Cost Estimates for Drug Benefit Lowered
The Bush administration on Saturday said the projected federal cost of the Medicare prescription drug benefit from 2007 through 2016 is now $964 billion, a 10% decrease from a July 2006 estimate of $1.077 trillion, the New York Times reports.
HHS Secretary Mike Leavitt said the lower estimate demonstrates that it is not necessary for Congress to pass legislation that would require the agency to negotiate with pharmaceutical companies under the drug benefit to lower prices.
Leavitt said, "Our new estimates provide clear evidence that consumer choice is working," adding, "Government interference will result in fewer choices and less consumer satisfaction."
Acting CMS Administrator Leslie Norwalk said drug costs have been increasing more slowly than expected, while enrollment in the drug benefit has been lower than expected because some beneficiaries have drug coverage from other sources (Pear, New York Times, 1/7).
"By their decisions on switching to lower-cost drug plans after Humana's huge premium hike, we shall see how much 'consumers' surplus' Medicare beneficiaries are willing to surrender to Humana," Uwe Reinhardt, a professor of political economy as Princeton University, writes in a letter to the editor of the Boston Globe in response to an article that examined increases in the price of Humana's Medicare prescription drug plans for 2007.
Consumers' surplus "is what economist mean by the difference between the maximum price consumers would have been willing to pay for a thing and the price they actually have to pay," Reinhardt writes, adding, "For most buyers and most goods and services, the former price exceeds the latter."
He continues, "Americans must realize that, in any market system, the supply side will always seek to minimize the consumers' surplus left on the table for consumers to enjoy. It is part of the suppliers' natural instinct to maximize their profits and must be judged perfectly fair under the ethics ruling the marketplace."
Reinhardt concludes, "If Americans find that ethic unsuitable for health care, they question the suitability of the market approach for health care" (Reinhardt, Boston Globe, 1/8).