Average Medicare drug benefit premium to remain unchanged at $24 in 2007

Aug 16 2006

Medicare beneficiaries enrolled in the program's prescription drug benefit in 2007 will pay an average monthly premium of about $24, the same as the average monthly premium for this year, CMS Administrator Mark McClellan said Tuesday, the New York Times reports.

The projected average monthly premium is about 40% lower than the amount the Bush administration initially estimated for next year, the Times reports (Pear, New York Times, 8/16). The average total monthly premium -- including the government's contribution -- will be about $80 for 2007, compared with $92 this year, CMS officials said. The government covers about 75% of the total monthly premium, with beneficiaries paying the remainder in most cases (Freking, AP/Cleveland Plain Dealer, 8/16). McClellan said the projected 2007 premium is lower than expected because insurers who sponsor Medicare drug plans placed competitive bids and because beneficiaries displayed a preference for lower-priced plans. The average bid from all plans was 10% lower for 2007 than it was for 2006, he said (CQ HealthBeat, 8/15). For Medicare Advantage drug plans, the average bid was 18% lower for next year than for this year, McClellan said. Administration officials in March 2005 projected that the average monthly premium for Medicare prescription drug plans would be $37 for 2006 and increase to $41 in 2007, but officials lowered the estimate for 2006 to $32 in August 2005 after insurers submitted their plan proposals to CMS. In June, the administration said the average monthly premium for this year ultimately amounts to about $24 (New York Times, 8/16).

Plans

None of the insurers currently offering Medicare drug plans is leaving the program completely next year, but some companies have modified the coverage they plan to offer, McClellan said (Zhang, Wall Street Journal, 8/16). "[T]he vast majority of beneficiaries will have access to Medicare drug plans that cost them the same as or less than their coverage in 2006," McClellan said (New York Times, 8/16). McClellan said insurers generally followed CMS' guidelines that they should offer no more than two plan options, not including additional benefits during the so-called "doughnut hole" coverage gap. "Once again, we're going to see a lot of plans offering coverage with no deductibles, and we're also going to see a lot of plans offering options with coverage in the gap," he said. CMS will release more information in the next few weeks about the number of plans that will be available next year and the type of coverage they will offer (CQ HealthBeat, 8/16).

New Formula

According to the Wall Street Journal, the lower-than-expected estimate for 2007 also results in part from a "last minute change" made by the Bush administration "under prodding from some lawmakers" that will "delay total adoption of a new premium formula" for 2007, the Journal reports. According to the Journal, the new formula "would have raised costs for many seniors and made plans with higher premiums less attractive." CMS on Tuesday said the new formula will be phased in over three to four years. Richard Foster, chief Medicare actuary, said the phasing will lead to more government subsidies but will "avoid an abrupt transition." Foster said beneficiaries already had a "windfall" this year because of the lower-than-expected premium prices (Wall Street Journal, 8/16).

Comments

McClellan said, "Competition and choice in health care are working" (New York Times, 8/16). He added, "We're seeing costs down across the board. ... Plans clearly realized if they didn't bid aggressively, they were not going to attract beneficiaries" (Powell, Akron Beacon Journal, 8/16). Vicki Gottlich, an attorney with the Center for Medicare Advocacy, said, "We do not know enough to determine whether the low premiums in 2007 are good for beneficiaries," adding, "Plans may be keeping costs low by unduly restricting access to the drugs they cover." Babette Edgar, a consultant at the Gorman Health Group and a former Medicare official, said, "Some plans decided to operate at cost, or below cost, to get a substantial share of the market. But plans cannot sustain that strategy and still make a profit" (New York Times, 8/16).