Medicare Prescription Drug, Improvement, and Modernization Act: Wikis


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Medicare Prescription Drug, Improvement, and Modernization Act
Acronym / colloquial name Medicare Modernization Act or MMA
Legislative history
  • Introduced in the House as Medicare Prescription Drug and Modernization Act of 2003 by Representative Dennis J. Hastert on June 25, 2003
  • Passed the House on June 27, 2003 (216 - 215, 1 Present)
  • Passed the Senate on July 7, 2003 (Unanimous Consent)
  • Reported by the joint conference committee on November 21, 2003; agreed to by the House on November 22, 2003 (220 - 215) and by the Senate on November 25, 2003 (54 - 44)
  • Signed into law by President George W. Bush on December 8, 2003
Major amendments

The Medicare Prescription Drug, Improvement, and Modernization Act[1] (also called the Medicare Modernization Act or MMA) is a federal law of the United States, enacted in 2003[2]. It produced the largest overhaul of Medicare in the public health program's 38-year history.

The MMA was signed by President George W. Bush on December 8, 2003, after passing in Congress by a close margin[3].


Prescription drug benefit

Its most touted change is the introduction of an entitlement benefit for prescription drugs, through tax breaks and subsidies.

In the years since Medicare's creation in 1965, the role of prescription drugs in U.S. patient care has significantly increased. As new and expensive drugs have come into use, patients, particularly senior citizens for whom Medicare was designed, have found prescriptions harder to afford. The MMA is meant to address this problem.

The benefit is funded in a complex way, reflecting the diverse priorities of the lobbyists and constituencies whose support was needed:

  • it provides a subsidy for large employers to discourage them from eliminating private prescription coverage to retired workers (a key AARP goal; the 2005 Annual Report for IBM estimates that company will receive a $400 million subsidy during the six-year period beginning in 2006);[4]
  • it prohibits the Federal government from negotiating discounts with drug companies;
  • it prevents the government from establishing a formulary, though does not prevent private providers such as HMOs from doing so.

As of 2007, most employer sponsors had chosen to take the retiree drug subsidy and continue offering drug benefits.[5]

Basic prescription drug coverage

Beginning in 2006, a prescription drug benefit, called Medicare Part D, was made available through substantial out-of-pocket costs. Coverage is available only through insurance companies and HMOs and is voluntary.

Benefit: Enrollees will pay the following initial costs for the initial benefits described herein. A minimum monthly premium of $24.80 (premiums may vary), a $180 to $265 annual deductible, 25% (or approximate flat copay) of full drug costs up to $2,400. After this initial coverage limit is met a period commonly referred to as the "Donut Hole" begins where an enrollee may be responsible for up to the full amount of drug costs. The Donut Hole ends once the enrollee has met an out-of-pocket amount of $3850, beginning the next phase of coverage. In the final coverage phase the enrollee will pay 5% of all drug costs.

Medicare Advantage plans

With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the Original Medicare plan (Parts A and B). These programs were known as "Medicare+Choice" or "Part C" plans. Pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the compensation and business practices for insurers that offer these plans changed, and "Medicare+Choice" plans became known as "Medicare Advantage" (MA) plans. In addition to offering comparable coverage to Part A and Part B, Medicare Advantage plans may also offer Part D coverage.

Changes to plans

When the Medicare + Choice option was first offered, plans were established by several major health care insurers including Humana, Aetna, and the Blue Cross/Blue Shield plans. These plans were organized along traditional HMO (Health Maintenance Organization) business plans, but patients could freely switch back to traditional Medicare insurance. Some felt that these plans lacked the ability to truly manage care,[6] and some plans did cut back their service areas and stopped enrolling new patients.[7][8]

With the MMA, new Medicare Advantage plans were established with several advantages over the previous Medicare + Choice plans:

  • enrollees sign on for a whole year
  • care can be restricted to networks of providers
  • formularies can be used to restrict prescription drug choices
  • prescription coverage can be deferred to the patient or a Medicare Part D prescription plan
  • care other than emergency care can be restricted to a particular region
  • federal reimbursement can be adjusted according to the health risk of the enrollees

The attraction for health insurers is the large difference between normal healthcare premiums and the federal Medicare premium. Typical health insurance premiums (for someone working or healthy enough to be allowed to enroll) are generally $150 to $350 a month, depending on the level of service desired, health status, and deductibles. For a healthy Medicare-eligible enrollee, the health insurer can receive around $800 a month, more than double the premium for younger citizens. The federal government pays the Medicare Advantage plan more to cover the care of a Medicare patient than the federal government pays through the regular Medicare plan. This federal premium can increase to $2000 a month through a complex risk adjustment involving the health status of the eligible enrollee.[9] This allows the plans to offer more benefits than regular Medicare and these plans are being aggressively marketed. Among other benefits, the senior gets an immediate financial boost, as many plans let them skip paying Part B and Part D premiums, waive usual deductibles, and waive copays, all while covering preventive physicals and providing a prescription drug benefit. While the insurance plan can realize immense initial profits, every single Medicare enrollee, no matter their underlying health status, can be expected to undergo between one and six life threatening major illnesses before they die. The pathology and illnesses associated with aging are innumerable and ultimately unbeatable.

