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MEMORANDUM
TO:
FR:
RE:
cc:
Hillary Rodham Clinton
Chris I.
FYI .on ConverSation with Senator Wofford
Melanne
April 10, 1995
During your trip in India, Senator Wofford asked me to meet with him following a discussion
we both had with the board of Families USA. He mentioned how upset he was at himself for
. not calling you prior to your departure. (He wanted to. share his experiences in India and
give you some advice.) He said he would love to talk to you about the trip once you
returned; I told him I was certain you would enjoy such a discussion. (Just a heads up that
he may call --; if he has not done so already.)
The Senator seems to be having problems deciding exactly how he wants to frame his
writings on health care. However, he is giving a number of speeches on the history and
current status of health reform. I gave him some new pudget and polling numbers, and he
seemed quite appreciative.
Lastly, as you may know, Senator Wofford is writing and giving NPR commentaries on a
wide range of issues. Attached for your information are copies of some of his latest
comments that he gave to me.
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NATIONAL PUBLIC RADIO - Morning Edition - 3/28/95
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"The secret heart of America."
,
Comments by Harris Wofford
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Why do we make it so hard for our politicians to strike. common
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sense balance on complicated issues like affirmative action?
"w~dge"
.
s~e
That's the
issue now being used by those who
America
divided into two w:arring camps on matters of,race and poverty. and hope 10
win by the formula of divide and conquer.
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Race is the oldest. most dangerous wedge in AmerIcan pblitics .- a
time·tested way to 'split the natio11 apart. Once it led to civil w.r. For years
,
.
.
afterwards, especially in the South, it was the way for demago,ues to win
electjons..,
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Knowing the damage racial discrimination was doing to
to the country, Lyndon Johnson, the president who gave the st
original push to policies of affirmative action. warned that thi
securing "the fu11 blessings of American life" to those who had
and jeft behind lays "bare the secret heart of America,"
is region and
6ngest
issue of
een left out
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It still does. As Pat Buchanan and PhH GraUl m hammer qn this wedge
. with glee. Jesse Jackson threatens to run for president himself jif President
CHnton proposes any cfianges in those policies.
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So off we go to another political war. this time on a mat1~r that
out not the better angels of our nature, but the worst in us.
bring~
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Have we forgotten what we learned from the years of cjyil righ,ts
struggle in the South and then from the, riots in the cities of th, North and
West?
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Three decades ago, when affirmative action became nati
policy. most Americans -- and both panies -- agreed that rem
. open the doors of education and economic opportunity was ne
proper. Most of us understood that overcoming a century of d
nallaw and
dial action lO
ssaryand
crimination
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�would be far more complicated than striking down segregatio laws or
enforcing the right to vote. We also recognized that when goal are turned
into quotas a price is paid -- both by those who consider them elves victims
of reverse discrimination, and by those who benefit but suffer a
psychological wound from doubt that they have advanced on t elr own '
mer'its. So we hoped that the time would come when these re edies were
no longer necessary.
Take one example. In the 1950s there werf! only a handful of
women students in my law school classes. Women suffrage lea ers went to
historically black Howard Law School at the turn of the centur. because
neither they nor black students could break the white male m nopoly at
other schools, Today women law students, who may soon outn mber men, no
longer need help in law school admissions. But can anyone den thatthere
are many other areas where special efforts are still needed, es ecially in
tapping the talents of African-American or Latino men and wo en?
So itls. time to review the various kinds of affirmati\'e a tion to see
which are still needed and which may do more harm than goo . But let's do
it knowing this still is an issue that lays bare the secret heart Amedea.
Let's do it not in the spirit of political warfare, not with partisa hammers,
. and not with the kind of broad-brush denu'nciation coming fro those whose
real goal is to sew division and reap votes.
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�NationaJ Public Radio
~
3/4/95
"The political football of the Balanced Budget Arne drnent. tt
. ,.,'
Comments by Harris Wofford
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The politicai football of the Balanced B,Udget Amendment h b~en kicked off the
field -- for the time being, But Senator Dole ·promises to br' g it back before the
presidential election, when the heat under the feet of Democratic s ators will he hottest.
ThI;lt'S the kind of game they love· to play in Washington; An its the kind of low
political gamesmanship that makes people hate politics~
Maybe some Member of Congress with a sense of hUIljlor w'
an ultimate political football: a constitutipnal amendment that rolls
controversial pending proposals, the amendment, just blocked, for
the one still to come, for prayer in schools .. That would be a con
requiring that public schools begin each day with a prayer for a b
1 throw onto ~he field
to one the two most
balanced budget, and
itutional amendment
lanced budget.
Joking aside, Republican leaders better reconsider their cou e because they're on
a hot seat, too. With straight faces they promise that cuts in Soci Security will not go .
on the budget-balancing table yet they let the amendment go dow to defeat rather than
put that promise in the proposed amendment. Who do they think ey're fooling? The
people, of cours~ .
.They know politicians are trying to fool them about Social
balanced budget, and probably about prayer in schools. As every on
the surplus in the Social Security fund is being counted as an asset i
and not treated as a debt owed to people who reach the qualifying
honest budgeting, it's time we faced up to the fact that our natio
we're told. That's because these social security funds are a trust h
for some security in their older years.
.
Security and about a
is at last discovering,
balancing the blldget
age. For the sake of
1 debt is larger than
d for those who paid
Let's put this challenge to those in Congress who say they co sider Social Security
a sacred contract with the American people: If you mean what you say, then come
together, across party lines, and take the steps necessary to stop c unting the trust fund
surplus in budget-balancing. And then move on to some practical alth care reform that·.
would enable· the growth of medicare costs to be cut, fairly -- t t would do more to
reduce the deficit than any other action Congress can take, since he Ith care costs are the
only major budget item that keeps increasing beyond the rate of i flation .
•
This is what President Clinton has been asking. Instead of lip service about
reducing the deficit or playing politics with the issue, the President has already taken the
any administration
country, in just over two years, further toward a balanced budget
since John Kennedy's. Let's keep on that track.
�~ATIl)NAr
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give governing a chance"
Comm'~nts bv
Harns Worrord
In the midst of the fanfare over the launching of the pre'sidemial
campaigns of Senator Phil Grumm and Lamar Alexander. and the visits of a
dozen would-be Republican candidates to New Hampsnlre, did you' notIce the
obvious relish with which Washington political reporters welcomed the earLy
start of the 1996 race?
It was as if thev were at last relieved of the heaV'v'dutvlol trvin~ to
.
, :
...
make sense of Washington's reaJ -- and complicated -- problems of
governjng --, released to travel again the Road to tIle White Hquse.
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The trouble ';itbthat is there already is someone in thj White House.
~eginning the second half of his term. This is 1995. not '96. an l lot of U$
,
were hoping that at least this year. the year befor~ the bIg qu '.drenmoJ
battle, Wash1ngtOn mIght get some govermng (lone,
,r.
The dJalogue of Newt anu Hilf, ami now the
UH1lo~UC
between the
Bouse and the Selllle: :~ iust beginning to get intereSlin~. The(e 1:'
agreement on some major goals - lhe reduction of governmem bureaucracy,
'.
well'are anc111ealth care ret orro. progress toward a balanced budget. In tl1e
clash of ideas about how \0 reach those goals. there is the possibility that
lY95 could ~ee some hard-fo'ught but practical and pcrhups hIstone
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,
"
comproffilses.
There's iitlJe ci1unce of that happening In the mJdst of ejectIon
warfare. An American national election is a kind of war. with aerial
bombardment. simplistic promises. thirty -second negative ads; charges ;m\.!
coumer ·charge~ -- everything but governmg, Last yeJr ;1;:1 the ;eicctwl1 tJctJCf;
of slash and burn took over. Congress became a killing field fO iegisiation -
even for legIslation me mbers on both sides of the aisie fuvore , .
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When an old woman was once asked why she tOl)k pride innev~r
voting, :,he said. "! don l \vant to encourage them'"
.
~:lvmg Ihe sam..: [him!
end, \1'e CJn i, l1iscour;:ge (I,e canut(J,Hl~!:~
!vlaybe one· reason so manv Amer ie-am are nc·'.\.'
is that the electIOn seems to nc\'er
but lefs ask news editors assigninu renorters not to forsake Washimn,on fur
'the campailrm trail -- not vet. Let's 'hay:e some balance in the S~iectio~ of
stories and -give governing J chance, ,
�"
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ME.MORANDUM
TO:
FR:·
RE:
cc:
March 14, 1995
Hillary Rodham Clinton,
Chris Jennings
Health Care Polling Data,
Melanne, Jen
. Stan Greenberg's, shop has been pulled a host of public polling data on a wide variety ,
of issues. I thought that youniight be interested in reviewing those questions that have health
care as their central focus. '
A brief reviewof the information documents that health care reform remains at or ~ear
the top of the public's legislative priorities. Americans also consistently report that they not
only lose their appetite for deficit reduction when'Medicare is thrown on the table for
consideration, but that cuts in the'Medicaid program -- defined as the "health 'program for
the poor" -- produces a similar result. More specifically, at least two thirds of those ,
surveyed respond negativelY.to Medicare and Medicaid cuts being used for deficit reduction.
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The polling data clearly points out the problem the Republicans will have when they'
formally propose the level of Medicare and Medicaid cuts (over $200, billion over 5 years to '
be roughly divided between the programs) that they are reportedly considering., If we choose
. to criticize their proposals, they will be extremely' vulnerable to charges that they are
, undermining the programs and the p~ople they serve. ~This will particulaily be the case when
the aging advocacy groups join in -- or start -- their own' chorus of criticism.)
The likely fig leaf the Republicans hbpe' to stand on is the public's growing familiarity
and comfort with managed care (HMOs/PPOs/etc). If the Republicans can sell their approach
'as providing greater choice, with the ability to retain the option of fee for service, they may
have ~ome chance of capturing the media elite and at least some of the public. The fact' is,
however, that the only way that managed care, can produce the' level of savings the
Republicans ate discussing is through limiting choice of afford~ble options.
The many issues and options surrounding managed care, particularly Medic~re
managed care, need to be fully discussed and evaluated. Attached for your review is a
, current draft of a memo we wrote for the President on this issue. By next week, we plan on
conipleting our review of the possible managed care options that are likely to be on the table.
We will of course get this information to you as soon as it is available.
�,
January 27, 1995
\~.
MEMORANDUM FOR HILlARY RODHAM .CLINTON
FROM:
SUBJECT:
cc:
CHRIS JENNINGS
Health Care!Budget Briefing
Melanne V.
The following information was prepared as back-up for an oral· briefing fqr the
President on the implications of a Medicaid block grant or cap. Because of time constraints,
the briefing was cancelled
Since the Medicaid subject is not likely to be raised at NGA this weekend, Carol
decided it would not be wise to overwhelm him with paper at this time. I thought, however,
that you would be interested in the enclosed. The Medicaid capping issue will be at the. heart
'of the upcoming budget discussion and I believe this inforination may be quite helpful to you
decide how we can best evaluate how to respond to the inevitable Republican initiatives in
this area.
Attached you will find a 2-page document that provides a brief summary of the
budget and political status of this proposal and an advantage/disadvantage summary. Behind
this document is a much more detailed background memo which .illustrates the serious
implications of the block grant/capping idea and the reason why many of the Democratic
Governors (and particularly the advocates) are nervous.
On an unrelated matter, I want you to know that I have started meeting with Drug
Company reps on the regulatory review issue. Just last night, I had a productive discussion
with Merck and Bill Schultz (the new FDA Deputy to David Kessler and a friend of mine).
They had a number of ideas that sounded quite reasonable to both Bill and myself. Their
particular gripe is with the section of FDA that reviews biotech drugs and their slow and
unresponsive review process.
We are going to meet with at least two or three others companies (I will include
American Home Products on that list) in the very near future to add to our now growing list
of regulatory changes that will please the industry and that can be implemented without
compromising safety. I would be happy to go over them if you have any desire to do so.
Lastly, I talked with Harkin's staff. They are sending me over everything they have
been doing in their oversight work on HCFA. Their staff is very interested in working with
us. I'll talk to you the moment I have some follow-up that comes close to being worthwhile.
�MEDICAID: BUDGET AND POLITICAL ENVIRONMENT
Congressional Republicans need hundreds of billions of dollars to finance tax cut
and deficit reduction pledges.
Medicaid is seen as major cash cow because it is vulnerable as it serves the poor and
because many Governors may be willing to negotiate over a cap. (In addition,
Republicans growing increasingly nervous about excessively large Medicare cuts.)
Speaker Gingrich discussing a 5% cap on Medicaid program growth, which would
yield $130 billion ($193 billion using CBO numbers) in Federal savings through 2002
, and $375 billion ($500 billion using CBO) in Federal savings through 2005.
Republican Governors either supportive or staying quiet for now because they
philosophically support. Moderate Republicans from states with high growth rates are
evaluating just how they could live with these reductions in Federal dollars:
Governor Dean sending signals he might be open to a cap, although most
Democratic Governors appear to be extremely nervous about it. Governor Chiles,
for example, is very-'opposed to eliminating individual entitlement. Having said this,
some low growth rate states think it might not be a bad deal for them and others are
nervous about defending a program for the poor. The fear that unifies almost all of
the Democrats, however, is the size of potential reductions in Federal support.
Not on NGA agenda for this weekend, although DGA meeting may discuss to plan
out a more unified Democratic Governors' strategy. Medicaid capping may also come
up in context of balanced budget disucssions that may be raised at NGA meeting.
Any block grant deal on welfare reform will serve as precedence and political
cover for Republicans who need the Medicaid money.
Weak but vocal advocates are opposed and scared: many of these are considered
our traditional Democratic base.
�ADVANTAGES AND DISADVANTAGES OF MEDICAID CAP
Advantages
•
Allows Federal Government to achieve savings by lowering or capping growth rate.
•
Increases flexibility for States to qesign and administer Medicaid programs to refle~t
their priorities.
•
Avoids requiring Congress or the Administration to specify cuts.
•
Provides greater predictability in future Federal Medicaid funding:
Disadvantages
•
Impact on States
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Places States at risk for cost of aging population.
•
Makes States less able to. expand coverage ..
•
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Leaves States at risk during recessions.
Forces Governors· -- not the Congress -- to specify cuts.
Impact on health reforn1
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Increases number of uninsured .
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Exacerbates cost shifting.
�MEDICAID CAP/BLOCK GRANT BACKROUND INFORMATION
PURPOSE:
To review the implications for states and for coverage under the Medicaid program of NGA
and likely Republican proposals to cap Medicaid spending.
BACKGROUND:
Although not on the formal agenda, it is possible that the topic of capping the Medicaid
program may be raised at the upcoming meeting with the Governors. (In all likelihood, if it
is raised, it would come up in the context of the balanced budget amendment discussion.)
NGA's proposed policy would give states the choice between continuing Medicaid as an
individual entitlement or accepting a capped federal payment. The NGA staff recognize this
~'choice" is a political and not a practical policy response to a desire by many Republican
Governors to assure that a Medicaid caplblock grant proposal is on the table for .
consideration. Democratic Governors, like Governor Chiles; have made. the· point that such a
choice would not work in the Congress or in the budget world since states could choose what
is best for them financially; as a result, the primary incentive for enacting a cap -- saving
Federal dollars -- would likely not be achieved in any significant way.
A number of Governors have been discussing a Medicaid block grant with the Republicans· in
Congress. Both Governor Dean and Governor Thompson have indicated that they might be
able to "live with" a Medicaid block grant that caps the growth in federal contribution at a
5% growth rate (the projected baseline growth rate is 9.3%). Under a 5% growth rate
scenario, the reduction in federal spending would be very large -- about $375 billion over
ten years (over $500 billion under the CBO baseline). In recent days; however, Governor
Dean and his office have made clear he has made no deal and does have concerns.
It is worth pointing out that a 5% cap means that the states (in aggregate) must reduce total
program costs by the $375 billion before they can begin reducing their own spending levels.
While there are some low growth with fairly large base levels who could save money in the
short-term, it is· unlikely they could do so over the long term without cut-backs in services or
programs.
Obviously, the Governors are interested in block grants because they free states from federal
requirements and oversight. Many Governors appear to be willing to consider reductions in
federal payments in exchange for greater flexibility that results from eliminating the
individual entitlement. However, if the Administration can come up with proposals that are
responsive to the flexibility requests of the States that do not include Federal caps, such an
approach could well be more attractive.. (Such approaches are discussed at end of the memo).
