Private Insurers’ Medicare Rx Drug Plans Face Criticism

Nearly $15 billion could have been saved this year if private insurers that offer Medicare prescription drug plans had administrative costs similar to those of Medicare and if they obtained discounts on drugs similar to those received by Medicaid, according to a report commissioned by House Oversight and Government Reform Committee Chair Henry Waxman (D-Calif.) set to be released this week, the Wall Street Journal reports (Lueck, Wall Street Journal, 10/13).

The report reviewed administrative costs, sales costs, profits and drug rebates of the 12 largest insurers participating in the Medicare prescription drug program -- including Aetna, Humana and CVS Caremark Group -- which cover a total of more than 18 million Medicare beneficiaries, or 75% of seniors enrolled in Medicare drug plans.

Congressional researchers found that the plans failed to pass along to beneficiaries $1 billion in rebates obtained from drug makers. The report also found that negotiated discounts under the program have reduced the amount spent on drugs by 8.1% -- far less than the average 26% savings achieved by other government drug programs, such as the one managed by the Department of Veterans Affairs.

In addition, the drug benefit will cost taxpayers $180 per beneficiary in administrative costs -- six times the cost of traditional Medicare programs, the report states. Total administrative and sales expenses for the 12 companies will reach $3.6 billion this year, not counting $1 billion in profit (Woellert/Goldstein, Bloomberg, 10/13).

The report also states that the movement of Medicaid beneficiaries to Medicare drug plans will "provide a $2.8 billion windfall to pharmaceutical manufacturers" this year (Wall Street Journal, 10/13).

Waxman said that "one positive result" achieved by the prescription drug program was that 59% of its prescriptions are filled with generic drugs, compared with 54% for Medicaid (Bloomberg, 10/13). The report is the first external examination of data that previously had been available only to insurers and CMS, according to the Journal (Wall Street Journal, 10/13).

Mohit Ghose, a senior vice president for America's Health Insurance Plans, said the report unfairly compared the overhead costs of Medicare's hospitalization and health coverage with overhead for the drug benefit, which is more complex. He said, "It's a disingenuous and false comparison. The competitiveness of the program is working," adding that premiums are running about 40% less than original estimates (Bloomberg, 10/13).

According to AHIP President and CEO Karen Ignagni, "This program, on every measure, has beat expectations." She added that rebates and discounts are used to lower beneficiaries' out-of-pocket expenses and insurers' efforts to ensure that beneficiaries receive the proper drugs to help reduce costs. Waxman's office declined to comment on the report (Wall Street Journal, 10/13).

The report is available online.