September 2, 2010—The Medicare Part D drug benefit is costing the federal government billions of dollars less than projected in part because the sign-up rate and the growth rate in prescription drug spending have been lower than anticipated.
Part D, which was signed into law in 2003 and began operating in 2006, was initially projected to cost $634 billion from fiscal 2004 through 2013. The Medicare Trustees annual report, issued last month, now projects that the program will cost $373 billion over the same 10-year period – a 41 percent decline.
The trustees attributed the reduced estimate to several factors, including less growth in prescription drug spending than expected over the 10-year period. Growth estimates were scaled back because, since passage of Part D, consumers have used more lower-cost generic drugs and fewer new drugs have entered the market.
Some in the drug and health insurance industries have trumpeted market forces as the reason for the lower cost estimate. For example, the Pharmaceutical Care Management Association (PCMA), which represents pharmacy benefit managers, said the report "highlights that proven pharmacy benefit management tools utilized by Part D plans are saving money without sacrificing beneficiaries' prescription drug choices."
The Medicare trustees noted, however, that costs are also lower because fewer Medicare beneficiaries have enrolled in Part D than originally expected. Although initial projections estimated more than 43 million beneficiaries would enroll in Part D by 2009, the Medicare trustees reported that only 33.4 million had enrolled by last year.
In their report, the trustees noted that the projected cost reductions will be offset by the added expense of phasing out the coverage gap in Part D known as the "donut hole." Those expenses, however, are being covered by contributions from drug manufacturers that are expected to total more than $100 billion over 10 years.
Premiums Expected to Hold Steady
In a related development, the Centers for Medicare and Medicaid Services (CMS) reported last month that average 2011 Part D premiums will remain similar to rates that beneficiaries are paying this year.
CMS projected that beneficiaries will pay an average of $30 per month, a $1 increase over this year.
CMS also noted that beneficiaries who qualify for Part D's low-income subsidy, also known as "extra help," will receive an average of $4,000 in additional benefits next year. The subsidy typically covers some or all of the beneficiary's premium, deductible, co-payments and the cost of drugs while in the Part D donut hole. CMS added that that due to provisions in the new health care reform law, fewer LIS recipients will need to switch their plans to avoid paying a premium.
Also, Health and Human Services Secretary Kathleen Sebelius announced in late August that more than 1 million Part D beneficiaries have already received a $250 rebate check as part of the health care reform law's provisions to eliminate the donut hole by 2020. Another 3 million beneficiaries will receive a one-time, tax-free check by the end of the year.
Beginning in 2011, those who fall into the donut hole will receive a 50 percent discount on covered brand name drugs while in the coverage gap. The amount that Part D beneficiaries pay in cost sharing will decrease every year thereafter until the coverage gap is closed.