1
�Proposals to convert Medicaid to a block grant raise a number of serious concerns. Some
relate to converting Medicaid from an individual entitlement to a block grant. Others relate
to the effect that significant reductions in federal payments would have on coverage. The
following outlines these concerns.
Converting. from Individual Entitlement to !! Block Grant Raises State Concerns:
•
States At Risk from InDation and Recession. As an individual entitlement
program, Medicaid automatically adjusts federal payments to meet changes- in medical
costs or the level of need. For example, when a recession occurs, the number of
people without work that qualify for Medicaid can rise dramatically, increasing
program costs. Under an individual entitlement; the federal government shares the
additional costs. Under a block grant, states must addre~s the increased need on their
own, either by increasing state spending or reducing services and coverage.
•
Block Grants Do Not Recognize Differences Among State Programs. A block
grant that fixes the growth in federal payments at. a set percentage would benefit some
states and penalize others. State growth rates can vary for many reasons, including
changes in population, regional medical costs, enrollment patterns or service mix.
States also have very different opportunities to achieve savings through managed care
(e.g., some states already have achieved savings; rural states have less capacity to
implement capitated payment arrangements). An individual entitlement adjusts federal
payments to these changing circumstances; a block grant does not. The variation in
state growth rates for the 1990 to 1993 period is shown in Attachment 1.
•
States At Risk for Cost of Aging Population. As the population continues to age,
the growing need for long-term care services will put increased stress on the Medicaid
program. Under a block grant approach with a fixed federal payment, states would
bear the burden for providing these services as the population ages.
•
. Tough Choices Are Devolved To States. Under a block grant approach, the federal
government can achieve substantial federal budget savings without taking
responsibility for identifying specific cuts in payments, services or eligibility. The.
tough choices about where to cut are left to the states. This problem is likely to get
worse over time, since reducing the rate of growth of a block grant payment is much
easier than making specific program cuts.
2
�Effects of Capping Federal Payments
Given the magnitude of cuts necessary to fulfill Republican promises, a block grant would
inevitably result in a significant reduction in federal Medicaid payments to states. For
example, the 5% growth proposal· that Speaker Gingrich has discussed with the Governors
would reduce federal payments to states by $130 billion between 1996 and 2002, and by
about $375 billion between 1996 and 2006. (Under the slightly higher CBO baseline, the
reduction is over $500 billion over the ten-year period). In 1997, projected federal payments
would be reduced by about ,7% to 10%; in 2006, the reduction rises to 35% (40% under CBO
baseline). This is due to the cumulative effect of annual reductions in federal payments. This
is shown graphically in Attachment 2.
You may hear from some Republican Govern~rs (and particularly Republicans from the Hill)
that large reductions in the growth of federal payments are acceptable because managed care
'\ can produce enormous savings. Although managed care can improve efficiency and thereby
produce meaningful savings , the savings are not nearly enough to compensate for the very
large reductions being discussed with the block grant proposals.
Given the rapid expansion of managed care that already is occurring in states, a significant
portion of the potential savings are already being realized. Also, managed care is applied
almost exclusively to the nonelderly, nondisabled population, who account for only about one
third of Medicaid expenditures. Preliminary OMB estimates show that if all nondisabled,
nonelderly'recipients were enrolled in managed care by the year 1999, any additional savings
through 2005 would be less than $5 billion. However, some states may use managed care as
a mechanism simply to make large cuts in provider payments. In reality, this is a cost shifting
strategy rather than cost containment.
Under the current baseline, Medicaid entollment is projected to grow at about 4% annually.
Medicaid per capita spending actually is projected to grow at approximately the same rate as
per capita private health spending. Therefore, capping federal Medicaid payments substantially
below baseline would appear to assume either that states can contain costs much better than
the private sector or that substantial reductions in the scope of the program (including cuts in
eligibility) are acceptable. While some states may be able to adapt to such a large reduction
in federal support for a few years, most probably cannot. Over a longer period, few states
could respond to this level of reduction without significant program cuts.
Illustration of State Responses to Capping Federal Payments
The following discussion illustrates the impact on states' of a block grant that caps the federal
payments at a 5% rate of growth. For ease of presentation, the information is presented under
the assumption that states would respond to reduced federal payments entirely through one of
the following: (1) higher state spending, (2) lower provider payments, (3) benefit cut backs,
or (4) eligibility cutbacks. Although a few states might increase spending in response to
federal payment reductions, most would likely reduce eligibility, benefits or payment levels.
3
�The following scenarios assume that states maintain (or in the first case, increase) the level of
spending projected in the baseline. The state responses shown below merely offset the
reductions in federal spending -- they do not produce any savings to states. If states were to
reduce their spending below the projected levels in order to achieve savings in their own
budgets, additional reductions would be needed.
•
Increase State Medicaid Spending
If states chose to increase their own spending in response to the reduction in federal
payments, between 1996 and 2002, state spending would need to increase by over
20% over baseline projections. However, because the size of the federal payment
~eduction would grow each year, the percentage increase in state spending would also
need to grow:
...
•
In 2002,· the increase in state spending would be 32% over baseline
projections;
.
In 2005, the increase in state spending would beA3% over baseline
projeCtions.
Reduction in Provider Payments
If states chose to reduce provider payments in response to the reduction in federal
payments, between 1996 and 2002, payments to hospitals, physicians and nursing
homes would be reduced on average by 13.7%. And because the size of the federal
payment reduction would grow each year, the percentage reduction in provider
payments (relative to baseline projections) would also need to grow. For example:
...
...
...
In 1997, a 6% reduction in hospital payments would be needed;
In 2002, a 22.9% reduction in hospital payments would be needed;;
In 2005, a 32.8% reduction in hospital payments would be needed.
These(reductions are on top of Medicaid's already low payment rates. This level of
provider cuts will disproportionately harm public hospitals and clinics, for whom.
.
Medicaid is a significant payment source.
•
Reductions in Benefits
States also could choose to reduce benefit levels in response to the reduction in federal
payments. The amount of savings that could be achieved through eliminating
particular categories of benefits is shown in Attachment 3. For example, eliminating
all dental benefits could achieve about 28% of the necessary savings from baseline in
1997. Eliminating personal care services would achieve about 55% of the necessary
savings.
4
�These reductions, however, would not be sufficient over time, because the size of the
federal reduction would increase each year. For example, in 2002, eliminating dental
benefits would produce only 8% of the necessary savings, and in 2005, only 6%. In
2005, eliminating all benefits for dental, prescription drugs, EPSDT, home health
care, hospice, personal care services and payments for Medicare premiums and cost
sharing still would not be sufficient to compensate for the lost federal funding.
I
•
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Reductions in Program Eligibility
States also could choose to reduce coverage eligibility in response to the reduction in
federal payments. The amount of savings that could be achieved through eliminating
particular eligibility categories is shown in Attachment 3. For example, eliminating
eligibility for non-cash children (the OBRA expansions) would achieve about 62% of
the necessary savings in 1997, but only about 14 % in 2005. Again, because of size of
. the federal reduction would grow each year, the reductions in eligibility also need to .'
grow.
~ould respond through a combination of these approaches. However, given
the magnitude of the reduction in federal payments, even when states spread the cuts over
several of these categories, the reductions in each category would still be quite large. For .
example, a 5% cap would reduce federal payments to states in 2005 by about $66.3 billion
below baseline projections. If a state chose not to increase spending and were to allocate
their portion of this reduction roughly equally to reductions in provider payments, benefits
and eligibility, it could achieve approximately the necessary savings through:
In reality, states
..
..
..
Reducing provider payments by 12 to 13%.
Eliminating coverage for prescription drugs and EPSDT, and
Eliminating coverage for noncash children and qualified and special Medicare
beneficiaries (QMBs).
And, because federal payments would continue to decline, further reductions would be
needed in each future year. Other options are, of course, possible. Ch(,ut 3 gives you
a partial menu of how much the elimination of particular populations and services (on
a nantional level) would save. Some would argue that states would be more likely to .
choose eliminate AFDC adults rather than noncash kids and QMBs.
Even under less extreme proposals, federal payment reductions can be significant over time.
For example, a 2 percentage point reduction in baseline rate of growth would result in a
large reduction in federal payments -- $ 66 billion-- between 1996 and 2002. In 2006,
projected federal payments to states would be reduced by neaily 20%.
5
�CONCLUSION
Medicaid block grant proposals under discussion would dramatically reduce federal Medicaid
payments to states over time. Increased use of managed care cannot generate the savings
necessary to make up for these reductions and there is little room in state budgets to increase
state Medicaid spending to, compensate for the reduced federal commitment.
Unless states choose to offset federal reductions with increases in state spending, they would .
be forced to respond by reducing provider payments, services, and/or coverage. Given the
inflexibility of a block grant to respond to the needs of individual states and differences in
state political environments, the level and nature of the reductions. in the scope of the program
would vary significantly from state to state.
Reducing the scope of the Medicaid program to such a large extent would not only put those
. '. served by Medicaid at some risk, but also set back movement towards more comprehensive
health reform in a number .of ways, including:
•
Increasing the number of uninsured. Recipient growth currently accounts for two
fifths of overall Medicaid program growth. In fact, spending per person under
Medicaid is increasing at about the same rate as in the private sector.
During the early 1990s, Medicaid increased coverage as employers decreased
coverage. This trend would be reversed under a block grant, increasing the number of
people who are uninsured. The changes in employer-based coverage and Medicaid
are shown in Attachment 4.
•
Exacerbating cost shifting. One of the central problems in our health system is the
shifting of uncompensated care costs and Medicaid underpayments to business and
families who purchase insurance. Reductions in Medicaid provider paYl!1ents or
increases in the number of people uninsured would exacerbate this problem.
f\lternative To Capping Federal Payments that States May Find Attractive.
The obvious question is how to be responsive to States' legitimate need and desire for more
flexibility without imposing significant reductions in Federal support. We have reviewed the
NGA's health policy position paper's recommendations and have conducted our own internal
analyis, which included discussions with OMB and HHS, and have come up with some
interesting possibilities -- there may be even more -- that Iwe believe would be welcomed
,by the Governors. (Since Medicaid is not scheduled to come up before the NGA meetings,
we probably should di~cuss when would be the most strategi<;:: and opportune time to begin
discussions with the GovernorS on this issue.)
6
�Specific and preliminary options to Medicaid cap now include:
•
Agree to NGA's request to eliminate the 1915(b) waiver approval process for
states implementing managed care programs. Instead, the states would simply file
a standard state plan amendment and would be approved as long as basic
accountability measures, such as budget neutrality, are achieved.
•
Consistent with NGA request, agree to eliminate the waiver approval process for
states implementing home and community-based care programs. Instead, the
states would simply file a standard state plan amendment and would be approved as
long as basic accountability measures, such as budget neutrality, are achieved.
•
Enable states to target programs and services to specific populations and
communities. Requirements that programs and services be uniform statewide' would
be removed for Medicaid managed care, home and community based programs, and
optional services.
•
Agree to NGA's request to establish safe harbors under the Boren amendment for
state hospital payments.
•
Agree with NGA that Boren amendment requirements do not apply to managed
care arrangements.
•
Agree to NGA's request for substantial modifications to the PASARR provisions
under nursing home reform. For example, agree that the annual resident review
should be repealed.
•
.
Agree to NGA's request for the development of more demonstration programs
that investigate the integration acute and long-term care services.
7
�Variation in State Medicaid Growth
Difference from Average, 1990-1993
200/0
T
_I
15%
lJl
10% -+
DE
5%
MD PA OR NV KS NE
111 11 •••. -
0%
.1111
NO SC OK
-5%
FL
-1
001o~ VtAA;------------------~
I
* Note: Average annual per capita growth rates, excluding Disproportionate Share Expenditures
Data from The Urban Institute and HCFA
�Federal Medicaid Payments 1996-2006
Baseline & Capped Federal Payments
$240
~ $220
o
== $200
05 $180
.~ $160
~ $140
~ $120
$100
$80
Federal
Payments
Reduced by
35% in 2006
(CBO:40 % )
8
-
!
1996
.
1998
Baseline Growth
2000
-
.
2002
2004
2006
Baseline Minus 2%) -.--- 5% Growth
This wedge lIustrates the cumulative effect of capped expenditures.
Over time, the size of the federal payment reduction grows.
�· Potential Savings From Eliminating
Selected Services or Recipient Categories
1997
2005
$ in billions
$ in billions
-7.0
-66.3
Cost of Services
Dental
Drugs
EPSDT
Home Health & Hospice
Medicare Premiums & Cost Sharing
Personal Care Services
1.9
9.3
1.1
2.5
4.7
3.8
3.9
17.6
4.0
5.8
10.8
7.1
Cost of Services for Recipients
AFDC Adults
NonCash Kids (OBRA Expansion)
QMBs/SLMBs (1)
Medically Needy
12.0
4.3
4.7
22.1
24.4
9.5
10.8
38.8
Reduction in Federal Payments with Growth at 5%
o The 1997 reductions will not be sufficient over time, because
the size of th·e. federal reduction would increase each year. For example,
while eliminating dental benefits could achieve 28% of the required
savings in 1997, in 2005 this service reduction would produce
only 6% of the necessary savings.
(1) Since there are no data that separately estimate costs associated with QMBs/SLMBs, this estimate is the full cost
of Medicare premiums and cost sharing.
NOTE: All of these effects
vary significantly across states,
and overstate savings,
because of interactions in the expenditure categories.
�Changes in Insurance Coverage
1989 to 1994
1989
1994
Employer 59%
Uninsured 16%
Uninsured 16%
Other 11%
Other 9%
Medicaid 9%
Medicaid 14%
SOURCE: The Urban Institute analysis of the TRIM2-edited March 1993 Current Population Survey.
The 1989 data represent an average of three years, 1988-1990, with 1989 data having a weight of .50 and 1988 and 1990 data having weights of
.25. The 1994 estimates are based on 1993 CPS data on insurance coverage as adjusted by The Urban Institiute's TRIM2 microsimulation model
and 1993 HCFA data on Medicaid enrollment. Estimates for 1994 were derived using CSO projections of changes in insurance coverage.
�.:
,
.......,.,: \'':--''
....
SMALL BUSINESS, HEALTH CARE COSTS, AND THE CLINTON REFORM PLAN-
Small businesses face higher costs and more unstable insurance premiums. The Clinton pian will reduce these
burdensome costs.
TODAY
THE CLINTON REFORM PROPOSAL
High Administrative Costs: Higher
administrative costs kill small businesses. These
costs account for as much as 40% of the poliey
costs compared to about 5% for large
companies.
Cuts Administrative Costs: Administrative costs
will be dramatically reduced by the formation of
health alliances which will streamline and
simplify administrative functions.
Fasier Rising Costs: Premiums for small
employers rise at a faster rate than for other
employers •• as much as 50% in any given year.
[NAM]
Aggressively Controls Costs: Health reform will
.aggressively control costs through market based
competition backed up by an enforceable
budget.
Inequitable Self-Employed Tax Policy: Today,
unlike big businesses, small, self-employed
businesses cannot deduct 100 percent of their
health care expenses. This has the practical
effect of further increasing the cost of insurance
that is already priced higher than that available
to larger firms.
Increases Deduction to 100% for Self-Employed:
The Administration proposal will ensure that
the self-employed are treated equally under our
nation's tax policy, allowing them to deduct the
full value of their health insurance coverage.
Workers' Compensation Costs: In today's
system, high health care costs are surpassed only
by the skyrocketing costs of workers'
compensation insurance. Between 1980 and
1985, workers' co~pensation medical cost grew
more than one and a half times as fast as
medical costs and now accounts for $24 billion a
year in health care expenditures.
Reform Workers' Compensation: The
Administration's proposal reforms the health
component of workers' compensation insurance,
making it more efficient and reducing costs by
covering work related injuries through health
plans in the same manner as non work related
injuries -- eliminating duplication and improving
quality for workers who receive services.
Small Employers Have No Control: Small
businesses and their employees have little or no
ability to determine the level of premiums they
payor the information they receive about the
services the plans provide.
Assures Employers a Place on Alliance:
Business owners will sit on alliances to ensure
sensitivity and responsiveness to needs of
employers in terms of costs, administrative
simplification and\quality.
