Bloomberg News

Drug Plan Costs Decline 11%, U.S. Medicare Says

January 31, 2008

Medicare will pay 11 percent less for drug benefits this year as premiums rose for the increasing number of Americans enrolled in U.S.-sponsored prescription drug plans, the agency said.

The Medicare drug program's projected costs through 2017 are $117 billion less than the government estimated last year, said Kerry Weems, acting administrator of the Centers for Medicare and Medicaid Services, in a conference call with reporters today.

Government costs are falling because of lower prices for generic drugs and higher insurance premiums for people enrolled in U.S.-sponsored plans. The average prescription premium increased 17 percent this year, according to the Kaiser Family Foundation.

``It's rare to see continued cost reductions in a program, particularly one of this complexity,'' Weems said. He cited ``slowing of drug cost trends, lower estimates of drug plan spending, and higher rebates from drugmakers.''

The number of people enrolled in U.S.-sponsored drug plans rose 6.2 percent to 25.4 million this year, the government said. Total Medicare enrollment is 44.2 million people, including 17.4 million in standalone drug plans and 8 million who get drug benefits as part of Medicare Advantage managed-care coverage. An additional 14.2 million receive drug benefits through retirement, veterans or other programs.

Benefit Costs

Medicare costs for drug benefits will decline to $36 billion this year from $40.5 billion in 2007, the agency said.

Medicare's Part D drug benefit took effect in 2006 to help elderly people afford prescriptions. Congressional critics questioned whether the benefit would enrich drugmakers, provide inadequate benefits to consumers and drain Medicare's trust fund.

The drug plans are offered by hundreds of private insurance companies, led by UnitedHealth Group Inc. (UNH:US), of Minnetonka, Minnesota, and Humana Inc. (HUM:US), of Louisville, Kentucky. The insurers often persuade drug plan members to sign up for Medicare Advantage, a different government program that pays for extra benefits to seniors who designate insurance companies to coordinate their medical care.

UnitedHealth rose 68 cents, or 1.4 percent, to $50.84 at 4:34 in New York Stock Exchange composite trading. Humana fell 9 cents to $79.52.

An analysis of thousands of plans by Avalere Health LLC, a Washington consulting company, concluded that premiums rose 21 percent this year. The 1,824 standalone Medicare Part D plans charge monthly premiums ranging from $9.80 to $107.50, the Kaiser Family Foundation said.

Generic Drugs

Generic drugs, cheaper than brand-name medicines, are one reason Medicare costs are down, the agency said. Most of the 47 Part D plans studied in a Kaiser survey pay for commonly used generics. One-quarter of the plans cover brand-name medicines.

Democrats in Congress have argued that taxpayers and consumers could save billions more if the government could negotiate medicine prices with drug manufacturers, which isn't allowed under current law.

The drug plan could include millions more people with more benefits, said two Democratic leaders in statements today.

``If the government negotiated with drug companies instead of overpaying private plans by billions of dollars, more senior citizens and people with disabilities would get the medications they need,'' said Representative Pete Stark of California, chairman of the Health Subcommittee of the House Ways and Means Committee.

``There are important changes that need to be made for it to work better, such as shoring up pharmacy payments, simplifying how the benefit works'' and protecting consumers from care disruptions, said Montana Senator Max Baucus, chairman of the Senate Finance Committee.

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.


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  • UNH
    (UnitedHealth Group Inc)
    • $86.68 USD
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  • HUM
    (Humana Inc)
    • $128.74 USD
    • 1.10
    • 0.85%
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