Lower Cost Estimated for Medicare Drug Benefit

The 10-year costs of the Medicare prescription drug benefit will be $265 billion less than estimated in August 2006, Congressional Budget Office Director Peter Orszag said Thursday, Bloomberg/Arkansas Democrat-Gazette reports.

CBO expects the Medicare prescription benefit to cost $38 billion this year and $675 billion from 2007 through 2016. The agency said the program's latest estimated cost from 2007 through 2013 is about 25%, or about $136 billion, less than originally projected.

Orszag said the "primary cause" of the reduced cost estimate is lower-than-expected bids submitted by prescription drug plans to provide coverage, which were on average 15% less than last year. According to Orszag, "The bids are coming in, and the pricing is coming in better than anticipated, and that is likely a reflection of the competition that's occurring in the private market."

In addition, Orszag said CBO reduced its cost estimate for the benefit because it expects fewer people will enroll in the benefit than predicted. Orszag said the agency lowered its estimate of how many Medicare beneficiaries will enroll in drug plans to 78% from 87% because officials "now expect that a larger share of beneficiaries will have other coverage."

Despite the lower cost estimate, Medicare still will face "severe" budgetary problems as the baby boomer generation becomes eligible for benefits, Orszag said. "Nothing in those sets of changed projections alters the fundamental conclusion that over the long term Medicare and Medicaid will continue to grow more rapidly than the overall economy and put severe pressure on the overall fiscal picture," he said, adding, "The long-term picture facing the federal government is not pretty" (Faler, Bloomberg/Arkansas Democrat-Gazette, 1/26).