V01atile Costs: Small businesses face large
variations in the costs of similar plans. Nearly
identical benefits packages can range in price by
as much as 350%. [Blue Cross/Blue Shield,
Survey of Six Sample Plans, January 1992]
Stabilize Costs: The Administration proposal
will stop the wild fluctuation of premiums in the
small group market through community ratings
and insurance reform. We will outlaw
discriminatory pricing and ensure smaller
predictable cost with aggressive cost controls.
I
�t
\
SMALL BUSINESS, INSURANCE ABUSES, AND THE CLINTON REFORM PLAN *
"
Many insurers discriminate against small busmesses, often charging more for similar policies or refusing to
provide coverage at all Abuses within the insurance industry hit small businesses particularly hard.
TODAY
THE CLINTON REFORM PROPOSAL
Hassle Factor: Small business owners who cover
their employees spend inordinate amounts of
time trying to figure out a maze of insurance
policies, forms, and requirements. What's worse
is that the rules of the game are changed all the
time; unfortunately, they are changed by the
seller and not the buyer.
Eliminates Hassle: The employer no longer has
to worry about the headaches of selecting
insurance for his/her employees. The
employer/employee-run health alliance
negotiates rates, provides information on plans,
increases ease of enrollment and absorbs the
manpower drain. Then, the employee, not the
employer, chooses the plan. Regardless of the
choice, however, the employer pays the same
fixed amount.
Small Risk Pool: Fewer employees mean a
smaller pool to share the risk. Insurers
frequently charge more for these policies.
Spreads Risk Evenly: The proposal
consolidates small businesses in purchasing
pools to give them the same bargaining power
as large firms.
Underwriting and Experience Rating: Medical
underwriting is the practice of basing premiums
on perceived risk and medical history.
Experience rating is when insurers jack up costs
after an employee falls ill or gets injured.
Prevents insurers from raising rates or
dropping coverage after illness strikes: The
Administration's proposal will reform practices
such as underwriting and experience rating.
Under the Clinton plan, you can drop your
insurance plan, but they can't drop you.
Price Baiting and Gouging: Many insurers
engage in "price baiting and gouging" offering
"discount" rates for the first year of coverage
only to charge much higher prices in the next
year when pre-existing condition exclusions
expire.
Outlaws Price Baiting and Gouging: The plan
will end the days when insurers can raise and
lower premiums at their whim. We will bring
predictability and fairness to the cost of insuring
families and workers.
Occupational Redlining: Some insurers simply
refuse to cover entire industries perceived to be
high risk.
Covers Everyone: Under the Clinton plan,
there is an end to occupational redlining.
Refusal to Renew Policy: After a first year of .
reasonable rates, small businesses often face
higher costs and difficulty obtaining renewal.
Guarantees Renewal: The Clinton plan
guarantees insurance renewal and stabilizes
premiums.
AU reform
scenanos
are based on assumptions
of policies
which have yet to be finalIZed
or released.
�HOUSE SMALL BUSINESS COMMITtEE'
July 28, 1993
DEMOCRATS:
CONGRESSMAN JOHN LAFALCE W-NY); The Chairman of the Small Business
Committee, Congressman LaFalce can be a key player on health care reform and invaluable if
it supports the Administration package. His support of Family and Medical Leave was
crucial. LaFalce is on the Rural Health Care Coalition and close to labor.
Because his upper New York district borders Canada, both LaFalce and his constituents are
familiar with and supportive of a single payer system. His role with the small business
community and closeness to the National Federation of Independent Business make him
skeptical of employer mandates. On the other hand, he understands why breaking the
employer-employee link would be difficult. He wrote to the First Lady in February opposing
employer mandates and offering to serve as liaison to the small business community. In May
he discussed with Chris Jennings his excellent relationship with the NFIB and his regular
meetings with their executive director.
He is supportive of universal coverage. The Task Force has been working closely with .
LaFalce, including Ira with whom he has worked in the past, and is hopeful that he will be
helpfuL While LaFalce does not have legislative jurisdiction on health care, he wants to hold
hearings· on its impact. His position may be influenced by his strong anti-choice views.
Recent Developments: In a June 23 meeting with the First Lady and McDermott
cosponsors, LaFalce praised the Canadian system for being totally hassle-free. He would
prefer no co-payments in the reform bill. He believes the biggest problems are for small
businesses who operate on a very small margin. He said anything other than a payroll tax
would be more progressive. He asked how. to overcome doctor opposition.
The First Lady also met with Chairman LaFalce on the 29th of June. He stated that he "feels
pasSionately" about health care and thought that it was especially important to sever the link
between health coverage and jobs. He senses that people don't want to pay more for what·
they are getting now. He recognizes that a single payer system would mean unacceptable
taxes. LaFalce believes that a good argument to make to single payer advocates is the
dislocation of people under a complete restructuring of health care. LaFalce prefers a
premium to a payroll approach. He asked how contract employees would be covered - by
the employee, the service utilizing them, or the contract service. There was discussion of a
$1500 deductible premium for the self-employed. He suggested a phase in over three or four
years for low-wage workers and those under 25.
Regarding the NFIB, LaFalce wants to try for them to be simply opposed rather than
undertaking a high mobilization opposition. He thinks their only concern is the financing
mechanism. He would try to convince them to oppose that mechanism in a floor vote but not
the whole package.
�He recommends that the President release a set of health care principles and say that approach
is best but that he will look at alternatives - including financing mechanisms. That would' be
a challenge to Congress and employers to put up or shut up.
In a personal note, he invited the First Lady to visit his Niagara Falls district and stated his
interest in helping in whatever way possible. If used, he will be helpful.
CONGRESSMAN NEAL SMITH ID-IA): Congressman Smith has served in the House
since 1959 and spends most of his time working on the Appropriations Subcommittee on
Commerce, Justice, State and the Judiciary which he chairs. He is hopeful of someday
chairing the full committee. Popular in his Des Moines district, Smith is a skilled
parliamentarian who has never excelled at internal politics. His work on Appropriations has
kept him from a prominent role on Small Business.
While Smith's general health care views are not known he should be supportive of the health
care package. He is a liberal who cannot understand why other members, particularly
Democrats, put deficit reduction ahead of social needs. He has voted pro-choice. In March,
He flew with the First Lady to Iowa.
CONGRESSMAN IKE SKELTON (D-MO): A pro-defense, but not necessarily pro
Pentagon, Democrat, Congressman Skelton is in his ninth term in the House. He is a member
of the Armed Services and Small Business Committees, Rural Health Care Coalition and
Mainstream Forum. Skelton also served on the Select Committee on Aging. He has two'
sons pursuing military careers, one of whom served in the Persian Gulf. Congressmen Clay
and Volkmer can be influential with him, and he and Secretary of Defense Aspin worked
closely together when serving together in the House.
While Skelton's health care views are not know, he can be predicted to be sensitive to the
concerns for rural areas ~nd small business. He has said he does not believe the reform
package should be voted oil in 1993 but that he is worried about the runaway costs of health
care. He is anti-choice.
CONGRESSMAN ROMANO MAZZOU (D-KY): Congressman Mazzoli is best known
for his' role in the landmark immigration legislation of the late 1980's. Judiciary Committee
Democrats, who felt that as Subcommittee Chairman he had sided with the Republicans too
often, ousted him from his chairmanship. He did not defect to the GOP, as some speculated,
and has since been returned to his chairmanship. Mazzoli represents Louisville and its ..
suburbs and won with 53% of the vote in 1992. He has been less active on the Small
Business Committee and tends to be a conservative vote on budget issues.
His general health care views are not known but he is expected. to support the reform
package. A Roman Catholic, Mazzoli is a strong opponent of abortion.
�CONGRESSMAN RON WYDEN CD-OR): The former executive director of Oregon's
Gray Panthers, Congressman Wyden is an ardent advocate for the interests of the elderly. An
aggressive and tenacious Member, Wyden is a committed liberal who was first elected in
1980. He represents Portland and some of its suburbs, as well as a small rural area. Wyden
won in 1992 with 77% of the vote. He serves on both Small Business and Energy and
Commerce where he is a close ally of Chairman Dingell. Wyden is a team player who will
be willing to broker a deal between liberals and conservatives. He serves on Congressman
Waxman's Health Subcommittee and is close to him as well ..
Congressman Wyden is an enthusiastic supporter of Oregon's health care reform
demonstration program. He is a strong proponent of abortion rights, and sponsored a bill for
NIH research on RU-486. Wyden was a major sponsor of legislation to constrain the costs
of drugs sold to Medicaid patients, and recently backed a bill to establish a process to provide
reasonable prices for drugs, devices and other products receiving NIH funding. In the 103rd
Congress, he reintroduced a bill to establish Federal standards for long-term care insurance
policies. His staffer participated in Global Budget and the Quality Measurement Working
Groups.
CONGRESSMAN NORMAN SlSISKY CD-VAl: Congressman Sisisky is a World War II
veteran and successful businessman whose aim in Congress is to make the Pentagon more
fiscally responsible. He serves on the Anned Services Committee as well as Small Business
and is a member of the Rural Health Care Coalition. Sisisky serves on the Select Committee
on Aging. He is protective of both Portsmouth and the rural interests of his district, including
tobacco and peanut farmers.
Sisisky's views on health care reform are not known. He signed the March 30 letter
regarding tobacco excise taxes and has been against abortion rights. Sisisky voted against
Family and Medical Leave and is not expected to support the Administration on health care.
CONGRESSMAN .JOHN CONYERS, .JR. (D-MD: The Chairman of the Government
Operations Committee was instrumental in establishing the Congressional Black Caucus and
is a long-time fighter for civil rights and minority concerns. Conyers, who is also on the
Judiciary Committee, surprised many by dropping his sometimes abrasive style and skillfully,
albeit sometimes painfully, investigating the charges against black judge Alcee Hastings.
Ironically, Hastings is now a freshman Memberof Congress.
Conyers favored putting the health care package into reconciliation. He believes health care
reform is the most important program since Roosevelt but may be difficult because he
strongly supports a single payer approach. Along with Congressman McDermott, Conyers is
. a leading sponsor of the House Single Payer bill and fights for recognition of that fact. He
attended two early meetings with the First Lady. His district is overwhelmingly black and
has all the problems one anticipates for a poor urban area. He will fight for those concerns
and, while often still a loner, is very adept at press. One of Conyers' staff members served
on the Working Group.
�"
CONGRESSMAN JAMES BILBBAY (D-NYl: A lawyer from a well-connected Law
Vegas familYt Congressman Bilbray is a moderate who serves on both ADDed Services and
Small Business. Despite some missteps wben he first came to the House, he is known to be
highly intelligent and a successful fighter for his state. White House . lobbyists counted him as
a "real trooper" on the economic package.
On health care, Bilbray's views are not known. However, he has shown concern for both the
elderly and veterans and supports home care. A Roman Catbolic, he bas stated that after
discussion with bis familYt be now supports reproductive rights.
CONGRESSMAN KWEISI MFUME (D-MD): Congressman Kweisi Mfume (pronounced
Kway-seeEm-fume-ay) represents most of metropolitan Baltimore. He has been able to
tum personal disappointments in his early life into positive life experiences. He was elected
in 1986, after serving on the Baltimore City Council. He was first assigned to tbe Banking,
Finance and Urban Affairs Committee and currently serves on the Small Business, Ethics, and
Joint Economic Committees. He has spent most of bis time on the Banking Committee
working on housing issues.
Congressman Mfume is the current Chairman of the Congressional Black Caucus. The
caucus has raised two main concerns regarding health care reform. The first is bow to
address the needs of underserved populations. The Administration's plan must incorporate
and reach out to those who are currently underserved by tbe health care system. Secondly,
the caucus is concerned that doctors, who are the primary providers in many African
American communities, are not unfairly treated by the Administration's reforms, and that in
developing networks acoommodationsare made for community providers. Similarly, the CBC
is interested in ensuring that traditionally black colleges are not disproportionately effected by
health care reform. Congressman Stokes has taken the lead on healtb care reform for the
caucus, and will be extremely influential in getting tbeir support. Congressman Mfume has
suggested that if Stokes is happy with the Administration's proposal, they will be bappy.
CONGRESSMAN FLOYD FlAKE (D-NY): Congressman Flake is considered one of tbe
new generation of black House members who are willing to work for change through tbe
power structure rather than from tbe outside. There bas been some controversy around Flake,
a charismatic AME Minister. fu 1991 t,he government dismissed a case against him in which
he was accused of diverting federal housing funds from his church for his own use. In 1988
a church panel rejected claims of sexual harassment by a woman parishioner. Flake is a
member of the Small Business and Banking Committees. He is a McDermott co-sponsor but
is expected to be supportive of the Administration's bealth care reform efforts. Flake believes
that VA hospitals are underutilized. He attended the First Lady's Marcb meeting with the
CBC.
�CONGRESSMAN BllJ.l SARPALDJS ID-TX): This is Congressman Sarpalius' third term
in Congress, representing the eastern panhandle of Texas. He is a conservative Democrat
who voted as often with President Bush as with the Democrats. Sarpalius has a compelling
personal history -he was a victim of polio as a child, abandoned by his father at 10, and sent
by his alcoholic mother to a home for wayward boys. He served in the State Senate.
Sarpalius is now a member of the Agriculture and Small Business Committees. On the latter,
he chairs the Health Subcommittee. He is also a member of the Mainstream Forum and the
Rural Health Care Coalition. He voted against the budget package in May.
Sarpalius's health care views are not known, but he is said to want to play a major role
through his Health Subcommittee. He opposes abortion.
CONGRESSMAN GLENN POSHARD (j)-IL): Congressman Poshard treads a difficult
line between his conservative outlook and a rural constituency which presses him to vote as a
traditional labor Democrat. He serves on the Small Business Committee and is a member of
both the Rural Health Care Coalition and the Mainstream Forum.
In December he wrote to the President-Elect about health care reform, in particular the need
for access for those living in rural areas. Rural health care was one of Poshard's specialties in
the state legislature. He also asked that reform focus on: preventive health care; technology
sharing; increased usage of mid-level health care providers, including nurse-midwives, nurse
practitioners and physician assistants; conversion of unused hospital beds into paying entities;
and improved incentives to recruit health care professionals to rural areas. In March Poshard
held three district hearings on health care reform. He forwarded that testimony to the First
Lady stating that the result "confirms that major reform of our health care system is necessary
and that your efforts in this process are indeed· appreciated.
It
CONGRESSWOMAN EVA CLAYTON (j)-NC): Congresswoman Eva Clayton has been
elected Chairwoman of the DemOCratic Freshman class. She represents a tobacco-producing
district and was one of the 30 co-signers of the March 30 letter urging caution on tobacco
excise taxes. Clayton sits on the Agriculture and Small Business Committees. She is a
member of the Congressional Black Caucus, and attended the March 2 meeting with the First
Lady.
At that time she was concerned about the role of the Jackson Hole Group in formulating the
health care package. In a February letter to the First Lady, she outlined her experience as a
County Commissioner faced with the possibility of the only hospital in their rural community
being closed. They were not only able to save the hospital but also create a primary
preventive care system as well. Based on that letter, her health care focus will be on
underserved populations - both rural and urban poor - and on preventive health care. She
will be in a delicate position, balancing the conflicting tobacco and health care interests of her
district.
�CONGRESSMAN MARTIN MEEHAN CD-MAl: Freshman Congressman Meehan made
his reputation as a crime fighter when, as an assistant district attorney, he dealt with white
collar and violent crime, and hate crimes against gays. Meehan comes to Congress with a
liberal agenda which fits his Lowell constituency. He may also feel the need, however, to be
independent. He serves on the Small Business and Armed Services Committees.
During his campaign, Meehan advocated a "play or pay" health care plan. He supports
universal access and has proposed a cost-containment program to bring down doctor and
hospital bills. A Roman Catholic, he supports abortion rights. He also supports sin taxes.
CONGRESSWOMAN PAT DANNER CD-MOl: Freshman Congresswoman Danner
represents a largely agricultural area of Missouri - an area she served in the state senate as
well. She sits on the Small Business Committee, and is a member of the Mainstream Forum.
