augmenting employer coverage. And we are going to have a full discussion of all the options for doing this with a single goal in mind of how to get the most additional help to retirees for the least additional cost to the federal government.

SEN. STABENOW: I'm certainly hopeful that your statement that no one will lose their private coverage as a result of this will in fact happen. Finally, are you going to support our reimportation bill?

DR. McCLELLAN: (Laughs.) Well, that's outside of my current jurisdiction, Senator. I am sure --

SEN. STABENOW: Private citizen.

DR. McCLELLAN: -- that we're working-we're going to keep working together as close as we can on finding all the safe and proven and effective ways of lowering drug cost for our seniors and I look forward to continuing to work with you on all of these ideas.

SEN. STABENOW: Thank you.

Thank you, Mr. Chairman, for your patience.

SEN. CRAIG: Thank you, Senator.


SEN. STABENOW: Thank you, Mr. Chairman. I just have to comment more than a question and say I appreciate and fully believe that you're doing maximum outreach as it relates to all of this. But we wouldn't need to spend all this money to do this and all of this time if we had taken the approach of one Medicare card, allowing Medicare to negotiate maximum discounts for everyone and then making that available to people so that-this approach is the most complicated and the most costly way to go on this. And I would also say if we allowed the pharmacists in my great state and around the country to negotiate and bring in prescription drugs-to do business with those in Canada, we could drop prices in half tomorrow which is a bigger discount than any card we're going to come up with.

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