Stretching Federal Dollars: Policy Trade-Offs in Designing a Medicare Drug Benefit with Limited Resources.

A prescription drug benefit has proven to be an elusive addition to the Medicare program. While policymakers are in nearly universal agreement on the need for drug coverage, Congress reached a stalemate during the summer of 2001 on what such a benefit should look like. The biggest area of controversy was, and continues to be, money: How much will the federal government contribute to such a benefit and what can beneficiaries be expected to pay?

Budget constraints will inevitably clash with goals for establishing a desirable benefit package. This policy brief considers how to structure a drug benefit and what trade-offs will need to be made in the context of financial limitations. It discusses three potential approaches, each of which employs a different cost/payment structure and each of which benefits one group while neglecting another. Nonetheless, it suggests that it is possible to craft a drug benefit that would preserve universal coverage by protecting low-income beneficiaries and placing a cap on high costs.