According to an Obama administration announcement last Thursday as the health costs continue to rise, Medicare beneficiaries will see the average price of a Part D drug plan decline slightly next year. This is expected to offer some relief amid pressure to cut the federal health insurance program for the elderly.
The Part D drug benefit, created under the George W. Bush administration, allows seniors and others on Medicare to sign up for a privately administered, government-subsidized health plan to get their prescriptions. The benefit is popular with beneficiaries and has also proven far less costly than budget analysts originally expected, in part because of competition among private plans and the growing use of less expensive generic drugs.
In 2012, the average Part D plan will charge seniors about $30 a month, the Department of Health and Human Services said. That's down from $30.76 in 2011 and would mark the second time average premiums have declined since the drug benefit was initiated in 2006.
“This decline in the average creates more risk for plans like Humana and UnitedHealth that have a significant portion of the Part D members,” said Peter Costa, a Wells Fargo analyst. Costa said one possible reason for the lower bids could be last year's joint venture between Humana and Wal-Mart Stores to offer Medicare drug coverage with the lowest premiums in the country.
On the other hand overall healthcare spending in the U.S. is expected to grow by nearly 5% a year between now and 2014, according to the latest estimates by government actuaries. Premiums on many private medical insurance policies are rising even more sharply. The Obama administration has been working to strengthen the Medicare drug benefit with the help of the healthcare law the president signed last year.
The law gradually phases out the coverage gap known as the doughnut hole, long viewed as a weakness in the program. Last year, about 4 million seniors received $250 rebate checks when they fell into the gap in coverage, thanks to the law. This year, the law will provide 50% discounts on prescriptions for those who hit the doughnut hole.
Administration officials also announced Thursday that more than 17 million Medicare beneficiaries had taken advantage of preventive services such as cancer screenings that are now available without co-payments, another benefit of the law. And more than 1 million people have seen a physician for Medicare's annual wellness visit, which the law also makes available without a co-pay.
Dr. Don Berwick, who oversees the Medicare and Medicaid program, cautioned Thursday that the broader privatization championed by House Budget Committee Chairman Paul D. Ryan would actually mean higher costs for seniors. “The Ryan plan is very Draconian from the point of view of the beneficiaries," Berwick said. "We're able to offer the benefits of this kind of choice and competitive force under the current Medicare program,” he said.
Pharmaceutical and insurance industry leaders, meanwhile, welcomed the lower Part D premiums. “These facts illustrate that Medicare Part D is a model for healthcare that should be emulated, not be weakened by unsound policy proposals,” said Karl Uhlendorf, a vice president at Pharmaceutical Research and Manufacturers of America.
Medicare covers about 47 million seniors and disabled people. Overall, about 9 in 10 beneficiaries have some kind of prescription drug plan. Some still get benefits through their former employers. But more than half rely on the prescription program, also known as Part D.
It is estimated that the drug benefit saved Medicare an average of $1,200 a year for each senior who had no coverage or inadequate benefits before the program was launched in 2006. Most of that came from reduced hospital and nursing home costs, as prescriptions helped to keep people healthier. That translates into an average annual savings of $12 billion, offsetting over 20 percent of the $55 billion taxpayers spend on the program.