On health care issues, Danner opposes a national system and supports tax breaks for small
businesses which offer health insurance. She would like to see costs cut by standardizing
medical forms. She also advocates drug coverage for those under 65 and is opposed to
rationing. Danner attended the Mainstream Forum meeting with Ira and the First Lady's
meeting with the Caucus for Women's Issues. Danner's family is very involved with the
medical profession: one daughter-in-law is a nurse; one son-in-law is a surgeon; and one
daughter is an anesthesiologist.
CONGRESSMAN TED STRICKIAND (OH): Freshman Congressman Strickland won his
first term by 51 % and represents an industrial area. He is considered a liberal Democrat. A
former professor who ran three times before capturing the seat, Strickland serves on both
Small Business and Education and Labor.
He believes in a community based and employment-based approach with small business
paying into a public insurance pool. He favors inclusion of mental health benefits in the
Administration's plan. He also favors stronger emphasis on preventive care, immunizations
and prenatal care. He has pledged not to accept the health care coverage offered to members
until all Americans have coverage..He attended a briefing for Congressional members on
mental health issues by Mrs. Gore, which he spoke eloquently about the need for reform.
CONGRESSWOMAN NYDIA VELAZQUEZ CD-NY): The first Puerto Rican woman to
serve in Congress, Freshman Velazquez (pronounced NYD-ee-uh veh-LASS-kez) has,
through a monthly column in the nation's largest Spanish-speaking newspaper and het work
for the Government of Puerto Rico, focused her career on the needs of Hispanics, women and
the poor. After a fierce primary, she won overwhelmingly in this district which includes
lower Manhattan, and parts of Brooklyn and Queens. In addition to the Small Business
Committee, she sits on the Banking Committee.
�In a March letter inviting the First Lady to discuss health care and tour her district, Velazquez
outlined some of the specific health problems of her Latino community: high uninsurance
rates; population most likely to receive Medicaid benefits; infant mortality; tuberculosis; IDV;
and the need for basic primary care for women. Velazquez is a McDermott co-sponsor and
sits on the Banking and Small Business Committees. She is also a member of the Caucus for
Women's Issues and the Hispanic Caucus. She attended the latter's March 2 meeting with the
First Lady. Velazquez is pro-choice and co-signed the May 13 letter urging inclusion of
abortion services in the health care package.
CONGRESSMAN CLEO FIELDS (V-LA): Freshman Congressman Fields is a former
state legislator who represents parts of Monroe, Shreveport, and Baton Rouge. Fields is a
lawyer and was, at 24, the youngest member in the history of the Louisiana Senate. He won
in 1992 with 74% of the vote in his newly drawn district. He now sits on the Small Business
and Banking Committees.
On health care reform, he is expected to take his cues from the Congressional Black Caucus.
His state has a large charitable hospital system. Fields attended the March 2 meeting with the
First Lady.
CONGRESSWOMAN MARJORIE MARGOUES-MEZVINSKY (V-PAl:
Congresswoman Marjorie Margolies-Mezvinsky rode a wave of anti-incumbent, anti
politician sentiment in order to eke out a slim victory in her race for the House. At one time
a reporter for WRC-1V in Washington, she is married to former Iowa Democratic
Congressman Edward Mezvinsky. She is very skittish about her district which has a
Republican edge in registration. However, her constituents are liberal on social issues and
have voted Democratic in recent elections~ She has voted against the President on economic
issues, presumably out of fear of a backlaSh from her fiscally conservative constituents.
The Congresswoman's particular concerns are children and child welfare, education, and
issues related to families. She is the first unmarried American to adopt a foreign child and at
one time or another she has had 11 children growing up in her household. She sits on the
Energy and Commerce and Small Business Committees.
On health care reform, she has said she wants to be involved but most people believe she will
need serious work before she votes for the plan.
.
CONGRESSMAN WALTER TUCKER (V-CAl: The former Mayor of Compton,
freshman Congressman Tucker's ethnically diverse district has perhaps the highest
unemployment rate in California. Tucker has a law degree from Georgetown University and
comes to Washington with a decidedly liberal, urban agenda. He is a member of the Small
Business Committee.
�Tucker campaigned for health care reform and for federally financed inner-city health
centers, including mobile clinics. He attended the First Lady's March meeting with the
Congressional Black Caucus.
CONGRESSMAN RON KLINK (pA): Freshman Congressman Klink is a former television
anchorman who beat an incumbent Democrat in a heavily Democratic district. The incumbent
had lost key union support. Klink voted for the President's budget plan on May 27 after
intense contact and negotiations with the White House. In addition to the Education and
Labor Committee, he serves on the Small Business, Banking and Steering and Policy
Committees.
.
Klink campaigned in support of reforming the nation's health care system. He was on the
board of a health care institution in his district.
CONGRESSWOMAN LUCILLE ROYBAL-ALLARD (I)-CAl: Freshman
Congresswoman Roybal-Allard represents the Congressional district with the nation's highest
concentration of Hispanics. While serving in the California Assembly, Roybal-Allard chaired
a subcommittee on health and human services. In the Congress, she is a member of the
Small Business and Banking Committees, as well as the Caucus for Women's Issues and the
Hispanic Caucus.
Roybal-Allard has taken a leadership role in the Congressional Hispanic Caucus and set up a
meeting with the First Lady and a group of Hispanic women to discUss their particular health
concerns. A Roman Catholic, Roybal-Allard is pro-choice and co-signed the May 13 letter
urging inclusion of abortion coverage in the health care package. She is a McDermott co
sponsor and is particularly concerned about coverage for the uninsured.
CONGRESSMAN EARL HILLIARD CD-ALl: A freshman Congressman from rural
Alabama, Hilliard serves on both the Agriculture and Small Business Committees. He is a
lawyer who served in both the Alabama House and Senate.
Hillard campaigned on a platform which included a national health care program. He met
with Steve Edelstein to discuss health care and indicated his belief that the package should be
comprehensive, including malpractice reform. His chief-of-staff formerly worked for Claude
Pepper and could be helpful. Hilliard is a McDermott co-sponsor. He attended the
Congressional Black Caucus's March 2 meeting with the First Lady.
CONGRESSMAN MARTIN LANCASTER (I)-NC): Congressman Lancaster represents
conservative East Carolina tobacco country as well as Camp Lejeune and the Seymour
Johnson Air Force Base. Protective of his district's economic interests, Lancaster is
considered a conservative Democrat but in the Jim Hunt tradition. Lancaster serves on the
Armed Services and Small Business Committees and won with 54% of the vote in 1992.
�In March Lancaster wrote a long letter to the First Lady outlining his health care reform
concerns, including: rural access in a managed competition system; the need for more
primary care and fewer specialty physicians; the benefits of home health care and hospice
services; the need for preventive care; and how to address costs at the end of life. In
addition. he wrote that his wife, Alice, had worked with Mrs. Gore on the Adolescent Mental
Health Care Task Force, and that he supported inclusion of mental health services in the
reform package. He also stated that while jogging with the President, he had brought up the
issue of state flexibility which the President had assured him would be a feature in the final
package. Lancaster was one of the 25 Members co-signing the letter to the President
concerning tobacco excise taxes. He has voted for aoortion services and attended Ira's
meeting with the House Democratic Caucus on March 31.
CONGRESSMAN TOM ANDREWS (1)-ME): Second-term Congressman Tom Andrews
is a liberal activist turned legislator. Before being elected to Congress he worked on causes
related to the poor· and was executive director of the Maine Association of Handicapped
Persons. As a teenager Andrews had a leg amputated because of cancer. He is popular in his
district which encompasses Portland and former President Bush's Kennebunkport summer
home. Andrews serves on the Small Business, Armed Services, and Merchant Marine
Committees. Andrews is a McDermott co-sponsor but is expected to support the
Administration's package.
CONGRESSWOMAN MAXINE WATERS (1)-00: A liberal activist who is outspoken
about the problems of the inner-city urban area she represents, Congresswoman Waters
focuses her energy on the needs of the minority poor. She received a great deal of attention
when riots erupted in the Watts area other Congressional District following the first Rodney
King verdict. A Democratic National Committeewoman, Waters was an active supporter of
Jesse Jackson's Presidential ambitions. She sits onthe Small Business and Veterans' Affairs
Committees and is a member of both the Congressional Black Caucus and the Caucus for
Women's Issues. Waters attended the First Lady's meetings with the latter two groups.
She is a McDermott co-sponsor but is expected to vote for the health care package as long as
it includes abortion services, She was very active in the Clinton/Gore campaign.
CONGRESSMAN BENNIE mOMPSON (1)-MS): Congressman Thompson was elected
to fill the seat of n()w Agriculture Secretary Espy. Thompson has had an active career in
local politics and holds a Master of Science degree. In addition to being a member of the
Congressional Black Caucus, Thompson is on the Small Business, Agriculture, and Merchant
Marine Committees.
His district is the second poorest in the United States. Health care services for the large
indigent population are either non-existent or woefully inadequate. Thompson would like to
see not only adequate health care, but sufficient numbers of health care professionals, and
appropriate and affordable insuranceandlor funding programs for his district.
�REPUBLICANS:
CONGRESSWOMAN .IAN MEYERS (R-KS.): Congresswoman Meyers is a moderate and
pro-choice with possible aspirations for statewide office. The ranking Republican on the
Small Business Committee, she has focused on extending the health insurance deduction for
the self-employed - while maintaining the GOP line against federal mandates on employers.
While Meyers' general health care views are not know, her son is a physician. A member of
the Caucus for Women's Issues, she attended their February meeting with the First Lady. She
is a Bonior target.
CONGRESSMAN lARRY COMBEST (R-TX): A protege of the late Sen. Iohn Tower
and former Congressional staffer, Congressman Combest is known as a steady conservative
with a talent for legislative deal-making. He is safe in his· western panhandle district which
includes parts of Lubbock and Amarillo. In addition to the Small Business Committee, he
serves on Agriculture. He is an ally of Rep. Stenholm and in 1990 was one of four House
members to vote 100 percent of the time with the "conservative coalition" of Republicans and
Southern Democrats. He is not, however, an ally of Newt Gingrich, as Combest prefers a
more pragmatic and behind-the-scenes role.
Combest's views on health care reform are not known. He will undoubtedly be sensitive to
rural interests. He has voted against abortion.
CONGRESSMAN RICHARD Hi BAKER (R-LAl: Congressman Baker began his long
career in Louisiana politics as a labor-oriented Democrat in the state House. He switched
parties and in Congress is considered a low-key conservative party loyalist. His district is a
mix of rural areas and most of Baton Rouge and its suburban areas. Baker serves on the
Small Business, Banking, and Natural Resources Committees. He won in 1992 with 51 % of
the vote.
When Baker switched his total opposition to abortion to its being allowed in cases of rape
and incest, some thought he was looking toward a statewide race. His gener3I views on
health care reform are not known.
CONGRESSMAN JOEL HEFLEY (R-CO): A former state legislator, Congressman
Hefley is a pro-defense, business-oriented legislator. His district includes Colorado Springs
and south central Colorado, and he won there with 74% in 1992. In addition to the Small
Business Committee, Hefley sits on the Armed Services and Natural Resources Committees.
His health care positions, others than his opposition to abortion, are not known. The single
piece of legislation with his name attached is the National Visiting Nurses Association Week.
�CONGRESSMAN RONALD MACHTLEY (R-RD: Congressman Machtley (pronounced
MAKE-lee) is one of the House's more liberal Republicans, a position supported by his
constituents who returned him with 70% of the vote in 1992. He represents Providence and
eastern parts of the state which include light manufacturing. Machtley serves on the Armed
Services and Small Business Committees. He previously was a member of the Select
Committee on Children. A lawyer, Machtley is a graduate of the Naval Academy and
continues to serve in the Navy Reserves. His vote to override President Bush's veto of the
"family leave" bill was one of many against his party.
Machtley's views on health care are not known. He has been a volunteer with the YMCA
and that and his work on the Select Committee on Children clearly indicate an interest in the
young. He will also presumably look out for small business interests. He isa supporter of
reproductive rights. Congressman Bonior considers Machtley a top target.
CONGRESSMAN .IIM .RAMSTAD CR~MN): Congressman Ramstad is in his seond term
and came to Congress as a former staffer in both the House and the Senate. He represents
suburbs of Minneapolis. He now sits on the Small Business and Judiciary Committees.
Ramstad replaced Bill Frenzel in the House. Frenzel was moderate but partisan and Ramstad
considers him his mentor.
While Ramstad's general health care views are not known, he is pro-choice. He has been
interested in emergency medical care for children. He worked on issues involving chemical
dependency in young people, cocaine babies and the handicapped while in the State Senate.
At that time he also dealt with a personal alcoholism problem.
CONGRESSMAN SAM JOHNSON CR-TX): Congressman Johnson is a former fighter
pilot who lost partial use of his right arm while held prisoner in North Vietnam. He met his
future colleague, Senator John McCain, while there. Johnson represents north Dallas and won
with 86% of the vote in 1992. He came to Congress in 1991 after winning the seat when the
incumbent ran for mayor of Dallas.
Johnson's health care views are not known.
CONGRESSMAN BILL ZELIFF (R-NH): A protege of former Gov. John Sununu,
Congressman Zeliff won in 1990 on his image as a successful businessman - and after
spending $400,000 in the GOP primary. Zeliffs district includes Manchest~r and eastern New
Hampshire. He retained it with 53% of the vote in 1992. Zeliff
is a member of the Small Business, Government Operations and Public Works Committees.
While Zeliffs health care views are not known, one possible indicator of his views is that as
the owner of a small resort, he has linked his business success to entrepreneurialism and
frugality.
�CONGRESSMAN MAC COI,I,INS lR-GA): Freshman Congressman Collins won his seat
with 55% thanks to redistricting and a strong anti-Washington mood. His district includes
parts of Newt Gingrich's old district and is a mixture of independents, Reagan Democrats and
Republican suburbanites. It is a seat targeted by Democrats in 1994. Collins is ia truck
company owner and seen as a down-home conservative with a knack for hard-nosed
campaigning. In the state Senate, Collins is said to have used a "graceful negotiating style"
to help enact bills to combat drug dealing and to help people get off welfare. His health care
views are unknown.
CONGRESSMAN SCOTI' MCINNIS (R-CO): Serving his first term in Congress after
, five in the state legislature, Congressman McInnis is a traditional conservative. He won with
56% on the western slope of Colorado, including Pueblo. He serves on both the Small
Business and Natural Resources Committees.
While his specific views on health care are not known, he will be lOOking out for rural areas
as well as small business. A Roman Catholic, Mcinnis is pro-abortion.
CONGRESSMAN MICHAEL HUFFINGTON (R-CA): Freshman Congressman
Huffington won his seat with 53% of the vote after spending the record sum of $4.2 million.
He is a former Reagan administration official and video production company owner who has
never held elective office. He holds engineering and economics degrees from Stanford and an
MBA from Harvard. Huffington serves on the Small Business and Banking Committees. He
has said he wants to eliminate all Capitol Hill perks and significantly change the way
Congress operates.
While Huffington's general health care views are Jlot known, he campaigned against tobacco
interests. He also supports abortion rights.
CONGRESSMAN JAMES M. TALENT (R-MO): Congressman Talent comes to Congress
with substantial experience in the state legislature and a strong conservative agenda. Talent
beat President Bush's cousin in the primary and first term Democrat Joan Kelly Hom in the
general. He won this largely suburban district with 50% of the vote. He sits on Armed
Services and wants to use his position on Small Business to guard against excessive
government regulation.
While Talent supports health care reform along the lines of managed competition, he opposes
universal health coverage. He supports malpractice reform and allowing employees to
establish medicalIRAs. However, he opposes government allocating health care resources:
Talent supports abortion only in cases of rape, incest or to protect the woman's life.
�CONGRESSMAN JOE KNOLLENBERG (B.-MIl: Freshman Congressman Knollenberg
used his long-time party experience to win this open seat with 58% of the vote. The owner
of an insurance agency, Knollenberg now represents an upscale Republican district in
suburban Detroit. Abortion rights advocates thought they could win the seat given
Knollenberg's hard line on abortion - he ~upports it only to save the life of the mother.
Knollenberg now sits on the Banking as well as the Small Business Committee.
Other than his position on abortion, Knollenberg's views on health care are not know.
