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Analysis of the Medicare Prescription Drug,
|
Monthly Prescription Drug Spending |
Estimated Annual Savings |
$100 |
$773 |
$200 |
$1,733 |
$300 |
$2,220 |
$400 |
$2,460 |
$500 |
$2,700 |
$600 |
$3,567 |
$700 |
$4,719 |
$800 |
$5,871 |
4Kaiser Family Foundation. "Fact Sheet on Medicare and Prescription Drugs." April 2003.
5Medicare Current Beneficiary Survey, 2001
6CMS, Office of the Actuary.
7CMS estimated that total savings for beneficiaries for a similar drug discount card would be in the range of 10 percent to 15 percent. Savings of 25 percent or more would be possible on some individual drugs. Testimony of Thomas A. Scully, Administrator, Centers For Medicare & Medicaid Services. "Medicare Reform and Prescription Drugs." Before the Senate Special Committee on Aging. March 20, 2003. Additionally, in January -April 2002, AARP calculated average savings of 19 percent and up to 47 percent using their MembeRx Choice card.
8CMS Office of the Actuary.
Seniors and those with disabilities receive prescriptions from their physicians for a variety of medicines to treat a wide range of conditions. With subsidized plan coverage, Medicare beneficiaries could receive savings on each of their medicines. As illustrated below, seniors could save through discounts and subsidized plan coverage.
Table 1. Comparison of Possible Cost-Sharing for Drugs Seniors Use Under the New Medicare Drug Benefit
Selected Popular Drugs for Seniors |
New Medicare Drug Benefit |
||
Drug Name |
2002 Retail Price for 30 Tablets * |
Discounted Price ** |
Beneficiary's 25 Percent Contribution*** |
Lopressor 100mg |
$45.99 |
$36.79 |
$9.20 |
Imdur 30mg |
$48.89 |
$39.11 |
$9.78 |
Lipitor 20mg |
$108.65 |
$86.92 |
$21.73 |
Proscor 5mg |
$82.59 |
$66.07 |
$16.52 |
Celebrex 200mg |
$86.28 |
$69.02 |
$17.26 |
Zyrtec 10mg |
$69.52 |
$55.62 |
$13.91 |
Vanceril 42mcg |
$51.05 |
$40.84 |
$10.21 |
Norvasc 5mg |
$34.94 |
$27.95 |
$6.99 |
Fosamax 70 mg, 4 pills |
$80.45 |
$64.36 |
$16.09 |
Zoloft 100mg |
$78.96 |
$63.17 |
$15.79 |
NOTES: * Price data from “Shopping Smart for Prescription Drugs: A Guide to Discounts on Medication.” Chicago Department of Public Health, Office of Managed Care. Prices are taken from telephone inquiries to a large chain pharmacy in September 2002. Future prices may be different. ** Calculations assume a 20 percent cost management savings. Actual discounts will vary from drug to drug and plan to plan. ***The Medicare benefit provides coverage for 75 percent of enrollees’ prescription expenses after a $250 deductible is met, up to $2,250 of total annual spending. |
The above illustration shows how discounted drug prices can help seniors get the drugs they need. For instance, under the new benefit, a senior who buys $2,000 worth of drugs today could see her total prescription costs reduced to an estimated $1,600, of which she will pay just under $600 out of pocket, in exchange for a monthly premium of about $35. 9
9 Calculation assumes 20 percent cost management savings. CMS Office of the Actuary.
The new benefit also includes catastrophic protection for seniors with high out-of-pocket drug expenses. Once an individual's out-of-pocket spending reaches $3,600, he is only responsible for paying the higher of $2 for a generic or preferred brand-name drug, $5 for a non-preferred brand-name drug, or a 5 percent coinsurance on any one prescription. This approach focuses government help on reducing the out-of-pocket costs of Medicare beneficiaries who otherwise stand to spend large amounts of money and potentially high percentages of their incomes on prescription drugs.
The new benefit also establishes that beneficiaries will have a range of options so they can choose the drug plan that provides standard drug coverage or alternatives that may better meet their needs.
To keep premiums lower for Medicare beneficiaries-regardless of age, health status, or income-the new benefit provides seniors a subsidy to purchase needed prescription drugs. This could assist beneficiaries by both lowering their out-of-pocket costs and preventing the kind of "adverse selection" problems that have made drug coverage difficult for many to obtain.
