2003-11-03 -- New Medicare Drug Benefit Will Not Reduce Drug Costs Much


Kaiser Daily Health Policy Report, Monday, November 3, 2003

Proposed Medicare Drug Benefit Unlikely To Have Large Impact on
Beneficiaries' Drug Costs, Experts Say

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As the conference committee tasked with reconciling the House and
Senate Medicare bills (HR 1 and S 1) continues its work, lawmakers and
policy analysts are taking a closer look at negotiators' tentative
agreement on a drug benefit, the Newark Star-Ledger reports (Cohen,
Newark Star-Ledger, 11/2).

Under the agreement, the federal government would pay 75% of
beneficiaries' drug costs up to $2,200 per person per year.
Beneficiaries would pay a $275 deductible and average monthly premiums
of $35.

Beneficiaries whose drug costs exceed the $2,200 annual cap would pay
out of pocket for their drug costs from that point until about $3,600,
when catastrophic coverage would begin.

After that point, beneficiaries would have to pay 5% of the cost of
each prescription or a copayment of $5 to $10 for each prescription.

Beneficiaries with incomes below 135% of the poverty level would not
have to pay the premiums or deductible but would contribute a $2 copay
for each generic drug and $5 for each brand-name drug until their
overall drug costs reached $5,000. Medicare would fully cover drug
costs after that point.

Beneficiaries with incomes between 135% and 150% of the federal
poverty level would pay a $50 deductible, reduced premiums based on a
sliding scale related to income and 15% of the cost of each
prescription until their out of-pocket costs reach $3,600.

Beneficiaries with assets of more than $10,000 would not be eligible
for subsidies, regardless of their income level (Kaiser Daily Health
Policy Report, 10/27). Beneficiaries would be encouraged to sign up
for the drug benefit during the initial enrollment period; those who
sign up late would incur financial penalties.

Tricia Neuman, a Kaiser Family Foundation vice president and director
of its Medicare Policy Project, said that early enrollment is
necessary to generate funds from healthy seniors to help offset costs
of those with large drug expenses, the Star-Ledger reports.

Potential Impact

According to the Star-Ledger, the proposed benefit "would fall far
short of paying for all the projected prescription drug needs of the
nation's 40 million Medicare beneficiaries over the next decade."

Congress has budgeted $400 billion over 10 years to pay for the drug
benefit, less than 25% of the $1.8 trillion in anticipated drug costs
for Medicare beneficiaries over the next 10 years, according to the
Congressional Budget Office.

The effect of the proposed drug benefit will differ according to
beneficiaries' income, availability of other drug coverage and annual
drug costs, the Star-Ledger reports.

For example, seniors with $2,000 per year in drug costs would save
$873.75 under the plan, while the 11% of Medicare beneficiaries with
$5,000 in annual drug expenses would save $1,023.75.

Barbara Kennelly, president of the National Committee to Preserve
Social Security and Medicare, said, "I've been out meeting with
seniors in North Dakota, Kansas, Mississippi and New York, and the
general consensus is they are underwhelmed by the benefit. They are
skeptical if this is a good thing or not."

Robert Hayes, president of the not-for-profit advocacy group Medicare
Rights Center, said, "The good news about the bill is that if you are
very poor or if you face immense drug expenses, you'll feel real
relief. But so much money has been taken off the table because of the
tax cuts and the budget deficit that it was preordained to be, at
best, a meager benefit for millions of people" (Newark Star-Ledger,
11/2).

According to President Bush, the drug benefit would cut prescription
drug bills by 50%, and CMS Administrator Tom Scully has said that the
proposed drug benefit would give "a 'spectacular health benefit' to an
older person whose annual income does not exceed $13,500," according
to the AP/Birmingham News.

John Rother, policy director for the AARP, said that the drug benefit
would be a "very important social achievement to be able to take care
of people at 150% of poverty and below." Other health policy experts
contend that the proposed benefit is "too generous" for wealthier
beneficiaries and would raise costs for some beneficiaries whose
annual drug costs are low, the AP/Birmingham News reports (Sherman,
AP/Birmingham News, 11/2).