CONGRESSMAN JAY DICKEY (B.-AR): Another Freshman who was once a Democrat,
Congressman Dickey won by 52% and Democrats are looking to regain the seat in 1994. In
addition to Small Business, he sits on the Agriculture and Natural Resources Committees.
Congressman Dickey requested a meeting with the First Lady which was held on Iune 7. He
brought in his district working group which includes over 15 physicians and the President of
the Arkansas Medical Society. Dickey and his group met later with the President in the Oval
Office as well as having a separate meeting with Chris Iennings and Phil Lee. Dickey
indicated that he wanted to be either a Republican co-sponsor or the only Republican sponsor
of health care reform but not if it includes abortion in any form. He is concerned about the
effects of the package on small business, but that is not as important to him as malpractice
reform or abortion. He received a lot of press in his district from the meetings and was most
appreciative of the time he was given. One personal note, Dickey is a polio survivor.
CONGRESSMAN JAY KIM (R-CA): Congressman Kim is the first Korean-American to
win a seat in Congress. His newly created seat includes parts of Orange, Los Angeles, and
San Bernardino Counties. Kim is a small business conservative and strong opponent of
unnecessary government spending. He sold his construction business to avoid any appearance
of conflict of interest - it was one of five minority-owned companies hired following the
Rodney King riots in lAo An lA grand jury has subpoenaed his campaign records and
company documents in an investigation ofhis using corporate funds to finance his
.campaign. In addition to Small Business, Kim is on Public Works and Transportation.
His health care views are not known. His only child is a neurosurgeon. Kim is a libertarian
on abortion - believing it not to be the government's business.
CONGRESSMAN DONALD MANZULLO (R-IlJ: A hard-line conservative, Freshman
Congressman Manzullo beat a one-term Democrat with 56% of the vote - the first Democrat
to hold this aging, rural district in northwest lllinois. There may be a rematch in 1994.
Manzullo sits on Foreign Affairs as well as Small Business.
Manzullo has received a lot of support from fundamentalist Christians and has crusaded
against abortion. His other health care views are not known, but he is apt to be concerned
about rural coverage.
�j.•• ..
CONGRESSMAN PETER G. TORKILDSEN (B.-MAl: Freshman Congressman
Torkildsen served in the state legislature and as Massachusetts Commissioner of Labor. He
strongly resembles his former boss, Governor William Weld, with his fiscally conservative,
pro-business stand and his support - as of April - of abortion rights .. Torkildsen won his
seat with 51 % of the vote and Democrats hope to recapture it in 1994. He sits on the Armed
Services as well as the Small Business Committee.
.
Health care reform is one of Torkildsen's priorities. He supports a pro-business plan of
vouchers and tax credits. He is one of Congressman Bonior's targets.
CONGRESSMAN ROB PORTMAN (B.-OlD: The most junior member of this Congress,
Representative Portman won the seat of Republican Bill Gradison, a man he once interned for
when he was in college. Portman has extensive Washington experience, including practicing
at Patton, Boggs and Blow and Director of President Bush's Office of Legislative Affairs.
Portman won the seat with 70% of the vote.
His health care views are not known.
�SMALL BUSINESS ASSOCIATIONS
OVERVIEW: Although the small business community may well be the greatest loser under
the status quo, the roadblocks to their support may well be the greatest to overcome. Many
small business owners have a strong anti-government ideology, which when balanced against
the burdens of federal, state, and local taxes and regulations, coupled with workman's comp,
unemployment tax, and health benefits, an anti-government ideology may be understandable.
Even on the provisions where agreement can be reached, there is great skeptism about
government commitments. However, philosophical issues aside, the following items will play
large roles in nearly all discussions with the small business community and are in many cases
the make or break issues for the following associations.
o
EMPLOYER MANDATES/COVERAGE OF PART TIME WORKERS.
The plan achieves universal coverage through requiring employer contribution
for full and part time workers. Small business groups have traditionally
opposed all types of employer mandates, with health insurance mandates at the
top of the list.
o
COST OF COVERAGE/PHASE-IN FOR BUSINESSES WHO DON'T
CURRENTLY PROVIDE.
For businesses who don't provide we are looking at an average increase in
spending of about 7% of payroll, nor is there a "rainy day fund" for financially
distressed businesses so as to avoid job loss. And, as the plan is currently
structured, there is no provision for phasing in businesses who don't currently
provide.
o
EXPENSIVE AND OVERLY COMPREHENSIVE BENEFIT PACKAGE.
packages at the state level in
Partly as a result of state mandates in benefit
reCent years, small businesses continue to express concern about a benefit
package which goes beyond 'basic' and in tum will increase their costs.
�Page Two
o
PROHIBITING ASSOCIATION PlANS. Many associations provide low
cost insurance to their members as one of their membership services (many
also do bulk purchasing and other networking programs for their small business
members). Association, which rely on underwriting, pre-existing condition
exclusions, and other such things to keep costs low for their members -- such
as the COSE plan in Cleveland -- will not be allowed to continue to operate
under our plan. Association insurance plans also generate additional operating
revenue for association budgets.
CHAMBER OF COMMERCE
The Chamber's represents approximately 215,000 businesses, of which over 90 percent have
less than 100 employees (71 % have less than 10 employees). The service and retail
industries comprise 56% of their membership. They have a strong grassroots network and a
significant presence on Capitol Hill.
Their approach to reform is managed competition and early in the debate they indicated their
willingness to support employer mandates with sufficient subsidies for low-wage emloyees
and their emloyers. However, they have paid a price for this position within their
membership, where a growing mimbei have cancelled their membership. NFIB has
capitalized on the Chamber's employer mandate position, forcing the Chamber to take a much
harder line in recent weeks.
The other key issue for the Chamber is limiting Alliance participation at no more than 100
employees. As recently as last week, they indicated that anything over 150 would guarantee
their opposition.
It is critical that the Chamber remain neutral until our proposal is released, however, they are
under increasing pressure to start an opposition campaign in August to help off-set the
criticism they are taking on their right. This has been temporarily stalled, through a steady
effort to show our changes in response to their proposals. ASSESSMENT: They will oppose
in September, but may qualify their opposition.
�Page Three
NATIONAL FEDERAL OF INDEPENDENT BUSINESSES (NFIB)
The NFIB reprensents 600,000 small business owners. During the last decade the NFIB has
become an extremely visible and vocal voice for small businesses on Capitol Hill, however
very closely allied with Republicans. They strongly oppose employer mandates and tax
increases of any type, and have opposed our efforts through out the task force process. Their
opposition has been used as an effective marketing tool this year to increase their membership
and in many cases siphon members from other small business groups.
The NFIB is trying to work out a program to program to provide health insurance to their
members and want that flexibiliy on the association insurance issue. Another high priority is
the self-employed tax deductibility, however this alone would not be sufficient to gain a
positive reaction. Despite their strong opposition to government regulation, they have voiced
support for strong cost containment provisions (price controls) on providers.
The NFIB yields an especially strong influence with House members from the Midwest and
the South. We will need to be prepared .to respond to their active opposition should we
expect to have sufficient support in the House, and to provide cover for the other small
business groups who may playa more constructive role. Although they do not yet support
the Chafee bill, it is their intention to do so. ASSESSMENT: Active opposition.
NATIONAL SMALL BUSINESS LEGISLATIVE COUNCIL
The Small Business Legislative Council is a Coalition of 100 small business trade
organizations, which represent at least 1.6 owners. Despite the fact that they, as an
organization of other organizations, can claim more small business owners than NFIB, they
have yet to wield much clout or deliver an effective grass roots campaign on any issue of
importance to them. Having said that, they are well liked by those members of Congress who
know them, i.e., Rostenkowski and Pryor. They have been an early participant in the health
reform debate, introducing their own reform proposal two years ago.
Although they have been willing to consider employer mandates and have been largely
supportive of our outline, they strongly support the inclusion of association insurance plans
(MEWA's) and this to date may well be our greatest hurdle for their support. Although their
impact is small, their support will be greatly needed to offset the otherwise broad small
business opposition. ASSESSMENT: Unclear.
�Page Four
NATIONAL SMALL BUSINESS UNITED
Small Business United represents over 65,000 small business owners. Their bi-partisan
approach has yielded limited congressional influence, but their public advocacy has played
well in the media. Earlier this year they indicated a willingess to consider individual
mandates, but their openness has become more qualified in recent months. They will oppose
emloyer mandates, but may be willing to speak supportively of other provisions in the
proposal. The association insurance issue will also be a concern for them. They need to be
more actively wooed. ASSESSMENT: Qualified opposition.
NATIONAL RESTAURANT ASSOCIATION
The National Restaurant Association represents 15,000 foodservie operations, which covers
nine million foodservice employees and part-time employees. They are a founding member
of the Healthcare Equity Action League (HEAL), designed to find a market-based solution
to reform. They are politically active on Capitol Hill and very conservative. Adamently
opposed to employer mandates and global budgeting. ASSESSMENT: Oppose.
NATIONAL ASSOCIATION OF MINORITY CONTRACTORS
The Minority Contractors Association represents 3,500 black, hispanic, asian-pacific, and
native American contruction contractors in over 45 states. Their membership is highly
transient, largely uninsured, and most employ less than 10 employees. Their greatest
influence is in the African-American community. They have opposed employer mandates
(supported individual mandates), but are open to discussion about small business subsidies in
conjunction with mandates. They are likley to respond to good data showing that our plan
will be affordable for small businesses. They strongly support maintaining association
insurance plans. They strongly support the 100% tax deductability for self-employed.
ASSESSMENT: Unclear, likely to be modified opposition.
NATIONAL ASSOCIATION OF WOMEN BUSINESS OWNERS
The National Association of Women Business Owners represent about 4,000 women small
business owners. Still a relatively new organization (formed in 1978), they have expanded
their membership to 50 states. They oppose employer mandates, but have been open-minded
to discussions of small business subsidies for small businesses within the mandate. They
work closely with the Small Business United, and although they are likely to oppose the plan,
may contructively do so by supporting individual provisions. They need to be wooed.
ASSESSMENT: Unclear.
�Page Five
THE NATIONAL ASSOCIATION OF PRIVATE ENTERPRISES
The National Association of Private Enterpri~s (NAPE) represents 40,000 small business
owners with 10 employees or less. Over 60 percent of their members are 40 years of age or
younger. This relatively new organization (established in 1983) provides a network of bulk
purchasing and insurance for their members. The NAPE offers a benefit plan that includes
access to more than 48 products such as travel discounts, health insurance, and scholarships
for NAPE members and their families. NAPE is new to the grass root advocacy process and
their impact on Capitol Hill is still small.
NAPE strongly supports cost containment measures that include global budgets and
malpractice reform, and the self-employed tax deduction is a strong issue with'this group.
However, employer mandates, prohibiting association insurance policies, and FUTA increases
is very likely to result in their opposition. Their position will be simple: if small business
labor costs increase under this plan, they will oppose. If we can quantify substantial small
business assistance to offset what would otherwise be cost increases, their position may be
qualified. ASSESSMENT: Opposition, may be qualified.
THE NATIONAL ASSOCIATION OF SELF-EMPLOYED
The National Association of Self-Employed represents 320,000 small business owners. The
self-employed tax deduction is a very strong issue with this group, as well as association
insurance coverage. However, additional costs of the reform proposal will weigh heavily in
their reaction, if we are not able to quantify subsidies. ,ASSESSMENT; Unclear.
�SMALL BUSINESS AND HEALTH REFORM:
Questions and Answers •
The following questions and answers address many of the most common concerns of small business owners.
COST-CONTAINMENT
Q.
How is this refonn plan going to keep the costs of health care down for small business owners?
A.
The Administration's proposal controls costs by bringing the force of the market place to bear upon
the health care system. Health alliances will band families, businesses, and individuals together to
bargain for lower costs and better quality of services. Costs will be kept low by market forces and
guaranteed by a fail safe budget enforcement mechanism should health expenditures rise too fast.
Administrative costs, which account for most of the higher costs paid by small businesses, will be
reduced by the creation of health alliances, which will assume administrative functions, and
simplification of the system -- standardization of fonns and benefits packages.
Business representatives will serve on the board of the healtb alliances and will be involved in cost
negotiations with health plans.
Insurance abuses, including underwriting and experience rating which lead to higher costs for small
business -- will be ended, guaranteeing predictable, lower costs.
>
Q.
A.
In addition, increasing the deduction for self-employed to 100% and reforming the medical
component of workers' compensation will significantly reduce costs for many small business owners.
How can I afford to provide the health benefits package to my employees and still remain profitable?
The Administration's proposal ensures that the cost to small business to provide health benefits does not
exceed its ability to pay. We will cap the amount small businesses have to pay for premiums, keep
premiums low for small, low-wage businesses and provide subsidies in accordance with need.
SELF-EMPLOYED -- 100% DEDUCTION
Q.
Will health refonn address the inequity in the tax law that forces the self-employed small business
owner to pay higher taxes for their health benefits?
A.
Yes. Health refonn will expand and make permanent a 100% tax deduction for the cost of health
benefits bought by self-employed workers and their families.
>
•
All answers are based on assumptions of policies which have yet
to be
finalized or released.
�WORKERS' COMPENSATION
Q.
I already face astronomical workers' compensation costs. How can I be expected to pick up health
insurance as well?
A..
The cost of workers' compensation insurance is killing many small businesses. In fact, today's high
health care costs are surpassed only by skyrocketing workers' compensation costs. Between 1982 and
1992 the average workers' compensation medical claim that included time lost from work rose from
$2,584 to $8,900.
That's why our reform plan will reform the medical component of the workers' compensation system
making it more efficient and reducing costs by covering work related injuries through health plans in
the same manner as non-work related injuries -- eliminating duplication and improving quality for
workers who receive services.
PART-TIME EMPLOYEES
Q.
Will we have to cover everyone, or for example, will part-time employees be exempt?
A.
Employers will pay an hourly pro-rated amount for part-time workers. So an employer would pay the
same amount for two part-time workers, each of whom work 15 hours a week, as he would for one full
time worker who works 30 hours.
THE EMPLOYER MANDATE
Q.
What do we as small business owners possibly stand to gain by being forced to provide coverage to our
employees?
A.
As small business owners and as individuals you gain the security of knowing that no member of your
family will go without needed medical care because of lack of health insurance. You gain the ability
to compete with larger businesses for top employees. And you gain the security that you and your
business will never be bankrupted by a serious illness or injury.
Just as everyone stands to gain, everyone has to contribute something. Small businesses that provide
coverage should not have to compete against other businesses that don't cover their employees. Under
today's high cost system, 62% of small businesses with less than 100 employees and 51 % of those with
less than 25 employees make the sacrifices necessary to cover their employees. They end up picking
up the tab for the uncompensated care.
�PRICE DISCRIMINATION IN THE SMALL GROUP MARKET
Q.
One of my employees developed a serious illness. Because of this employee's illness, my insurance
costs went through the roof. I can't afford to provide health insurance and stay in business.
A.
Under our plan insurance companies will no longer be allowed to charge discriminatory rates to small
businesses who have sick workers. Everyone in working and living in the same area will pay a similar
amount for their health coverage -- a concept known as community rating. Other practices such as
cherry picking (covering only the young and the healthy) and pre-existing condition exclusions (where
an illness or an entire person is excluded from coverage) will be outlawed. We will require all insurers
to play by the same rules in order to participate in the reformed health insurance market.
REFORM GIVES SMALL BUSINESS THE CLOUT OF BIG BUSINESS
Q.
Why should we as small business owners support any government sponsored plan when in the past the
government has favored big businesses?
A.
This plan has been written with the specific concerns of small businesses in mind. The President and
I are committed to putting forth a health reform plan that works for small business. We know that
small business generated 90% of all job growth in 1990. No Governor from Arkansas, a state in which
over 90% of the businesses have fewer than 20 employees, gets elected five times without being
sensitive to the concerns of small business.
Q.
Won't this reform simply increase the economic gap between large and small businesses?
A.
Health reform will help small businesses bridge the economic gap by allowing small businesses to band
together to obtain the bargaining power of large corporations. Small businesses will combine their
purchasing power to negotiate with insurance companies for high quality care at affordable prices.
Insurance reform will end the practice of charging higher rates to small businesses than they charge
Exxon or General Electric.
JOB LOSS AND BUSINESS FAILURE
Q.
I'm scared that this plan will drive me out of business. How can you assure me that health reform will
not produce massive job loss and business failure among small businesses?