The ultimate economic viability of a Medicare Advantage plan will not be known for 10 to 15 years. The political will to continue paying extra to shift Medicare eligible citizens to private insurance may not survive through economic downturns. For seniors, the initial cost savings is balanced against insurance companies’ healthcare rationing through restrictive prescription drug formularies, requiring documentation of medical necessity for imaging studies such as CT scans and MRIs, decreasing physician access, and rationing of lab tests, and ancillary care.

Other provisions

While nearly all agreed that some form of prescription drug benefit would be included, other provisions were the subject of prolonged debate in Congress. The complex legislation also changes Medicare in the following ways:

  • it mandates a six-city trial of a partly-privatized Medicare system (by 2010);
  • it gives an extra $25 billion to rural hospitals (at the request of congressional representatives in the rural West);
  • it requires higher fees from wealthier seniors;
  • it adds a pretax health savings account for working people; and
  • it requires Medicare Part D plans to support electronic prescribing, with a planned implementation date of April 2009[10].

One of the little known features of the 2003 legislation is that means testing for Medicare B (medical insurance) begins in 2007.

Medicare Administration of Claims

In addition, the legislation mandated a major overhaul of how Part A and Part B claims are processed.

Prior to the legislation, claims were processed via a fiscal intermediary (FI) and a carrier, and were separate for Part A and Part B, as well as for each state or territory. Thus, a state could possibly have four different companies in the process (a Part A FI, a Part A carrier, a Part B FI, and a Part B carrier).

Under the new legislation, the FI's and carriers would be replaced by Medicare Administrative Contractors (MAC's), serving both Parts A and B, and would be consolidated into fifteen Jurisdictions:[11]

  • Jurisdiction 1—California, Hawaii, and Nevada, plus American Samoa, Guam, and the Northern Mariana Islands
  • Jurisdiction 2—Alaska, Idaho, Oregon, and Washington
  • Jurisdiction 3—Arizona, Montana, North Dakota, South Dakota, Utah, and Wyoming
  • Jurisdiction 4—Colorado, New Mexico, Oklahoma, and Texas
  • Jurisdiction 5—Iowa, Kansas, Missouri, and Nebraska
  • Jurisdiction 6—Illinois, Minnesota, and Wisconsin
  • Jurisdiction 7—Arkansas, Louisiana, and Mississippi
  • Jurisdiction 8—Indiana and Michigan
  • Jurisdiction 9—Florida, plus Puerto Rico and the U.S. Virgin Islands
  • Jurisdiction 10—Alabama, Georgia, and Tennessee
  • Jurisdiction 11—North Carolina, South Carolina, Virginia, and West Virginia
  • Jurisdiction 12—Delaware, the District of Columbia, Maryland, New Jersey, and Pennsylvania
  • Jurisdiction 13—Connecticut and New York
  • Jurisdiction 14—Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
  • Jurisdiction 15—Kentucky and Ohio

Four "Specialty MAC Jurisdictions" were also created to handle durable medical equipment and home health/hospice claims:

  • Jurisdiction A—consists of all states in Jurisdictions 12, 13, and 14
  • Jurisdiction B—consists of all states in Jurisdictions 6, 8, and 15
  • Jurisdiction C—consists of all states and territories in Jurisdictions 4, 7, 9, 10, and 11
  • Jurisdiction D—consists of all states and territories in Jurisdictions 1, 2, 3, and 5

Finally, the underlying contracts would be subject to competition, and would also be subject to the requirements of the Cost Accounting Standards and the Federal Acquisition Regulation.

Legislative history

The bill was debated and negotiated for nearly six years in Congress, and finally passed amid unusual circumstances. Several times in the legislative process the bill had appeared to have failed, but each time was saved when a couple of Congressmen and Senators switched positions on the bill.

The bill was introduced in the House of Representatives early on June 25, 2003 as H.R. 1, sponsored by Speaker Dennis Hastert. All that day and the next the bill was debated, and it was apparent that the bill would be very divisive. In the early morning of June 27, a floor vote was taken. After the initial electronic vote, the count stood at 214 yeas, 218 nays.

Three Republican representatives then changed their votes. One opponent of the bill, Ernest J. Istook, Jr. (R-OK-5), changed his vote to "present" upon being told that C.W. Bill Young (R-FL-10), who was absent due to a death in the family, would have voted "aye" if he had been present. Next, Republicans Butch Otter (ID-1) and Jo Ann Emerson (MO-8) switched their vote to "aye" under pressure from the party leadership. The bill passed by one vote, 216-215.

On June 26, the Senate passed its version of the bill, 76-21. The bills were unified in conference, and on November 21, the bill came back to the House for approval.

