Medicare Drug Bill Raises Consumer Ire

By

Washington

The Medicare prescription drug legislation approved recently by the House of Representatives is being hotly debated by interest groups.

While business groups are calling H.R. 4954 a significant first step towards comprehensive reform, consumer groups are blasting the legislation as deceptive and unworkable.

Specifically, H.R. 4954, called the Medicare Modernization and Prescription Drug Act, was approved recently by a narrow 221-208 vote that went largely along party lines.

The bill establishes a voluntary prescription drug benefit program. Under the program, beneficiaries would have an annual $250 deductible for prescription drugs.

Insurance companies participating in the program would cover 80% of costs between $251 and $1,000. Insurers would pay 50% of costs between $1,001 and $2,000.

Beneficiaries would pay all costs between $2,001 and $4,500. Above $4,500, Medicare will pay all costs.

Beneficiaries below 150% of the poverty line would receive a premium subsidy for the prescription drug insurance.

A health care business group, the Healthcare Leadership Council, Washington, praised the legislation, stating that senior citizens have waited too long for prescription drug coverage.

“The House of Representatives has given Medicare beneficiaries hope that they may see a modernized program that provides increased access to needed medicines, preventive care and new, improved treatments,” sayd Mary R. Grealy, president of HLC.

She said the Senate should do what is right for seniors and work to make prescription drug coverage a reality.

A major employers group, the National Association of Manufacturers, says the legislation relies on some of the same means employers use to managed their drug benefits, adding that it will expand the availability of affordable prescription drugs.

But consumer groups are blasting H.R. 4954.

Gail Shearer, director of health policy analysis for Consumers Union, Washington, says the bill is doomed to fail because its basic design in flawed.

“Congress has ignored an important lesson from the Medigap market,” she says. “The insurance industry cannot deliver an affordable prescription drug benefit in a voluntary marketplace where those with little need for medicine can simply pass up coverage.”

Shearer says the legislation falsely raises the hopes of seniors.

Ron Pollack, executive director of Families USA, agrees.

“The House Republican prescription drug bill is far better designed to provide political protection for House incumbents than drug cost relief for Americas seniors,” he says.

“The bill fails to deal with skyrocketing costs, provides no guaranteed drug coverage and requires seniors to pay the lions share of unaffordable drug costs,” he says.

Health insurance groups did not comment specifically on the prescription drug plan in H.R. 4954.

However, during an earlier press conference, Don Young, president of the Health Insurance Association of America, acknowledged concerns about adverse selection in a drug program that is voluntary.

In other news, the United States Supreme Court has agreed to review an issue of major importance to life insurers, the constitutionality of large punitive damage awards.

In the case of State Farm v. Campbell, the high court will examine a $145 million punitive damage award assessed against the insurer, based in Bloomington, Ill., for alleged bad faith handling of an auto insurance claim and intentional infliction of emotional distress.

In a series of earlier decisions, the Supreme Court has said there are constitutional limits to punitive damage awards. However, the court has never clearly defined those limits.

Rather, the court has presented a three-part analytical test for evaluating punitive damage awards.

These are: (a) the degree of reprehensibility of the conduct, (b) the disparity between the harm suffered and the size of the award, and (c) the difference between the size of the award and the penalties authorized in comparable civil or criminal cases.

In the Campbell case, State Farm was accused of bad faith for refusing to settle a third party auto insurance claim even though the company allegedly knew that its insured was at fault for the accident.

The case went to trial and the jury assessed damages against the insured that exceeded his policy limits. State Farm allegedly indicated that it would not pay the amount in excess of the policy limit, although in fact it did pay the entire amount of the jury award.

Nonetheless, the insured sued the company charging that refusing to settle constituted bad faith.

State Farm said during the trial that its decision not to settle represented an “honest mistake.”

However, the plaintiff charged that the decision was part of a “national scheme” to meet corporate fiscal goals by capping claims payments.

The jury awarded compensatory damages of $2.6 million and $145 million in punitive damages.

Although the trial judge reduced the punitive damage award to $25 million, the $145 million award was reinstated by the Utah Supreme Court.

The United States Supreme Court will hear the case during its 2002-2003 term.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.