A.
Some special interests are trying to scare small employers into thinking that this plan will kill small
business. The truth is everyone will benefit from cost containment, insurance reform and universal
coverage. The U.S. Chamber of Commerce would not have endorsed the concept of a required employer
contribution if such a requirement would hurt small business.
Although a full 95% of businesses in Hawaii have less than 100 employees, the states employer
requirement has not had an adverse impact on the state's economy. The number of businesses in Hawaii
has increased steadily from about 17,000 in 1974, the year the'mandate was enacted, to nearly 27,000
in 1991 -- a 59% increase.
�· PAPERWORK AND ADMINISTRATIVE BURDEN
Q.
Will my work-load increase as a result of this reform (i.e. more paperwork etc.)?
A.
No, the Administration's plan will decrease the work-load. Today, lacking a benefits department like
larger firms, most small business owners must perform all the functions of such a department by
themselves. Negotiating health coverage in today's health care system is a process often fraught with
frustration and obstacles.
We will take the burden off the small business with health alliances which will deal with the insurance
companies and bargain for competitive prices. The alliance will take over the paperwork and the
negotiations; provide information on plans and increase ease of enrollment. Higher administrative costs
will be reduced and the hassle of the current system will be eliminated.
�ECONOMIC IMPACT
Leading economists refute the notion that health care reform will cause significant
economic pain - even in the short term. A senior Labor economist criticizes NFIB's study
in particular citing its failure to incorporate "key analytical processes" and called the study
"essentially meaningless." "Many economists say they are skeptical of the federation's
[NFIB] projections." says an LA Times article. Uwe Reinhardt estimates at most 100,000
small business jobs lost. John Sheils of Lewin VHI says the number is no higher than
60,000. In a U.S. News and World Report article entitled "Sparing the Knife, Clinton's
Health Care Plan Won't Rip Into America's Weak Job Growth," David Brailer, professor
at the University of Pennsylvania says "Reforming the health care system is not going to
have a major impact on employment."
Clearly, critics of the plan will cite high figures to make their case. However these
figures (such as the NFIB study) are misleading, largely because they estimate 'Jobs at risk"
-- defined as any new employer contribution that results in reduced worker wages as
opposed to actual lost jobs. They are easily refuted based on other published studies. The
lower range of estimates use a relatively small employer contribution (such as a catastrophic
plan) to calculate its numbers. The lower estimates are very small especially in the context
of the labor market, where hundreds of thousands of job losses and gains occur each month.
Several other previously published estimates of job loss associated with a mandate
have been produced. They range from a low of 50,000 per year to well over 1 million. The
following studies illustrate the range:
•
John Sheils, Vice President of Lewin-ICF, estimated that under The Health America
Act, a pay-or-play plan which included a payroll tax of about 8 percent, loss of
employment would be between 23,000 and 63,000 jobs. Dr. Kenneth Thorpe, Dr.
Karen Davis, and the Congressional Budget Office had consistent estimates.1
•
The Employee Benefit Research Institute (EBRI) estimated that, between 200,000
and 1.2 million workers could become unemployed as a result of a mandate that
employers provide health benefits. These estimates assume that wages and other
benefits do not change as health benefits are added. 2 EBRI estimated that, under
a play-or pay plan with a 9% percent payroll tax, between 130,000 and 965,000 jobs
could be lost, if wages and other components of total compensation do not adjust.
•
",The recent NFIB study prepared by CONSAD Research found the Jackson Hole
Group proposal, which has an employer contribution of 50% to 100% of premiums
as well as @8% of payroll, would result in the loss of 899,530 jobs and 18.2 million
(almost a quarter of total) 'Jobs at risk." [In news reports, NFIB spokespeople took
1 Testimony to the United States Senate Committee on Finance, June 9, 1992.
2WilIiam
s. CIISter, Director of Research, EBRI.
Testimony to Senate Committee on Finance, June 9, 1992
�pains to point out that this proposal resembles what the Administration is working
on.] The study also found that the Garamendi plan, which is funded by a 7.65%
payroll tax and a 1.4% wage tax on workers, would result in 6.6 million jobs at risk.
HealthAmerica, Senator Mitchell's "payor play" legislation, would result in 12.1
million workers in jobs-at-risk. The Jackson Hole proposal does not include
SUbsidies for small businesses while HealthAmerica does. Researchers defined "at
risk" as an increase in compensation costs of at least 6% because of health care
spending. The study looked only at those firms with less than 500 workers.
The Heritage Foundation proposal, which would replace the current tax exclusion on
employer-provided health insurance with a tax credit to all taxpayers who would be
required to purchase health insurance either privately or through their employer and
Congressman Cooper's proposal, neither of which includes a mandate, would result
in a "negligible number of jobs at risk."3
•
An earlier CONSAD study prepared in April 1992 for The Partnership on Health
Care and Employment found that under a federal payor play health insurance plan,
about 9.1 million jobs would be "at risk.tt4
•
A study presented by Richard A Armey in April 1992 for the Joint Economic
Committee found that under a payor play mandate with a 7% tax, 712,742 workers
would lose their jobs in the first year of implementation, with 43% of this job loss
falling on workers in businesses with under 20 employees. The four states of
California, Texas, New York, and Florida would account for 42% of these job losses.
A 9% payroll tax would result in the loss of 807,516 jobs.s
•
Karen Davis, Professor of Economics and Chairman of the Department of Health
Policy at Johns Hopkins, predicted that under The Minimum Heath Benefits For All
Workers Act of 1987, there would be a loss of about 100,000 to 120,000 jobs from
mandating insurance coverage on employers (adding about .1 percentage points to
the unemployment rate.6
It is difficult to estimate what the effects of our health care plan will be without final
financing or subsidy decisions. However it is probable that any requirement, because of the
way these studies are conducted, will result in a some job loss estimate. For this reason, it
is important to keep the debate focused on health care coverage and costs of today's system.
We will be hard pressed to win an all out war centered around job loss estimates.
3 "Employment Impact or Proposed Health Care Reform on Small Businesses." Prepared by CONSAD Research Corporation for The
NFIB Foundation, May 6, 1993.
4 "Jobs-At-Risk and Their Demographic Olaracteristics Associated With Mandated Employer Health Insurance,"
CONSAD Research Corporation for The Partnership on Health Care. and Employment, April 1992,
Prepared by
S "Run From Coverage: Job Destruction from a Play or Play Health Care Mandate." Richard Anney, Testimony for the Joint
Economic Committee (1992), April 9, 1992.
6 Testimony before the United States Senate Committee on Labor and Human Resources, l00th Congress, NO\Iember 4,1987
�AdditionaJ costs - whether they arise from an employer requirement or a continued
failure to bring the system under control are, in the long run, paid for by the worker.
Economists, (and more importantly CBO) believe that the cost of the mandate are fully
borne by workers. John Sheils said in the LA Times article "The only thing Karl Marx
managed to get right is that in the end the worker pays all the bills."
For the past 26 years, the worker has in fact been paying the bill and the bill has
been high. Health care costs per worker have increased 451% since 1965 - 6S times the
rate of real wages and salaries. And health spending is eating up business profits. Health
spending now consumes 97.5% of business after tax ~rofits. In 1986, health care spending
actually exceeded (113%) corporate after tax profits.
The impact of reform will be markedly different for those who do currently provide
health care insurance than for those who do not. Approximately 62% of businesses with less
than 100 employees provide health car.e coverage. And 51% of those with less than 25
employees provide insurance. All of these employers contribute to the cost of coverage in
some way. Most small businesses who provide insurance provide roughly the same package
of benefits that large employers offer. The next section will look at what small buSinesses
pay today and will pay under reform under two financing scenario under consideration.
Note: There is considerable skepticism among members of Congress especially those
who come from Southern states on the percentage of small firms provide coverage to their
employees. As is clear from the above referenced numbers the smaller the firm is the less
likely it is to provide and contribute towards coverage. The widely cited two-thirds figure
is slightly off base. Only if one uses firms under 100'workers does one approach the two
thirds figure. Many view "small businesses" to be less than 25 workers instead of less than
100. Only 51 % of businesses with less than 25 workers provide coverage to employees. And
the smaller the firm is the less likely it is to provide.
7
Source: HCFA, Office of the Actuary
�FINANCING SECTION
The following charts were prepared using dIstribution tables provided by
Ken Thorpe and prepared by the Urban Institute using the 12.2% premium
cap.· Because many financing decisions have not been made, these numbers
are subject to change and are for your eyes only. Although the numbers can't
be used yet. we thought they would be useful background for your meeting.
wIth the Congressional small business committee members.
.
What does seem clear from the data, however. Is that those employers
and employees who currently pay for health care coverage w1ll pay less on
average than they do under the current system -- which Is very good news.
The graphs look at only at small busInesses -- those wIth less than 25
workers or those with between 25-99 workers.
They show averages -- average worker contribution, average employer
contribution -- today and under reform. As is the case wIth averages, they are
not necessarily representative of what the "average American," pays or w1ll pay,
(because the very high costs plans and the very low cost plans are averaged in
together).
Workers who do not currently receive health care coverage from their
employer will pay, on average less, than those who do currently pay for
coverage. We believe that this is due to the fact that today's uninsured are·
made up of more low-income or part-time workers. Also, smaller businesses
(those with less than 25 workers) pay somewhat less on average under the
reform plan because they are more llkely to be ellgible for subsidIes.
•
As you know, there are other financing scenario's under consideration.
HCFA, Treasury. and the Agency for Health Care Pollcy Research are
also preparing runs using the same data. Their numbers may differ
from those used to prepare this data.
�•
Health Spending Is
Eating Up Business Profits
Percentage of After Tax Profits .
120%~----------------------------~
100%~--·····--·-··---···--·------------------·-----·---·~
80%
60%
-
... ...... _.•.......•........
_-
_
...•..•. .._._.•.-._._--........•.. -...
--.--.-.-.-~
40% . . . . ..
20%
1965
1970
1980
Year
Source: HCFA, Office of the Actuary
1990
1991
�ESTIMATED IMPACT OF ENACTMENT OF
DISCRIMINATORY PRICE PROVISIONS
ON FEDERAL PHARMACEUTICAL PRICES -
IMPACT OF F.S.S. PRODUCT DELETIONS:
Background.
VA expended $858 million on pharmaceuticals in FY 1992.
Of this
amount $500 million were procured through the Federal supply
Schedule (FSS), $280 million through depot and shared procurements,
and $70 million in open-market or other procurements.
Dollars
expended through FSS procurements may increase (by $280 million)
and dollars expended through depot procurements will decrease or be
eliminated during the next year due to increased use of prime
vendors and a proposed phase out of the depot system.
FSS contracts are generally not based on volume procurements. Any
discounts, which may be achieved, are provided primarily based on
anticipated volumes of purchase.
VA believes that if the discriminatory pricing provision, as
proposed by the National Association of Retail Druggists and the
National Association of
Chain
Drug
Stores,
becomes
law,
manufacturers will be forced to eliminate (non-volume-based) FSS
discounts to the federal government on all products by deleting
those products from the FSS. We also think these drug products
would not be re-introduced to FSS in the 1995 contract cycle. If
this scenario occurs,
VA, estimates that prices paid for
pharmaceuticals would increase by 63% (See attachment A).
These
higher prices would result in greater total Depart mental
expenditures for drugs.
Impact.
For VA alone, this budgetary impact would be $ 413 million annually
based on Fiscal Year 1992 data.
Other Federal Agencies (DoD and
PHS) would experience similar proportionate impacts.
�Attachment A
The Drug & Pharmaceutical Product Management Section, VACO
Pharmacy Service, Hines, IL., reviewed Prime Vendor purchases
from McKesson in Region 4 for the 2nd quarter FY 93 and obtained
the following information.
McKesson reports their product cost along wi,th the VA's billed
amount. 2769 line items were reported at a total cost of
$ 2,555,712.25 for 132,918 units. (One unit is a tube of cream
or a bottle of tablets or a case of dropper bottles). If the
same number of units were purchased at the Prime Vendors cost,
these 2769 line items would have resulted in a cost of
$ 4,170,SOl.S0.
The difference noted between the cost to the Prime Vendor (PV
Cost) and amount billed to the VA facilities (FSS Cost) is
an increase of $ 1,614789.30 or 63.18%.
«$l,614,789.30/$2,SSS,712.S0}*100%)
=+
63.18%
It should be noted that this increase is based on the Prime
Vendor's cost, not the Average Wholesale Price (AWP) which would
include a wholesale mark-up. It is anticipated that the VA could
obtain products at approximately the same cost as Prime Vendors
or wholesale companies if Federal Supply Schedules contracts were
not available.
Examples of the above costs include:
PV Cost
FSS Cost
Tegretol
4.17
15.31
Procardia XL
188.66
269.1S
AWP
18.38
321.9S
The above FSS Cost and PV Cost were obtained from Prime Vendor
sales reports while the AWP price was obtained from the 1993 Red
Book.
�f'
.........
",.j"
PRESCRIPTION DRUGS
The Health Security plan
"Responsibility ... means that drug companies should no longer charge three times more per
prescription drugs made in America here in the United States than they charge for the same
drug overseas." President Clinton, speech to a Joint Session of Congress, September 22, 1993
~f ~"r4-l CiJ".4 tL.. <j~ J. ~~ Df 4- o.~ct ~
L~..... A.r j-{(2...Cr V~
--
PRESCRIPTION DRUG COST
Today. prescription drug prices continue to skyrocket. Between 1980 and 1992, while the
general inflation rate increased by 22 percent, drug prices increased 128 percent. And
according to a Families USA report entitled, "Prescription Cost: A merica's Other Drug
Crisis," drug manufacturers are raising prices fastest on those medications which Americans
need most.
Paying for prescription drugs is an incredible burden on many Americans. particlJQy the
I ~ elderly. For 3 out of 4 older Americans, prescription drugs are the highest out of pocket
l,..../
health care cost. And over eight million older Americans choose between food and mediCine
every day. Expensive, frequently taken medications (i.e. antibiotics for children) become such
a financial burden that many people go without.
r"ll
The largest part of the price of a prescription goes to drug company marketing. advertising
and profits. Approximately 35.5 % went to marketing. advertising and profits for the drug
l./
company, whiie just 16 percept went to pay fo'r'i-esearch and develoRment expenses.
0 ..... oV'V')"I.\. cS,,) c..~(,->b/'''''<; oS (~C'r\~N cI",I\. rl- A. tJrv r&O\.
Drug companies charge U.S. citizens much higher prices than the citizens of other
industrialized nations. If the average prescription product cost $1 in the United States, that
product would cost only $0.67 in Canada (or 33 percent less), and onl
60 in the European
market (or 40 percent less).
Under the Health Securit Ian rescri ti n dru rices will
Many managed
care programs have successfully used market-oriented incentives to contain prescription drug
costs. Health plans will be able to negotiate with drug companies for a discount on the price
of prescription drugs.
Under the Health Security plan. Medicare will get a discount on prescription drugs. The
Medicare program will become the world's largest purchaser of medications and will receive a
discount for prescription drugs currently on the market. The Secretary of Health and Human
Services will be given authority to negotiate the price of new drugs for the Medicare
program.
"
PRESCRIPTION DRUG BENEFIT
Many Americans have no prescription drug coverage in today's system. Almost 25 percent of .
Americans under age 65 do not have any type of public or private prescription drug insurance
coverage -- leaving those Americans alone to face the financial burden of prescription drugs.
�J
•
Today. older Americans -- those most' in need of prescription dru& covera&e -- are often those
without covera&e. Since Medicare does not cover outpatient prescription drugs, less than half
of all drug costs for seniors are covered by insurance.
