Congressional Budget Office Raises 10-Year Cost Estimate for Medicare Prescription Drug Benefit to $849 Billion

The Congressional Budget Office on Friday said that the Medicare prescription drug benefit will cost $849 billion over the 10-year period ending in 2015, up $54 billion from the agency's January projection, the AP/Detroit News reports. CBO's projection does not include anticipated savings, which could make the actual cost lower than the Bush administration's cost estimate of $724 billion over 10 years (Fram, AP/Detroit News, 3/5).

Analysts attributed the net spending increase to a higher estimated cost of basic benefits and a change in the cost of low-income subsidies under the original bill. About $36 billion of the $54 billion net spending increase would occur before 2013 -- the period covered under the original cost projections (CQ HealthBeat, 3/4).

CMS officials on Feb. 8 said that the drug benefit would cost more than $720 billion in its first 10 years, with expenses reaching $100 billion annually by 2015. During negotiations over the Medicare legislation, estimates placed the law's 10-year cost at about $400 billion. Shortly after Bush signed the measure into law in December 2003, the administration projected the cost to be $534 billion.

Administration officials have said that new and previous estimates are not comparable because the older projections covered the years 2004 to 2013, while the newer estimate covers the period between 2006 -- when the new prescription drug benefit takes effect -- and 2015 (California Healthline, 2/14).

Thomas Kahn, Democratic staff director of the House Budget Committee, said, "The price tag for the Republican Medicare prescription drug bill just gets higher and higher. The underlying benefits for seniors never improve."

Noam Neusner, spokesperson for the Office of Management and Budget, said, "The drug benefit is a necessary improvement to Medicare. We are working to see the new drug law implemented fully, along with benefits such as greater individual choice and other efforts to control costs" (AP/Detroit News, 3/5).

CMS Administrator Mark McClellan said that the administration is "doing everything we can to keep costs down." He added, "We have all the legislative authority we need to do that."

Senate Budget Committee Chair Judd Gregg (R-N.H.) said that the committee remains on schedule to consider a budget proposal "that cuts the deficit in half, holds the line on discretionary spending and includes mandatory savings" (CQ HealthBeat, 3/4).

A "substantial number" of health insurers have indicated they will participate in the Medicare drug benefit next year, "defying the predictions of many industry experts," the New York Times reports.

Officials for Aetna, Medco Health Solutions and UnitedHealth Group have each said they plan to participate in the new drug benefit on a national level, according to the Times. Caremark Rx and PacifiCare have also said they plan to offer drug plans in at least some states, and BlueCross BlueShield plans in Florida, Michigan, New Jersey and Pennsylvania have said they also intend to offer drug plans.

In addition, AARP said it is considering partnering with UnitedHealth to offer a drug plan.

Insurers had until Feb. 18 to notify the federal government of their intentions, and the government has not yet disclosed the results, the Times reports. Companies planning to participate in the drug benefit must file formal applications by March 23, and the government is expected to award contracts in early September.

According to the Times, insurers' interest in offering the benefits has increased in part because of federal subsidies that aim to minimize companies' financial risks. According to the Times, insurers' participation is "necessary for the success of the new law," which "relies heavily on competing private plans."

However, private insurers' participation "does not guarantee that beneficiaries will be satisfied" because they may be confused by offerings or disappointed with savings or the specific medications covered, the Times reports (Pear, New York Times, 3/6).

Investors' Business Daily on Monday examined how Bush might "not be able to put off a Medicare showdown for long," in part because of an "obscure, 11th hour addition" to the law. The provision requires the president to act when actuarial estimates for two consecutive years indicate that taxpayer revenues will be needed within six years to cover 45% of Medicare costs.

According to IBD, such a "funding alarm" will go off in 2007 if current upward projections continue. The situation "could put Medicare front and center in the next presidential election year," IBD reports (Graham, Investors' Business Daily, 3/7).