It also provides reinsurance subsidies for drug plan sponsors so that they are not penalized for attracting less healthy enrollees. The Act provides a reinsurance subsidy of 80 percent for each beneficiary who is enrolled in a plan and has drug spending above the catastrophic limit. In all cases, however, plans will face appropriate incentives to manage the benefit efficiently and to get the best value for their enrollees and the Medicare program. Additionally, a system of risk corridors will be employed to insure against higher-than-expected drug costs. 10
The Act also authorizes the program's administrator to take the steps necessary to ensure that all beneficiaries have a choice of prescription drug plans.
10 A risk corridor is a financial risk sharing arrangement between the insurer and the government. If spending for the year is much higher than expected, the government will share the cost. However, the reverse is true. If spending for the year is much lower than expected, the government will share in the savings
Medicare beneficiaries of limited means and with income below 135 percent of poverty will be given immediate assistance through a Medicare-endorsed prescription drug discount card with $600 to apply toward purchasing their medicines.
Once the full benefit begins in 2006, Medicare beneficiaries of limited means and with incomes below 150 percent of the Federal Poverty Level (FPL) will see additional savings under the Medicare prescription drug plan.
The poorest beneficiaries-those with incomes below 100 percent of the FPL who are eligible for full benefits under Medicaid-will pay no premiums, no deductibles, and will pay cost-sharing of $1 for a generic drug or a preferred multiple-source drug and $3 for all other drugs. This includes the poorest nursing home residents who will have no co-payment requirements.
All other seniors who are eligible for full benefits under Medicaid, as well as other seniors with incomes below 135 percent of FPL and assets of no more than $6,000 per individual and $9,000 per couple-will pay no premiums, no deductibles, and will pay nominal cost-sharing of $2 for a generic drug or a preferred multiple source drug and $5 for any other drug.
Those with incomes below 150 percent FPL and assets of no more than $10,000 per individual and $20,000 per couple-will get sliding scale subsidies for their premiums, and pay both a lower deductible ($50) and lower cost-sharing (15 percent) compared with the standard benefit.
Seniors will be able to retain assets such as their house, automobile, and personal property (such as wedding rings) without having these items count toward the asset limit in determining their eligibility for either low-income subsidy group.
Approximately one-third of Medicare enrollees of limited means and with incomes below 150 percent of FPL will qualify for additional assistance. In many states, 40 percent and more Medicare beneficiaries have limited savings and low incomes and will likely qualify for additional assistance. Many Medicare beneficiaries with incomes below 150 percent of poverty lack any drug coverage today, and thus can stand to benefit significantly from this coverage.
In addition to providing help to beneficiaries, provisions of the Act will help states by paying for most of the prescription drug costs for those who are enrolled in both the Medicare and Medicaid programs. CBO estimates a net savings of $17.2 billion on state Medicaid costs over the next 10 years.11
In addition, states already operating drug assistance programs for seniors who do not qualify for Medicaid-including Pennsylvania, New York, New Jersey, Connecticut and Massachusetts-could see their spending on drugs reduced.
For employers that offer their Medicare-eligible retirees prescription drug coverage, the legislation also provides a 28 percent subsidy for the cost of drugs used by each enrollee up to $5,000, after a $250 deductible is met. This provision will allow many seniors to continue with the benefits they have today.
11 CBO letter to Hon. Don Nickles, Chairman of the U.S. Senate, Committee on Budget, November 20, 2003.
The combination of discounts and prescription drug coverage will help millions of beneficiaries. Examples of savings for those who now lack drug coverage are listed below.12
Agnes V. currently spends approximately $100 a month on medications to control her high blood pressure. Because she has no drug coverage, she pays full retail prices for these drugs. Under the new benefit, her spending on drugs would fall by about two-thirds-from $1,200 a year to about $430 per year. Adding in her monthly premium costs, her total drug-related expenditures would be cut by almost a third, to just under $850 per year.
Darla A. has high blood pressure and diabetes, but paying for her prescriptions is difficult because she and her husband have limited savings and live on a fixed income of $15,900 per year. Under the new benefit, they qualify for full coverage of their monthly drug premiums and would generally have co-payments of only $2 or $5 per prescription-so her drug spending could fall to under $100 per year.
Vernon M. has had a series of open-heart surgeries, and suffers from diabetes and melanoma. He currently spends about $400 a month on drugs to treat his multiple conditions. Under the new benefit, his out-of-pocket spending on drugs would drop from $4,800 per year to $2,340-cutting his expenditures by more than half. With his premium payments factored in, he'll save more than $2,000 a year. These savings come even though Vernon has drug expenses that exceed the initial coverage limit.