"'
The Health Security plan offers all Americans &uaranteed prescription dru& coverage for the
first time. All health plans CQvering those under 65 will be required to cover outpatient
prescription drugs. Under the low-cost sharing option plan, the beneficiary will pay $5 per
prescription. Under the high-cost sharing option. plan, the beneficiary will be covered for 80 .
percent of his or her prescriptions after meeting a $250 annual deductible. The insured
~!$!~~~~~~
person's copayments will count towards the overall out-of-pocket annual cap.
tJ).RJ" II-
- •
an offers Medicare be
es
resc 10
~. Medicare beneficiaries will have 80 percent coverage for their medications afte a $250
deductible is reached. A $1,000 annual cap will be placed on out-of-pocket pre ption drug
costs, with costs above this amount fully covered. 3A ccPcR, ~", i< • 'g lIIlEr (\"\C.I\Nj'c~ CG-~ (~"lr-
\..o~":l... ..('q<t'"""'~ h..",,- ~ I.. .....u d~J~W~.J o.,.j. (.Q(")",,~!td.r-- I.vllt 1.:. ..o..t--fc,..l\d~~,...). ~ fY'C1"~ _it ~I(
,
0" .. " ..',.I!Q.... I.t.::.J ~
Because of the cost-effectjveness of prescription drugs. &uaranteed coverage will reduce
~ tJJc,~ ~I~~
overall health care costs in the lon&-run. Many older Americans and others are hospitalized
because their lack of prescription drug coverage means that they QotH~'~~~t@-!~-tfte----_ _
medication they need, (get stat from Jennings) As Ron Ziegler, the President and CEO of the
National Association of Chain Drug Stores pointed out, "When they say, 'well, the pharmacy
benefit for Medicare, isn't that going to add tremendous cost to the Medicare program?' They
are simply overlooking and not even giving any thought to the reality that good drug therapy
and a~cess on the part of the elderly to consistent drug therapy reduces and will reduce the
overall societal contribution and cornmitmentto health care."
.
• '> " (
~\. L\fI.~ "
\ I VI "'1~k D 1
(V\
Iti ;8 .d( d.tJ {(ON-
r
~_
_ ._v>_ _ _
~~c~
____
-----~
.
---:
='Ah(~-_-~
�~Q~
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/\~(~
~\J"/(( ~(j V
/ /juf'r
i
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- ~-~--I-'
.....
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------ ------
':,;.(:
�To:
Fr:
Re:
Patti Solis, Avis LaVelle, Charlotte Hayes, Skila Harris
Christine Heenan
Possible nMessage of the Week" events related to prescription drugs
One possible event we could design to illustrate the problems seniors face with
prescription drugs would be a "brown bag n session with seniors from the community and
their local phannacists. These brown bag sessions are basically
.
infonnationaIleducational-- elderly people empty their medicine chests into "brown bags"
and bring them to the phannacist for the phannacist to catch problems and/or answer
· questions.
". Problems often uncovered in this type of event:
I) Elderly people have saved prescriptions that have expired, in case they ever need that
drug again. This can be very dangerous as characteristics of the drug change and can get
· more potent or otherwise dangerous. The main reason people save unused prescriptions
is to save the cost of buying them again at a later time, because they are so expensive.
2) Seniors also take drugs in combination with other drugs, or take drugs differently than
prescribed. These combinations call have "contraindications", or dangerous side effects.
These risky drug combinations happen for two basic reasons: 1) there is no coordination
in the system, and one doctor doesn't know what another doctor has prescribed 2) seniors
don't understand their drug regimen 3) in an effort to save money, people take drugs
prescribed for others, or take drugs they have left over but should no longer be taking.
. These problems again relate directly to the high cost of drugs and the lack of coordination
· among health care providers.
.
A high percentage of elderly hospitalizations are caused by prescription drug problems-
costing Medicare billions each year and causing life-threatening health problems that
were avoidable.
We envision an event in which the seniors bring their drugs in, go over them with the
. phannacist(s). The principal arrives at the event and hears from the phannacist some of
the examples he/she found that were dangerous, and talks with seniors about their
problems with prescriptions, focusing on cost
In response~ we have very good things to say on these fronts:
1) Coverage of prescriptions through the Medicare program
2) Containment of drug prices "
�Concerns of Dr. Arthur Flemming
Dr. Flemming is a Republican who served as President Eisenhower's
Secretary of Health, Education, and Welfare and has advised subsequent
Republican administrations. He has worked on health care since the Roosevelt
administration
He was Chair of the White House Conference o,.,.,Aging in 1971 and ,u.S.
Commissioner on Aging at HEW from 1973 to 1978. Currently, he is Chair of the
National Citizens' Board of Inquiry into Health in America, and the Co-Chair of
the Save our Security Coalition. Last year, he was a member of the Families USA
panel that supported then-Governor Clinton's plan as being the most cost
effective option.
Most recently, he has publicly supported President Clinton's reform
proposal as "comprehensive, thoughtful, workable and fair."
Concerns about structure of prescription'drug benefit
Dr. Flemming was concerned that seniors were being asked to pay more
than everyone else for this benefit. He emphasized that this could be a problem
with particular interest groups.
UNDER MEDICARE PART B:
Medicare Part B is expanded to include prescription drugs. The.c.o.=.
insurance level is 25%, the same as for all other Part B benefits.
UNDER LOW COST SHARING PLAN:
Prescription drug benefits are included with a $5 per prescription co-pay.
UNDER HIGH COST SHARING PLAN:
Prescription drug benefits are included with a 20% co-insurance.
��NEW DRUG PRICES AND
THE FEDERAL PHARMACEUTICAL REVIEW COMMISSION (PRC)
Even after reform, new drugs will be permitted to be priced at
whatever level the pharmaceutical manufacturer chooses. No price
regulation of these new products' launch prices was deemed appropriate
for fear of excessively harming the environment and incentives to invest
in pharmaceutical research and development. Since the new system will
require all public and private plans to cover virtually all FDA approved
drugs, payers will have no alternative other than to pay the cost of these
medications.. An Unfetteret!r~g environment for these drilgs can be
expected to' raise concerns
government, businesses, employees,
HMOs, health plan's and other purchasers of prescription drugs. To
address these concerns, provide needed information to public and private
purchasers, and to assure that there will be continued public pressure for
manufacturers to be price sensitive, a Pharmaceutical Review Commission
will be established as a separate, but structural component of the National
Health Care Board.
.
The Pharmaceutical Review Commission (PRC) will be estabUshed in
conjuction with the National Health Care Board. It will work closely with the
Department of Health and Human Services and be responsible for prOViding
prescription drug pricing Information to both pubUcly and privately
administered insurance (or health plans) that provide drug coverage.
The Commission will be made up of 11 members composed of
phYSicians, pharmaCists. pharmaceutical economists. and industrial
economists. PRC will also have a consumer, business, and pharmaceutical
manufacturer representative.
The Commission will Investigate the launch prices of (1) all new drugs
that come on the market during the period that voluntary short-term price
containment measures are In place (apprOximately 20 to 30 a year are
approved by FDA); (2) all new breakthrough drugs for the lifetime of the
CommiSSion -- usually about 8 to 20 breakthrough drugs a year are expected
to be approved; and (3) all drugs that are subject to a "reasonable price"
clauses in' contracts with the National Institutes of Health. (The latter category
represents drugs In which the federal government has made a financial and
research contribution to the development of a particular pharmaceutical.)
The Commission will investigate drug prices only in those cases where
available evidence suggests that the price may be unreasonable. PRC has no
authority to set or control drug prices.
�The Commission is empowered to make an initial judgment as to
reasonableness of price based on a comparison of therapeutically similar drugs
In the U.S. and/or prices charged for the same drug In other industrialized
nations. If the price of the drug exceeds these comparison variables. OR If the
data available is inadequate to determine If a launch price is reasonable. the
Commission is authorized to require the manufacturer to provide such cost
information as the Commission finds is necessary to make a determination
regarding the reasonableness of the price. Such information may include:
a
a
Research and development costs for the drug;
Allocation costs of research and development for "dry hole" investment
(development costs for drugs that did not yield a marketable product);
a
Research and development paid for by the federal government;
a
Manufacturing costs of the product;
a
a
Marketing and advertising expenses;
Benefits of the drug as measured against other medical interventions;
and
Any other information relevant to pricing as identified by the
Commission.
The Commission will have the authority to examine manufacturer
records containing data outlined above. However. PRC is required to keep all
price information on a strictly confidential basis. If the Commission concludes
that the launch price of a product is unreasonably high. it will issue a public
report documenting this conclusion. (The comparisons any such report makes
will not list specific prices; rather it will discuss percentage variations.)
The CommisSion has a number of additional responsibtltties that are
critical to the effective implementation of health reform. They include, but are
not limited to:
a
Monitor and enforce any and all short-term pharmaceutical pricing
agreements resulting from health care reform initiatives;
Monitor the extent to which the pharmaceutical market is operating
under a managed competition/ care marketplace. (This Is key because
the current specifications link the elimination of the voluntary price
constraints agreement to a percentage level (70 percent) that the market
Is operating under a managed care/competition environment.);
�D
Monitor and enforce the prices of pharmaceuticals in non-managed
competition areas, and determine the extent to which pharmaceutical
services are available in these areas;
D
Oversee the pricing of all new drug products during the short term. and
for breakthrough drug products throughout the Commission's lifetlme;
D
Working closely with the Department of Health and Human Services. the
Department of Veterans Affairs. and the Department of Defense.. help
provide oversight over the federally-funded prescription drug programs.
including Medicare. Medicaid. and DVA. and make programmatic
recommendations for lmprovement to the appropriate Departments and
the Congress;
D
Collect and disseminate information about domestic prices to the
Administration. the Congress. consumers and their representatives.
physicians. pharmacists, and other health professionals;
D
Collect information about international pharmaceutical prices and
report. on a regular basis, to the Administration and the Congress;.
D
Publish lists of drugs that have high quality generic alternatives. and
monitor generic substitution rat'es in various geographic areas. as wellin
different federal programs; and
D
PrOVide studies and reports to the Administration and the Congress on
other pertinent aspects of the pharmacy and pharmaceutical
marketplace.
�RATIONALE: THE PRESCRIPTION DRUG REVIEW COMMISSION
The growing use of formularies and large volume purchasing techniques
has appeared to increase competition and moderate price increases for
pharmaceuticals that have competition within the same therapeutic class. It is .
not absolutely certain that this price moderation is solely the result of this very
recent trend or whether.1t is also in response to growing public pressure and
critiCism and drug pricing practices of the past. Regardless, the combination
of the growing movement towards managed care and managed care bargaining
principles, along with the recommendation of a voluntary price constraint
provision (with fall back authority) for drugs currently on the market. provides
an adequate degree of security that these drug prices will not be unduly
inflationary.
The potential for the price of new drugs. particularly those that have no
therapeutic competitors. to be an exreme finanCial burden continues to be
great. In a new voluntary price increase constraint environment,even those
new drugs that have therapeutic competition causes some concern. (This is
because it is possible that a company may choose to price a new product high
and opt for an expensive marketing strategy aimed at the non-managed care
marketplace -- an environment that will be still quite large.)
New drugs with therapeutic .competitors Will, assuining managed
competition works and is universally implemented. be subjected to market
forces that should moderate their prices. However, prices of new drugs
without theerapeutic competitors (breakthrough drugs) may be launched at
extremely high prices; this Is likely to be especially true with biotechnology
products. A few examples of the prices of new drugs that have come to market
in the past include:
•
TPA: $3.000 a dos.e. (clot-busting for heart attacks)
•
EPO: $10,000 a year (used to treat anemia)
•
Foscavir: $21,000 a year (usedfor AIDS)
•
Ceredase: $140.000 a year (for Gaucher disease)
There may be as many as 15-20 of these IIbreakthroughll drugs a year
coming to the market; the prices of which could literally break the backs of
.health care plans or the treasury (in the case of the Medicare program).
Because most of these drugs represent Significant medical advances and a
universal system will require coverage of all FDA approved drugs. health plans
will have no other choice than to pay whatever price the manufacturer chooses
to charge.
�"
Likewise, the Medicare program will need technical and economic
expertise in making coverage and administrative decisions about its new
multi-billion dollar prescription drug benefit. The last time the Medicare
program was about to implement an outpatient prescription drug program
(mandated by the Medicare CatastrophiC Coverage Act), the Administration and
the Congress saw the wisdom of having such a body when it enacted the
Prescription Drug Payment Review Commision (RxPRC). It would make Uttle
sense to not have the benefit of such a similar body envisioned in the.
Pharmaceutical Review Commission. This is particularly the case when one
considers the very real possibility of an example of an extremely expensive new
treatment (not cure) for Alzheimer's patients. Medicare will be statuorily and
morally required to cover such a medication that would prolong the life of an
already expensive to treat patient. If. on top of that expense. the drug is also
cost prohibitive. the Treasury would be at severe finanCial risk.
In direct conflict with these concerns is the drug industry's adamant
position that price controls for new drugs represent a direct assault on their
ability to attract capital for investment in research and development. The
challenge for policy makers is to craft a recommendation that provides
adequate incentives for price sensitivity as well as investment in research and
development. Hence. the proposal to estabUsh an informational board with no
power to directly control prices.
The Pharmaceutical Review CommiSSion will provide desperately needed
and unbiased information on the cost and therapeutic effectiveness of new
drugs coming to the market to both public and private purchasers of
pharmaceuticals. This information will be critical to purchasers of both new
breakthrough pharmaceuticals and new drugs that have therapeutic
alternatiyes:
(1)
Purchasers of new. breakthrough pharmaceuticals (that, by definition,
have no therapeutic competition) will have Uttle to no financial leverage
in negotiating affordable prices with pharmaceutical manufacturers.
Information on these drugs will provide the basis for appropriate usage
suggestions to plan-sponsored physicians and have that added benefit of
placing at least some pubUc pressure on companies to be
consumer /purchaser cost sensitive:
(2)
Purchasers of drugs that have therapeutic alternatives who fear a
manufacturer may pick a high price/heavy marketing strategy and
target the part ofthe marketplace (still Significant) that does not yet
utilize effective managed care purchasing techniques. The type of
information provided by the new CommiSSion will prove particularly
important to such purchasers as the Medicare program. which will not
be using formularies, and will need this information to make appropriate
decisions with regard to what drugs it places prior authorization.
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,
LAUNCH PRICES FOR BEW DRUGS
There has been concern voiced in the Administration and in
Congress that efforts, voluntary or otherwise, to hold annual
prescription drug price increases to the CPI will result in an
increase in the price at which new drugs are introduced into the
market -- the launch prices.
Launch pricing has been an issue in the past when a new
single source drug has been introduced to the market at a price
that exceeded consumers' and federal policy makers' assumptions
about its reasonable cost. In part, the conflict over launch
prices has been attributable to differences in perspective
between consumers and manufacturers. While consumers focus on
their drug expenses in relation to other goods in their market
basket, and assume manufacturers should be compensated for the
cost of production only; manufacturers weigh launch prices as
part of the economics of attracting investment capital to
underwrite the high-risk research efforts needed to continue
bringing new drugs to market.
The climate is changing, however, and new drugs are
introduced in an increasingly sophisticated and price-sensitive
marketplace, where a drug is priced in relation to its value and·
cost effectiveness relative to alternative therapies.
Host druqs are launched into competitive markets
New drugs today which are therapeutically equivalent to an
existing drug (so-called "me-too" drugs) are introduced into an
increasingly competitive marketplace. According to a study
referenced in the recent Office of Technology Assessment (OTA)
publication on pharmaceutical R&oV, only 27 percent of the. new
chemical and biological entities entering the world market
between 1985 and 1989 were therapeutic "breakthroughs."
"Me-too" drugs are entering a market that is increasingly
price sensitive and have been an important moderating_influence
on drug prices. The more drugs are introduced with a similar
therapeutic profile, the more important price will become in
determining market share.
1.Barral, P. E., Fifteen Years of Results in Pharmaceutical
Research Througtiout the World. 1975-1989 (France: Fondation
Rhone-Poulenc Sante, August 1990).
-1
�,A recent article in the Wall Street Journal Y cited a
number of classes of drugs where price competition and the
growing influence of institutional purchasers have kept launch
prices low and actually lowered the prices of existing drugs in
order to maintain market share.
Launch prices are an issue with relatively few new drugs
Launch prices do remain an issue for drugs that have no
price-based competition. There are essentially single source
drugs that represent a significant therapeutic advance or provide
the only treatment for a particular disorder.. Surprisingly few
drugs fall in this category of "breakthrough" products. The Food
and Drug Administration classifies drugs that have "important
therapeutic gain" in the "A" category. Between 1988 and 1992
there were only five to eight new drugs a year classified in the
"A" category. Over the five years frqm 1985-1989, only 51 drugs
(an average of 10 per year) were introduced to the world market
that provided any therapeutic gain over existing drugs.~ Only
a portion of these represented a significant enough advance to
face no eompetition.