The bill came to a vote at 3 a.m. on November 22. After 45 minutes, the bill was losing, 219-215, with David Wu (D-OR-1) not voting. Speaker Dennis Hastert and Majority Leader Tom DeLay sought to convince some of dissenting Republicans to switch their votes, as they had in June. Istook, who had always been a wavering vote, consented quickly, producing a 218-216 tally. In a highly unusual move, the House leadership held the vote open for hours as they sought two more votes. Then-Representative Nick Smith (R-MI) claimed he was offered campaign funds for his son, who was running to replace him, in return for a change in his vote from "nay" to "yea." After controversy ensued, Smith clarified no explicit offer of campaign funds was made, but that that he was offered "substantial and aggressive campaign support" which he had assumed included financial support.[12]

About 5:50 a.m., convinced Otter and Trent Franks (AZ-2) to switch their votes. With passage assured, Wu voted yea as well, and Democrats Calvin M. Dooley (CA-20), Jim Marshall (GA-3) and David Scott (GA-13) changed their votes to the affirmative. But Brad Miller (D-NC-13), and then, Republican John Culberson (TX-7), reversed their votes from "yea" to "nay". The bill passed 220-215.[13]

The Democrats cried foul, and Bill Thomas, the Republican chairman of the Ways and Means committee, challenged the result in a gesture to satisfy the concerns of the minority. He subsequently voted to table his own challenge; the tally to table was 210 ayes, 193 noes.

The Senate's consideration of the conference report was somewhat less heated, as cloture on it was invoked by a vote of 70-29.[14] However, a budget point of order raised by Tom Daschle, and voted on. As 60 votes were necessary to override it, the challenge was actually considered to have a credible chance of passing.

For several minutes, the vote total was stuck at 58-39, until Senators Lindsey Graham (R-SC), Trent Lott (R-MS), and Ron Wyden (D-OR) voted in quick succession in favour to pass the vote 61-39.[15] The bill itself was finally passed 54-44 on November 25, 2003, and was signed into law by the President on December 8.[16]


Initially, the net cost of the program was projected at $400 billion for the ten-year period between 2004 and 2013. One month after passage, the administration estimated that the net cost of the program over the period between 2006 (the first year the program started paying benefits) and 2015 would be $534 billion.[17] As of February 2009, the projected net cost of the program over the 2006 to 2015 period was $549.2 billion.[18]

See also


  1. ^ Pub.L. 108-173, 117 Stat. 2066
  2. ^ "Medicare Modernization Act Update - Overview". Centers for Medicare and Medicaid Services. Retrieved 2007-03-30. 
  3. ^ ""FINAL VOTE RESULTS FOR ROLL CALL 332: Medicare Prescription Drug and Modernization Act"". 
  4. ^ Notes to Consolidated Financial Statements, p. 95 (from IBM's 2005 Annual Report)
  5. ^ United States Government Accountability Office, "Majority of Sponsors Continued to Offer Prescription Drug Coverage and Chose the Retiree Drug Subsidy,", May 2007
  6. ^ "Starting Medicare Advantage Plan Brings Special Set of Problems". Managed Care Magazine. April 2005. 
  7. ^ "The Failure of Medicare+Choice". Geriatric Times. March/April 2003. 
  8. ^ "More HMOs Exit Medicare". South Florida Business Journal. July 11, 2000. 
  9. ^ "Fact Sheet:Federal Payment Methodology to Medicare Health Plans". Retrieved 2006-04-13. 
  10. ^ Bell DS and Friedman MA (2005). "E-Prescribing And The Medicare Modernization Act Of 2003" Health Affairs, 24, no. 5 (2005): 1159-1169 doi: 10.1377/hlthaff.24.5.1159
  11. ^ [1]
  12. ^ "Congressman Denies Medicare Vote Bribe Charge". Associated Press. 2003-12-05.,2933,104954,00.html. Retrieved 2007-09-21. 
  13. ^ "Final Vote Results For Roll Call 669". United States House of Representatives Legislation and Records. 2003-11-22. Retrieved 2009-02-04. 
  14. ^ "On the Cloture Motion (Motion to Invoke Cloture on the Conference Report to Accompany H.R. 1 )". United States Senate Legislation and Records. 2003-11-24. Retrieved 2007-09-21. 
  15. ^ "On the Motion (Motion To Waive CBA RE: H. R. 1 - Conference Report )". United States Senate Legislation and Records. 2003-11-24. Retrieved 2007-09-21. 
  16. ^ "On the Conference Report (H.R. 1 Conference Report )". United States Senate Legislation and Records. 2003-11-24. Retrieved 2007-09-21. 
  17. ^
  18. ^ 2009 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF THE FEDERAL HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS, Table III.C19.—Operations of the Part D Account in the SMI Trust Fund (Cash Basis) during Calendar Years 2004-2018, Page 120 (Page 126 in pdf)

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