America's Real Drug Problem.

• Author: WORTH, ROBERT
• Position: Insurance coverage for medicine

Pharmaceuticals have replaced hospitals as Americans' prime health worry

FRANK AND LOIS DEZELICH NEVER CONSIDERED themselves poor. Frank worked in construction and building insulation all his life, and when they retired they built their own home in Bedford, Va. Then Frank had a stroke, and lost his speech and became paralyzed on one side. Medicare, the federal program to insure the elderly against the high cost of medical care, paid for most of his hospital expenses. But after he came home he had to start taking six different medications, to control his seizures and ulcers, keep his muscles from knotting up, and to manage other side effects of the stroke. Neither Medicare nor the "Medigap" supplements Frank and his wife pay for covers the cost of prescription drugs. And that cost is astronomically high. Soon after Frank returned from the hospital, Lois was paying over $400 a month for drugs alone, plus a variety of other medical supplies that weren't covered. All together, she was putting over half of their monthly income into health care--and she had a daughter and granddaughter to support too.

In theory, people like Lois and Frank can switch to one of the three Medigap plans that does cover drugs. But when Lois tried, she was denied because of Frank's "pre-existing condition." Meanwhile, the price of Frank's drugs is going up, and Lois is worried that soon she won't be able to afford them. "The hardest part is not knowing whether he's going to get his medication," she says. "I'm on the phone with the pharmacy almost every day to try to get free samples. I don't know where to turn to. And others have even less money than I do. How are they surviving?"

It's a good question. When Medicare was enacted in 1965, the elderly were worried about hospital costs, not drugs. Few Americans had retiree health benefits, and a serious illness could destroy their savings and leave them destitute. Medicare helped to solve that problem by paying for the bulk of hospital costs. But since then "there's been a dramatic shift in the locus of care," says Dr. Philip Lee, who was assistant secretary of health under Lyndon Johnson, and who headed Johnson's Task Force on Prescription Drugs. "Back then, when you were really sick you went to the hospital. Now much more care of chronically ill people happens at home, with drugs. It's in a site where the patient pays for it, as opposed to being covered by insurance in a hospital." There's also a great deal more drug-based preventive care, designed to treat risky conditions like high cholesterol and hypertension before they land people in the hospital.

These new drugs have improved the lives of the elderly immeasurably. But many cost thousands of dollars a year, and the prices are rising. Drug costs rose at four times the rate of inflation last year, and they have grown almost as fast for most of the past two decades. Partly for that reason, drugs are the fastest-growing share of health costs, rising at almost four times the rate of hospital spending. In one Boston-based private health care plan, outpatient expenditures rose from 7 percent of all expenditures in 1994 to 13 percent in 1997, and are projected to overtake hospital costs (about 20 percent) by 2002. Seniors represent a vastly disproportionate share of that cost. People over 65 represent 12.4 percent of the U.S population, but they account for over a third of drug expenditures.

Despite these rocketing expenses, insurance coverage for drugs is getting worse, not better. A third of seniors pay for their medications entirely out of pocket. But that figure is misleading, because coverage for the other two-thirds is very patchy. Unlike the fairly comprehensive coverage most working people enjoy, retiree plans tend to have large deductibles and copayments, and there's a cap on the annual payout. If their drug costs are high, they end up paying for most of it themselves. And even this minimal coverage is eroding. The number of private health plans...