As U.S. Health and Human Services Secretary Mike Leavitt stumps the country to publicize the upcoming Medicare drug benefit, he has a bit of good news to announce: monthly drug premiums for beneficiaries will be about $5 lower than predicted. The federal government will also save about $180 annually per beneficiary, totaling $5 billion a year.
He is introducing his audiences to a significant new federal program.
About two-thirds of the nation’s 42 million Medicare recipients are expected to sign up for the new prescription benefit, which begins Jan. 1. Beneficiaries must select a private plan to obtain drug coverage and pay a premium, about $32 a month, as well as co-payments and a $250 deductible. In March, Medicare trustees estimated the premium would be $37.
The main reason for the lower cost is that insurance companies have been successfully bargaining for better prices from drug companies. That represents a modest triumph of economics over politics.
When the prescription benefit proposal was before Congress, consumer advocates urged allowing Medicare to use its enormous buying power to negotiate discounts with the drug companies – as the Veterans Administration already does on its drug purchases. But Congress heeded pleas from drug company lobbyists and prohibited Medicare from seeking such discounts. Private providers, however, are competing vigorously for customers – and using their own buying clout to win discounts on drugs, as well as emphasizing less costly medications and even cheaper generic alternatives.
That price drop is good news for the program that President Bush pledged in his January 2003 State of the Union address would cost $400 billion over 10 years. Shortly after Bush signed the program into law in December 2003, the White House revised its projection to $534 billion. This February, the White House projected the benefit could cost $1.2 trillion in the next 10 years.
States, including Colorado, have been unhappy with some aspects of the plan. Originally, they hoped to save money because 10 million “dually eligible” Americans – elderly and disabled citizens who receive both Medicare and Medicaid – would be covered by Medicare for drug costs previously paid by Medicaid. States pay half the costs of Medicaid but none of Medicare. But the federal legislation includes “clawback” provisions requiring the states to return most of those savings to Washington. California and Colorado complain that the reimbursement figures are based on 2003 drug expenditures and thus ignore efforts by states since then to contain prescription costs.
So, the drug benefit plan still faces long-term questions of fairness and affordability. But the modest drop in premium costs at least evokes the old saying, “Thank goodness for small favors.”