Lani H. recently had a heart attack and spends approximately $700 a month on multiple medications. One of the prescriptions alone currently costs her $300 per month. Under the new benefit, her out-of-pocket spending on drugs would drop from $8,400 per year to around $3,680-a $4,720 reduction. With her premium payments factored in, her total spending for drugs would fall by over 50 percent.
Because the new drug benefit makes drugs more affordable, some beneficiaries may be able to use some of the savings to purchase additional drugs that they need but were previously unable to afford. Therefore, somewhat lower reductions in total drug spending may occur-because more seniors are getting drug coverage.
12 Calculations assume 20 percent cost management savings. CMS Office of the Actuary
Beginning in 2005, all newly enrolled Medicare beneficiaries will be covered for an initial physical examination, and all beneficiaries will be covered for cardiovascular screening blood tests, and those at risk will be covered for a diabetes screen. These new benefits can be used to screen Medicare beneficiaries for many illnesses and conditions that, if caught early, can be treated, managed, and can result in far fewer serious health consequences. Such conditions as obesity, diabetes, heart disease, and asthma could be made far less severe for millions of Medicare beneficiaries.
For example, approximately 129 million U.S. adults are overweight or obese, which results in costs to the American health system of between $69 billion and $117 billion per year. Obesity also has a significant impact on Medicare beneficiaries' quality of life and on Medicare spending. For the period between 1996 and 1998, a 15 percent increase in annual per capita Medicare spending is attributable to beneficiaries being overweight, and a 37 percent increase is attributed to being obese.13 By providing an initial physician examination for all newly enrolled Medicare beneficiaries, seniors and disabled Americans will have the opportunity to discuss with their physician the importance of preventive care and living a healthy lifestyle.
Smaller amounts might be spent preventing these conditions. However, the current research indicates that these services are offset by the improvements in beneficiaries' lives and could reduce spending on more serious medical treatment. 15 There is accumulating evidence that much of the morbidity and mortality associated with these chronic diseases may be preventable. Making an initial health screening available to all new Medicare beneficiaries could result in Medicare spending less overall to treat beneficiaries with these conditions.
13 Finkelstein EA, Fiebelkorn IA, Wang G. "National medical spending attributable to overweight and obesity: how much, and who's paying?" Health Affairs-Web Exclusive. 2003 Project Hope.
14 The American Diabetes Association (ADA) estimated the national cost of diabetes in 1997 to be $98 billion. The ADA has updated this estimate for 2002 to $132 billion.
15 Covering Preventive Services Under Medicare: A Cost Analysis, Partnership for Prevention, 2003.http://www.prevent.org/docs/SupplementBooklet.pdf
The Act also encourages the use of electronic prescriptions in the delivery systems that will bring prescription drugs to Medicare beneficiaries. Such systems should sharply reduce the substantial number of prescribing errors that occur each year, by helping to better identify and thus prevent potentially adverse drug interactions. In addition, such changes can foster further use of data-driven disease management programs. A recent article estimated that the total cost of all preventable, drug-related mortality and morbidity ranges from $30 to $137 billion per year. The largest cost was for preventable hospitalizations. 16
For the first time ever, the Medicare prescription drug legislation creates a new fiscal analysis requirement, "The Combined Medicare Trust Fund Analysis," to help policymakers address the future of Medicare's finances. The legislation requires the Medicare Trustees to analyze the combined expenditures and dedicated revenues of the Hospital Insurance and Supplementary Medical Insurance Trust Funds. The legislation requires the Trustees to alert the President and the Congress if spending growth causes general fund revenues to exceed 45 percent of total Medicare expenditures. This new fiscal safeguard will put the program on a stronger financial foundation by alerting future Congresses and Presidents when Medicare's dedicated revenues fall below adequate levels.
The Medicare Prescription Drug, Improvement, and Modernization Act is estimated by CBO to cost a total of $395 billion over 10 years. 17 The legislation targets the most assistance to beneficiaries of limited means and with low incomes and attempts to strike a fiscal balance so that benefits will be secure for future generations.
16 Johnson, J. A. and J. L. Bootman, ``Drug-Related Morbidity and Mortality: A Cost-of-Illness Model,'' Archives of Internal Medicine, 1949-1956, 1995.
17 November 20, 2003 Congressional Budget Office Preliminary Estimate
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Last Revised: December 17, 2003