Medicare Prescription Drug Benefit To Cost More Than $720 Billion Over 10 Years, Bush Administration Says

The new Medicare prescription drug benefit will cost more than $720 billion over its first 10 years, with costs reaching $100 billion annually by 2015, according to new estimates released Tuesday by CMS Administrator Mark McClellan, the AP/Las Vegas Sun reports. The new projections -- which cover an updated ten year period -- are "far higher than any previous estimate" produced by the Bush administration or the Congressional Budget Office, according to the AP/Sun (Sherman, AP/Las Vegas Sun, 2/8).

During negotiations over the new Medicare law, estimates pegged the 10-year cost of the law at about $400 billion. Shortly after Bush signed the measure into law in December 2003, the administration estimated the cost at $534 billion (Connolly/Allen, Washington Post, 2/9). Administration officials said the new estimate of $720 billion and the previous estimates "were not comparable" because the older projections covered the years 2004 to 2013, while the new estimate covers the period between 2006 -- when the new prescription drug benefit takes effect -- and 2015.

McClellan said that "there has been no significant change in the cost of the drug benefit" for the years 2006 to 2013.

According to estimates by Medicare's chief actuary -- which were the basis for Medicare spending projections in the fiscal year 2006 budget proposal released by President Bush on Monday -- total expenditures for the prescription drug benefit will reach $1.2 trillion between 2006 and 2015.

However, according to McClellan, that figure reflects "gross costs" and does not take into account income Medicare will collect during that period (Pear, New York Times, 2/9). He said that the amount does not account for premiums paid by beneficiaries or payments from states for beneficiaries dually eligible for Medicare and Medicaid.

McClellan also said the Bush administration anticipates saving about $190 billion by eliminating federal matching payments to states for dual-eligibles who will begin to receive their prescription drug coverage through Medicare (Lueck, Wall Street Journal, 2/9). Together, the savings will reduce the net costs of the prescription drug benefit to $720 billion, McClellan said (Washington Post, 2/9).

According to the new estimate, the addition of the prescription drug benefit will be the "primary reason" behind Medicare spending growth from 2005 to 2006. Other factors driving up Medicare spending include rising payments to insurers and providers, coverage of new technologies and an anticipated increase in Medicare enrollment as baby boomers age.

Total Medicare spending is expected to reach $393.8 billion in FY 2006 and $789.8 billion in 2015, with prescription drug spending outpacing fee-for-service hospital spending in 2015, according to Medicare actuaries (CQ HealthBeat, 2/9).

The new figures also show that Medicare beneficiaries will face higher out-of-pocket costs over the next 10 years. Medicare actuaries estimate that the prescription drug benefit premium will increase from $35 per month in 2006 to $68 in 2015.

In addition, annual deductibles are expected to increase from $250 in 2006 to about $472 in 2015, while the maximum annual out-of-pocket cost figure is expected to rise to $6,800 in 2015 (Washington Post, 2/9).

According to CQ HealthBeat, "Budget conservatives are sure to use the new cost estimates as fresh ammunition to reduce and possibly repeal a benefit they say is far too expensive and will increase the deficit" (CQ HealthBeat, 2/9).

Senate Budget Committee Chair Judd Gregg (R-N.H.) said last week that he plans to work to keep the long-term costs of the Medicare drug benefit to the original $400 billion estimate from the Bush administration, noting that he plans to use budget reconciliation procedures to direct the Senate Finance Committee to make up the difference. "I'm going to press (the CBO) to figure out a way to break out the scoring," Gregg said. However, he added that he will not take immediate action to reduce the new benefit and instead will focus on restraining long-term costs (Earle, The Hill, 2/8).

Sen. Kent Conrad (D-N.D.) said lawmakers should examine ways to help Medicare better coordinate care for the most costly beneficiaries by encouraging preventive care, avoiding overprescribing of medications and eliminating duplication of services.

U.S. Comptroller General David Walker said that Congress should restructure Medicare as part of a larger overhaul of the nation's health system, adding, "There is no way we are going to deliver all the Medicare promises that have been made" (Swindell, CQ Today, 2/8).

Rep. Pete Stark (D-Calif.) said the higher cost estimate showed that Congress should pass legislation allowing the HHS secretary to negotiate with pharmaceutical companies to obtain lower prices for Medicare beneficiaries. In addition, several members of Congress said the new cost estimate showed that Medicare should not cover the erectile-dysfunction drug Viagra and other "lifestyle" medications (New York Times, 2/9).

The new estimates -- which provide "the most complete picture to date of how much" the new prescription drug benefit will cost -- "prompted new criticism by Democrats" about the long-term estimates in Bush's budget proposal, the Post reports (Washington Post, 2/9).

Noting that Bush's budget proposal shows Medicare spending increasing from $295.4 billion in FY 2005 to $345.2 billion in FY 2006, Gregg said, "The drug benefit hasn't even started and yet it is already out of control." He said that entitlement programs will account for 56% of the federal budget this year and nearly 66% of the budget in 10 years, adding that Congress has "an obligation to try to fix" spending growth in those programs "today so that they don't end up bankrupting our children and our children's children tomorrow" (CQ Today, 2/8).

Rep. Rahm Emanuel (D-Ill.) said, "If you're looking for a crisis, I would suggest you look at a crisis that was self-made in just last year, because the crisis exists in what's happened to Medicare by weighing it down. Those of us who told you it was going to cost twice as much were right" (Washington Post, 2/9).

NPR's "Morning Edition" on Wednesday reported on the Medicare cost projections. The segment includes comments from Stark, McClellan and Joe Antos, a health policy analyst at the American Enterprise Institute (Rovner, "Morning Edition," NPR, 2/9). The complete segment is available online in RealPlayer.