Insurance companies offering Medicare-funded prescription drug plans are costing U.S. taxpayers almost $15 billion a year in excess administrative fees and pharmaceutical costs, a congressional study found.
The study released Monday also found insurers fail to pass on $1 billion a year in discounts from drugmakers to participants in Medicare, the U.S. health program for the elderly and disabled.
“The use of private insurers to deliver Medicare drug coverage is driving up costs and producing only limited savings on drug prices,” said Rep. Henry Waxman, a California Democrat and chairman of the House Oversight and Government Reform Committee. The panel’s Democratic staff prepared the analysis.
The report reviewed administrative expenses, sales costs, profits and drug rebates of the 12 largest insurers offering prescription drug plans through Medicare. Combined, the companies supply prescription coverage to more than 18 million elderly Americans, or about 75 percent of the plans’ participants.
Medicare provides federally funded health benefits to about 43 million elderly and disabled people in the U.S. President Bush signed the drug program, known as Medicare Part D, into law in 2003, and it went into effect in January 2006.
The Health and Human Services Department estimates the program will cost $925 billion over the next decade. Most enrollees pay a premium and make co-payments for each prescription in return for coverage.
Waxman’s study used proprietary data he requested from insurers to evaluate the size of drug rebates and the use of cost- saving generic drugs and to compare administrative expenses of the privately run prescription plans with other health care programs run by Medicare.
The prescription coverage will cost taxpayers $180 in administrative expenses per beneficiary this year, or six times the cost of traditional Medicare programs, the report found. Total administrative and sales expenses for the 12 companies studied will reach $3.6 billion in 2007, not including $1 billion in profit.
The report also found that when beneficiaries are caught in a gap in Medicare coverage and have to pay for prescriptions on their own, insurers aren’t passing on discounts they negotiate with drugmakers.
The coverage gap, known as the “doughnut hole,” begins after a participant’s drug spending reaches $2,400 in a year. Beneficiaries must pay all of the next $3,051.25 before insurance starts paying again.
This year, Part D insurers are expected to receive $1 billion in rebates they failed to provide to beneficiaries, the report found.
Companies reviewed in the study included UnitedHealth Group Inc., the largest provider of Medicare drug plans; Aetna Inc.; Humana Inc.; and CVS Caremark Corp.
The Waxman report unfairly contrasted the overhead costs of Medicare’s hospitalization and health care coverage with Part D, which is far more complex, said Mohit Ghose, a senior vice president for America’s Health Insurance Plans, a Washington-based trade group.
“It’s a disingenuous and false comparison,” Ghose said. “The competitiveness of the program is working,” and premiums are running about 40 percent less than original estimates.
