The Right Prescription: A drug benefit that makes sense.

In early June, Senate Finance Committee leaders reached a surprise bipartisan agreement on a Medicare prescription-drug benefit bill, paving the way for passage after years of deadlock. The House is expected to follow, dramatically increasing the odds that a bill will reach President Bush's desk before the 2004 elections shift into high gear.

Passing a drug bill is a top priority for the Republican leadership in both houses, and the White House is pushing hard for the bill to allow not only for a drug benefit but also for modernization of Medicare itself. As both sides begin to look at details of the latest agreement, the test for conservatives will be whether the bill veers too far from the goals of injecting viable market competition into the Medicare program.

Conservatives want coverage to be offered through private plans that would provide a full set of benefits, including prescription drugs. The bill must fit within the $400 billion that Congress has set aside for Medicare updates over ten years. Medicare recipients could choose from an array of private health plans structured like the Preferred Provider Organizations (PPOs) already popular with working Americans. Government would oversee the plans but would not control every service.

Liberals, on the other hand, will be watching to ensure that government is very involved in setting the rules. The ClintonCare battles of 1993- 94 showed that most Americans don't want the government to control their health care. But it already controls Medicare, which covers those over age 65 and the disabled. Medicare is our version of a single-payer health-care system, and as such is particularly vulnerable to expansion of government control. It's crucial that the final legislation take a hands-off approach to program updates.

Senior citizens like Medicare, even though its coverage is substandard compared to that offered through most private health insurance. Medicare covers only 53 percent of seniors' health costs, leaves them exposed to large hospital bills, delays or denies adoption of new technologies, and pays doctors so little that many are now refusing to accept new Medicare patients.

President Bush believes that the time is right to fix Medicare. Rather than merely tacking on a drug benefit, the president wants to reshape the entire program to work more like the popular Federal Employees Health Benefits Program (FEHBP), which currently provides health benefits to members of Congress and federal workers. Instead of micromanaging every benefit -- Medicare has 110,000 pages of regulations and 4,000 pricing systems -- a new agency would negotiate a set rate with private plans in order to provide a range of health benefits to seniors, from hospital and doctor care to preventive services and prescription drugs. The agency would first take bids from competing private plans, then inform seniors of their choices and ensure that the plans fulfill their contracts. Government would provide a contribution toward the premiums, and seniors could choose the plan that best suits their needs. (Under FEHBP, federal workers now have a choice of twelve national health plans and many more at the local and regional levels.) If seniors prefer to stay in the current fee-for- service Medicare, they would have that option too.

This year, Medicare will spend more than $250 billion on 41 million seniors -- over $6,000 per person. And most seniors pay thousands more in Medicare premiums and deductibles, supplementary coverage, and other out-of-pocket costs. That's surely enough to attract a vibrant market. Still, the new program must be structured to allow real competition to take place. Companies offering seniors a managed-care option through the current Medicare+Choice program have been dropping out. They complain that they are too much under the thumb of the Centers for Medicare and Medicaid Services, thanks to both excessive regulation and skimpy payments. This year, reimbursement for M+C rose by only 2 percent; health-plan costs are rising by 10 to 15 percent.