Medicare prescription drug benefit cost almost $13B less in 2006 than expected

The Medicare prescription drug benefit will cost $30 billion in 2006, a 30% decrease from a previous estimate of $43 billion, according to CMS, the AP/Houston Chronicle reports (Freking, AP/Houston Chronicle, 11/29).

CMS said that the decrease resulted from:

• $7.5 billion in savings from lower-than-expected enrollment;
• $6.9 billion in savings from competition; and
• $3.7 billion in savings from lower-than-expected increases in prescription drug prices in the two years prior to the launch of the program.

Higher-than-expected costs in other areas, such as catastrophic coverage, partially offset the decrease in the cost of the benefit, CMS said. CMS also estimated that the Medicare prescription drug benefit will cost $729 billion through 2015, compared with a previous estimate of $926 billion. CMS actuary John Shatto said that lower-than-expected increases in prescription drug prices account for about $141 billion of the estimated decrease in the cost of the Medicare prescription drug benefit through 2015 and that competition accounts for about $55 billion. He also said that lower-than-expected enrollment will have a less significant effect on the cost of the drug benefit over the long term. "Those with very high drug spending are the ones that are going to sign up for Part D," Shatto said, adding, "Those with little drug spending are the ones who did not sign up for Part D. That's what's creating a smaller (effect)."

Implications, Comments
According to the AP/Albany Times Union, the decrease in the cost of the drug benefit "could make it harder for Democrats to make changes" to the program, "particularly with surveys showing high satisfaction rates among beneficiaries." President Bush earlier this month said, "The costs have been driven down not by the government but by the collective voices of millions of consumers." Rep. Pete Stark (D-Calif.) said, "Republicans would have you believe that the drug and insurance companies have sacrificed profits in the name of competition, but nothing could be further from the truth." He added, "In fact, the dirty little secret is that costs are lower because of low enrollment and a slowdown in drug spending" (Freking, AP/Albany Times Union, 11/29).

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This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.