Even "breakthrough" drugs must increasingly be priced as a
cost-effective alternative to existing non-drug therapies in
order to gain acceptance in managed care settings and establish
sufficient market share.
It is not possible for manufacturers
to be assured of a reasonable'market share without regard to
price for any new drug.
Hew drug pricing is complex and intricately connected to R&D
incentives
The pricing of a new drug is based on a combination of risk
and return assumptions aimed at maintaining the capacity of the
company to attract investment capital and finance sufficient R&D
to bring a stream of new products to market. On the risk side
are the generally low probabilities that any new chemical entity
(NeE) will be found effective in laboratory tests~ proven safe
and effective in clinical trials~ and be marketable. On the
return side are assUmptions about the market environment in which
the drug will be introduced. These include the patent life; the
timing for introduction of "me-too" drugs; the nature of the
condition being treated; the costs of alternative treatments; and
the societal costs of the condition. Each drug is therefore
priced differently.
2."Drug Prices Get Dose of Market Pressure", Wall Street Journal,
March 11, 1993.
3.Barral, P. E., Ibid.
-2
�When all factors are considered, the margins for
pharmaceutical products are not much greater than the margins for
other products, especially when the greater risk in
pharmaceutical R&D is factored in.
For'example, the OTA
estimated that, on average, the net return:on new chemical
entities brought to market between 1981 and 1983 exceeded the
cost for the research and development on those drugs by 4.3
percent. Y This calculation does not appear to account for R&D
costs not associated with successful NCEs.' Overall, OTA
determined the pharmaceutical industry produced an economic rate
of return on investment that was 2 to 3 percentage points higher
than non-pharmaceutical firms. This is justifiable enough to
overcome the risk differences and still attract investment
capital.
Changes in the returns on new drugs can significantly affect
the R&D strategies of companies and the cost of capital to the
pharmaceutical industry.
During the 19805, pharmaceutical
manufacturers focused attention on developing "me-too" drugs
which have less risk and cost in R&D. Acc9rding to OTA, however,
lower returns from an increasingly competitive market for "me
too" drugs appears now to be encouraging a shift in R&D emphasis
toward "breakthrough" drugs where there is,a greater potential
for revenues to offset the higher R&D risks. This shift in
emphasis may help shorten the timetable for introduction of new
drugs to combat major diseases that are co~tly to society~
Government action which would result in a significant reduction
in the expected returns ,for."breakthrough": drugs, however, would
encourage a shift of emphasis back to lowe~ risk investments that
are less likely to make a significant therapeutic advance.
.
I
I
i
I
HMO determinations provide an effective method for negotiating
drug prices
A properly functioning market can val6e new drugs on the
basis of their worth to the society and t~ the extent that they
provide a cost-effective treatment alternative. Increasingly,
institutional purchasers, and HMOs in particular, are
'
establishing this kind of market, and creating a competitive
price. The price that this market yields :reflects the value to
society of a new drug. What is significant about this pricing
approach is that the drug is valued by a medical entity in the
context of total patient care.
For a government entity to set a launch price that will
produce returns to the manufacturer consi~tent with the drug's
value, that entity must be able to view the drug in a therapeutic
4.0ffice of Technology Assessment. Pharmaceutical R&D: Costs,
Risks and Rewards (Washington, D.C. - U.S~ Government Printing
Office, February 1993) P. 104.
-3
�rather than economic context. In other words, the decisions of
individual practitioners operating under financial constraints,
and the considerations of manufacturers in introducing a new drug
to that environment must somehow be considered in the process of
determining a fair price. Simply considering the manufacturer's
input costs, on the one hand, or the consumer's purchasing power,
on the other, is not sufficient to determine whether the new drug
can save money or add value in the aggregate. The result of a
government controlled approach to pricing would be to preclude
the development of· costly drugs that can substantialfy reduce
total treatment costs in the long run.
Canada does have a mechanism that reviews launch prices for
"breakthrough" drugs based on the price of the drug in other
countries. Importantly, Canada does not attempt to set prices,
but merely reviews prices to. determine whether they are
"excessive". About 30 percent of new drug prices are found in
the Canadian approach to be "excessive".~
Canada's approach
is only workable in a country with small market share where
competition plays no role than it would be in the dominant
pharmaceutical market in the world.
Using pricing in other countries as a benchmark for U.S.
prices would generalize the losses that manufacturers would
otherwise be willing to suffer to enter small highly-regulated
foreign markets. Generalizing these losses can substantially,
and arbitrarily, reduce investment returns and would, most
likely, force world prices higher.
Any simple or arbitrary
price standard unrelated to the value of the drug runs the risk
of missing or distorting the economic decisions related to
bringing new drugs to market.
Conclusion
Relatively few drugs are launched today into non-competitive
markets where launch prices create a political problem. Even
"breakthrough" drugs must be cost sensitive in order to meet a
purchaser's test of cost effectiveness in 'a therapeutic context.
The continuing development of managed care and knowledgeable
purchasing is the best mechanism to manage launch prices.
To the extent governments want to review launch prices, it
should use the same standard now being applied by knowledgeable
purchasers. It is not clear that any government entity has the
capacity to apply that test.
5.General Accounting Office; Prescription Drug Prices: Analysis
of Canada's Patented Medicine Prices Review Board (GAO/HRD-93-51)
(Washington, D.C. - U.S. Government Printing Office, February
1993) •
-4
�Any other approach, particularly one that is arbitrary or
narrow in the factors considered in deriving a price, will shift
the returns on R&D investment and substantially alter the
investment strategies of pharmaceutical manufacturers, in ways
that could have long term negative effects on health care costs
and the health status of the population.
-5
�..
"
The Wall Street Journal 3/11/93
I
MEDICINE
D~g Prices
Get Dose of Market Pressure
By ELYSE TA..'10l"YE
SIC!! R"porr", 0/ TilE WAU. STREET JUUR"AL
Even as the White House and phanna·
:eutical industry officials wrangle over
lOW to control drug prices, market forces
n some cases are at work doing just that
For the first time in years, competition
lmong drug makers Is prompting some
:ompanies to try an aggressive marketing
',pproach: lowering prices. U's a radical
:eparture for drug companies that tradl·
tonally pitch drugs directly to doctors
ased largely on a medicine's medical
enefits.
More skirmishes than full-blown price
'ars at this point. the competition is
lking place In markets where several
IO%'_ _-i._ _ _...i....._ _....J
)mpanies make equivalent or "me-too"
rugs. But those markets -lndudlng some
1990
'91
ntiblotics. ulcer medications, antldepres
'January
lOts and blood'pressure therapies - are
nang the biggest
These drug pricing battles were occur
nil' before the CUnton administration
!gan its recent attac1c on prices. which Merck's Mevacor. Merck itself priced Its
lve increased by two to three times the second cholesterol-reducing drug, Zocor,
te of inflation during the 1980s and rose below Mevacor,
Last week. American Cyanamid Co.'s
i% last year. Some in the Industry argue
at new market forces will continue to Lederle Laboratories unit dedared war In
'.Sh down prices. and they contend that the nicotine-patch market by offering to
rebate a third of the S4-a-clay price to
! best thing theCllnton administration
n do is to let that happen. But others customers whose presCrIptions aren't cov
int out that In a few years, the rush of ered by Medicaid or Insurance.
Wben the decisions to develop me-too
Hoo drugs may subside, redudng com
drugs were made about a decade ago, they
tition.
Fearful the Clinton administration will were considered to carry less corporate
act price controis or attempt to ron baclc risk than neW types ot therapies. The first
products on the market had already done
! prices of expensive medicines. drug-in
stry representatives met with White the hard work at proving the drug's effec·
use health-care omcials earlier this tlveness and establishing the market Me
ek. suggesting that the drug companies too drugs chemically differ trom the pio
ght go along with proposed laws that neer product but offer similar medical
uld monitor and enforce voluntary price benefits.
Itrols.
Role of HMOs
ice Guarantees
In the past, late entrants to the market
But while the voluntary pledge to hold were usually able to set prices at or wove
:e increases down has received much those of competitors. But the emergence of
llic attention, behind·the-scenes pricing bIg institutional buyers has reduced drug
companies' pricing flexibility. Knowledge
ys are on the rise because of competl·
I. Among recent pricing skirmishes, able about drugs and determined to cut
a·Geigy Corp. has priced Its Imensin costs, these hospital, health maintenance
rt drug about 500/. cheaper than Bristol organization and other managed care
!rs Squibb Co.'s list price of capoten, customers are particularly receptive to the
28'70 lower than Merck &Co.'s Vasotec. cheaper-Is-better marketing message•.
'eover, Clba-Geigy guarantees the Bristol·Myers uses several marketing tools
e to patients for life. even if they need a to sell Pravachol, says Senior Vice Presi
ler dosage later on. Recently Smith dent Raymond C. Egan. but among man
le Beecham introduced its antidepres aged care buyers, price "is the hot but
: P:uil at a list price below those of Ell ton:'
Ciba-Geigy is hoping one name on that
1 & Co:s Promc and Pfizer Inc.'s
button is Lotensin. In 1990, the company
(t. And Bristol'Myers priced Its choles
I-reducing drug Pravachol ~eJow began mapping out its marketinll' strategy
-lepid
-Zocor
for the beart drug in the ACE inhibitor
dass. Four ACE Inhibitors were already on
the market, and {our more were expected
to be launched about the same time as
Lotensin In 1991. capoten and Vasotec
. made up two-thirds at the market last
year, according to Lotensin product direc
tor Henry Bloom. But gaining even a small
slice ot the 51.8 billion market can be
profitable, he says.
Clba-Geigy couldn't tout significant
medicai advantages because the ACE in
hibitors are therapeutically similar. So
executives at Ciba-Geigy gave the product
management team the mandate to come up
with "a bill' Idea" to sell the heart drug
Lotensin: price cuts and guarantees.
Although Lotensin has gained just a
tiny 4% market share, Mr. Bloom says the
Signs are good. "There's no question price
helped us get the foot In the' door with
HMOs... he adds. Lotensin now Is accepted
on 65% of all HMO formularies, or lists of
drugs covered by the HMO. As a grouP.
lower-priced ACE inhibitors have begun to
chip away at the market leaders. Since
1990, Vasotec's market share has declined
to 41% from 45% and capoten's share has
fallen {ell to 23% Crom 33%, according to
Hemant Shah. an independent analyst
SmithKline Beecham,·which, is consid·
ered among the most aggressive mar·
keters to managed care buyers, emphas·
izes a "cost-effectiveness" pitch, which
includes related hospital, physician and
other costs to compare competitors' drugs.
But price was the biggest selling point (or
the ulcer treatment Taganlet and the COlT.
pany's recently introduced antidepressar:
PaxiI, priced 130/. below Prozac. On th
market for about a month, Paxil is on 80':
at all managed health·care formularies
says Jean-Pierre Garnier, president .o.
SmitbKline's North American phanna
ceutical division.
Managed care drug-buyers like Kaise;
Perrnanente Medical care Program, basec
In Oakland. CaJIf., welcome the entry of G
lower-priced me-too drug as an opportu·
nity to lower drug costs. Wben Bristol
Myers Introduced Pravachol at a lower
price than Merck's Mevacor, whicb was
already on Kaiser's formulary, Kaiser
. opened up bidding tor placement on its
formulary. says Dale Kramer, Kaiser's
director ot materiel services. Mr. Kramer
says Merck won with a "significantly"
, lower price tor the drug.
Given the recent pricing skirmishes,
Mr. Egan of Bristol-Myers says, "I think
U's ashame that the administration enters
the scene at a point where market forces
are taking over and putting downward
pressure on price."
For Kaiser's Mr. Kramer, ''The poten
tial is huge for competition, but there has
. to be a free-market environment" He
points to a 1990 law requiring drug compa
nies to give the Medicaid program the best
price otfered to any customer. It has
caused companies to stop deeply discount
ing their drugs, he says. Kaiser was able
to negotiate discounts as high as 40% to 60%
In the past, he says, but now only gets the
standard 15% that drug companies typi
caJly offer Medicaid. Kaiser's .total drug
costs, as a result, have Increased by 5% to
8%, he says. Some bill' drug companies
support the law because It restrain'.S dis
counting-and competition, he says_
TIle flow of me-too drugs through drug
companies' pipelines will continue for a
few more years, putting more pressure on
prices, Bristol-Myers's Mr. Egan says. But
because price competition has reduced the
profitability ot developing follow-on drugs,
companies are reviewing their portfolios
and selecting pioneer, "breakthrough"
drugs that can command premium prices,
analysts and industry executives say.
"Me-taos are out," says Mr. Gamier.
�LAUNCH PRICE OPTIONS
Proposals for voluntary price restraints for prescription
drugs are criticized on the basis that manufacturers would
compensate for the revenue Iconstraints of, capped increases by
setting high launch prices for new drugs.
Increasingly, new drugs are subject to pricing in a
competitive market characterized by large and knowledgeable
institutional buyers like HMOs and hospitals. Where new drugs are
therapeutically equivalent to existing drugs, manufacturers are
often forced to price them below the rest of the market to gain
acceptance on HMO or hospital formularies. Even one-of-a-kind or
breakthrough drugs are priced in this market on the basis of their
cost-effectiveness in relation to alternative drug and non-drug
therapies.
As the sophistication and influence of this institutional
market grows, investors and manufacturers place greater emphasis on
potential cost-effectiveness in their research and development
decisions.
In this way, the market redirects resources toward
products that can add significant value to the society.
,
,
There is concern, however, that manufacturers would launch new
drugs at high retail prices regardless of competitive pressures
that forced them to negotiate low institutional prices.
The
following options would help assure the government that launch
prices would be' reasonable without leading to government-set
prices:
1) Link retail pricing to HMO pricing
Retail launch prices would be capped at 150 percent of the
'average
price
received
from
institutional
purchasers
(excepting Medicaid and other government purchasers).
The
first retail launch price would be set independently. At the
end of the first six months, manufacturers would adjust the
retail price based on data on institutional market sales, and
would rebate amounts in excess of 150 percent of the average
institutional selling price.
Pros:
o
Launch prices would be determined in the market place
where knowledgable purchasers could effectively value the
.product. The retail market would benefit from the more
sophisticated valuation of the HMO ,market."
�Cons:
o
Manufacturers expectations for retail revenues might
force them to limit their discounts to institutional
purchasers, 'raising HMO, veterans iAffairs, and Medicaid
costs.
2)
Require justification of launch prices
Currently, the government may reveiw the pricing of single
source drugs that have benefited from NIH research or are
licensed by the government for its reasonableness. Under this
option, manufacturers would be required to disclose selling
prices for all new drugs for the retail and institutional
markets to the Secretary of HHS.
The Secretary would be
notified of a new drug price at the end of the first six
months of sales.
The Secretary 'could then request a
justification of price for up to 20 percent of the new drugs
launched each year, and could require negotiation with a
manufacturer on any prices determined to be excessive.
The
Secretary could eliminate market exclusivity for a new drug in
the event that the manufacturer failed to negotiate in good
faith.
Pros:
o
,0
Would allow launch prices to be determined entirely in
the marketplace for 80 percent of new drugs.
Would allow a justification of prices for those thought
to be excessive.
Cons:
o
Would give the Secretary author+ty to influence the
pricing of up to 20 percent of new drugs -- even if
launch prices overall were lower. '
3)
Base launch prices on G-7 average
Pharmaceutical manufacturers would be required to set U.S.
launch prices lower than or equal to the median of prices in
the other G-7 countries (Germany, France, U.K., Italy, Canada,
Japan). This is based on the assumption that a new drug will
have entered the market in Europe first.
Pros:
o
Leaves the manufacturers free to determine their own
prices.
�.
'
..
Cons:
o
Locks in a pricing mechanism based on regulated countries
in Europe and unrelated to the competitive pricing in the
U.S. institutional market, and managed competition.
o
Can be manipulated by manufacturers launching first only
in countries in which they can get . high price approved .
a
o
Could be sensitive to exchange rates.
�
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Chris Jennings - Health Securities Act
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Chris Jennings
Health Securities Act
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Health Securities Act
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Box 43
<a href="http://clintonlibrary.gov/assets/Documents/Finding-Aids/Systematic/JenningsHSA.pdf" target="_blank">Collection Finding Aid</a>
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647904