Premiums for New Medicare Prescription Drug Benefit To Be Lower Than Expected, Officials Announce
Monthly premiums for the new Medicare prescription drug benefit will be about $5 lower than previously estimated when the benefit begins on Jan. 1, 2006, CMS Administrator Mark McClellan and HHS Secretary Mike Leavitt announced Tuesday, the New York Times reports. Based on bids submitted by health insurers and others, CMS estimated that the average monthly beneficiary premium for the new benefit will be about $32.20 per month (Pear, New York Times, 8/10).
Previously, Medicare officials projected that the average monthly premium would be about $37.37, based on government projections of what the prescription drug plan administrators would charge. Actual premiums will vary by plan and by region, and California is expected to have the lowest premiums because of the high level of enrollment in Medicare managed care plans there, the Los Angeles Times reports (Alonso-Zaldivar, Los Angeles Times, 8/10).
McClellan said it is possible that some plans might not charge premiums to Medicare beneficiaries (Hallam, Bloomberg/Detroit Free Press, 8/10). He also said that premiums for prescription drug coverage offered through Medicare Advantage plans likely will be lower on average than those offered through stand-alone PDPs (CQ HealthBeat, 8/9).
Medicare officials also announced that the government's estimated cost per beneficiary for prescription drug coverage will be about 14% lower than previously projected, a decrease that could reduce the overall cost of the program for the federal government by "billions of dollars," according to the Wall Street Journal.
CMS officials said the federal government will pay an average of $94.08 per beneficiary per month, down from an estimated $109.18 per month (Wilde Mathews, Wall Street Journal, 8/10). Based on analysts' estimates of enrollment rates, the reduction could translate into savings of at least $5 billion annually.
During a briefing Wednesday to announce the latest estimates, McClellan called the lower estimates "good news for beneficiaries because the cost is turning out to be lower than had been projected by independent experts" (Freking, AP/Las Vegas Sun, 8/9). He attributed the decrease to "robust competition" among insurers seeking to provide a PDP (Washington Post, 8/10).
CMS has not revealed how many bids it has received, but outside analysts have estimated the number as "in the hundreds," the Journal reports (Wall Street Journal, 8/10).
McClellan also attributed the lower estimates to insurers successfully negotiating lower drug prices with pharmaceutical companies, as well as increased use of generics and other cost-saving measures (AP/Las Vegas Sun, 8/9). He said, "Lower premiums should make the benefit more attractive to more people."
Leavitt estimated that between 28 million and 30 million Medicare beneficiaries will enroll in the new benefit, adding, "We're building a system to accommodate more" (CQ HealthBeat, 8/9). Leavitt added, "We're already seeing not just premium costs go down, but the implication is that prescription drug costs will also go down" (AP/Las Vegas Sun, 8/9).
According to the Journal, lower costs for the drug benefit "could be a political plus for the Bush administration, which was criticized for the low cost estimates it gave Congress when lawmakers debated the program" (Wall Street Journal, 8/10). McClellan declined to make a new forecast on the overall cost of the prescription drug benefit because the bidding process is not yet finished. In February, he said that the 10-year net cost of 2003 Medicare law would be "in the neighborhood" of $720 billion -- a figure that prompted some lawmakers "to call for changes to the benefit to cut down on expenses," according to CQ Today.
When the law was enacted in November 2003, the Congressional Budget Office projected the ten year cost at $395 billion. In January 2004, the Bush administration pegged its official estimate at $534 billion over the following 10 years (Schuler, CQ Today, 8/9). The Bush administration is expected to release an updated estimate of the cost of the Medicare drug benefit in February 2006 when it submits its fiscal year 2007 budget request (CQ HealthBeat, 8/9).
Karen Ignagni, CEO of America's Health Insurance Plans, said the lower estimates are "a validation of the cost-containment tools in the private sector" (Japsen, Chicago Tribune, 8/10). She added, "It's a strong encouragement to seniors."
Senate Finance Committee Chair Chuck Grassley (R-Iowa) said, "When Congress crafted the Medicare prescription drug benefit, I worked hard with my colleagues to make sure that it could be as affordable as possible for beneficiaries and taxpayers" (Bloomberg/Detroit Free Press, 8/10).
John Rother, director of health policy for AARP, said, "There is a climate of concern that the program will grow out of control. Now to have the premiums come in lower than has been estimated is a sign that it's not going to become unaffordable, at least in the first year" (Los Angeles Times, 8/10). He added, "More and more plans anticipate they can get real savings by using generics and by resorting to less costly drugs, but I think the primary factor is probably the desire to enroll as many people as possible by keeping premiums low" (AP/Las Vegas Sun, 8/9).
Robert Hayes, president of the Medicare Rights Center, warned against "singing happy songs" about the lower premium because details on the drug coverage insurers will provide will not be known until this fall. "This is a very difficult decision for consumers," Hayes said, adding, "How the plans get to these (premium) numbers is a complex equation based on medical packages and different forms of consumer out-of-pocket expenses" (Los Angeles Times, 8/10).
Tricia Neuman, a Kaiser Family Foundation vice president and director of its Medicare Policy Project, said that "lower-than-expected premiums are always good news." However, she added that it remains to be seen how much the lower premiums will affect enrollment rates because "[m]any seniors haven't [yet] focused on what the benefit means for them much less thought about the nitty-gritty details, such as premiums and cost-sharing" (AP/Las Vegas Sun, 8/9).
Senior advocates and consumer groups voiced concern about the drug benefit, saying they are "reserving judgment until they see specific details" on the drug plans in October, the Tribune reports. "Without the ability to look at the premium in the context of the entire plan, it is difficult to judge exactly how good this is for consumers," Lynda DeLaforgue, co-director of Citizen Action/Illinois, said.
Ralph Yaniz, director of AARP Illinois, said the estimates are "something that we can celebrate now, but we don't know if it's going to translate into ongoing savings beyond the first year" (Chicago Tribune, 8/10).
John Gorman, a consultant on Medicare issues, said the companies seeking to provide prescription drug coverage under Medicare were holding down premiums for now to "secure market share in the first year of the program," even though that might mean lower profits. He added that doing so is a good strategy for 2006 and 2007, when the federal government will protect providers against large losses related to the new benefit. However, Gorman said, "I don't think that will last for long. You will see more realistic pricing -- higher premiums -- in 2008" (New York Times, 8/10).
Paul Fronstin, director of health research at the Employee Benefit Research Institute, said, "Right now, premiums of $32 are a best guess, given that we don't have experience with these types of plans and no one has signed up for this benefit yet. In subsequent years, you will have real data to base prices on" (Los Angeles Times, 8/10).
Additional information on the Medicare drug benefit is available online.