- Under the 2002 House Republican bill, CBO’s analysis indicates that seniors now paying full retail prices would on average save 20-25 percent on their prescriptions as plans compete to serve them by offering price discounts and other help to lower their drug costs. Seniors would benefit from the efficiencies of private sector management tools and reap the rewards of pooling their purchasing power. In most cases, once seniors meet a modest deductible, they would pay only 20 to 50 percent of these reduced costs – giving them dramatic savings.
- In the stylized example below, this means that a senior who now pays $100 for each prescription – the full retail price – would generally pay $15-$40 under the House plan, thus saving 60-85%. Her monthly premiums – and the Medicare costs that must be paid by taxpayers – will also be lower due to these competitive savings.
Current Cost per Prescription for Seniors Paying Full Retail Price
|2002 House Republican Bill||2002 Senate Democratic (Graham-Daschle) Plan|
|Full Cost Per Prescription||Typical Co-Pay For Seniors (20-50%)||Full Cost Per Prescription||Typical Co-Pay For Seniors (Brand Name Drugs)|
- By contrast, under the plan recently announced by several Democratic Senators, drug benefit managers would have little reason to negotiate price discounts for seniors – since they could not pass these savings on to beneficiaries through lower premiums or coinsurance payments. Analysis by CBO suggests that under such a system, the full cost of prescriptions for seniors will not be reduced, so beneficiaries and the Medicare program will both end up paying more than is necessary.
- Specifically, this CBO analysis indicates that the Democratic approach would ultimately result in retail prices that are 15 percent higher for the drugs seniors use most – widely used drugs like Prilosec, Zocor, Lipitor, Norvasc, and Celebrex.
- This is one reason why the true 10-year cost of the Senate Democrat’s plan would be at least $600 billion and possibly much more. Financing the extra costs of that benefit would either hasten Medicare’s bankruptcy by a decade or more (if these added costs were funded through Medicare’s hospital trust fund) or require massive infusions of general revenues.
- To reduce the price tag of the Senate Democrat’s plan, its sponsors would terminate the drug benefit after 2010 – just when the Baby Boom is starting to enter Medicare. This would not give seniors the reliable drug coverage they need.
- The most recent version of Senate Democrat’s plan would replace the 50% coinsurance rate used in previous proposals with co-payments of $40-$60 for brand name drugs. As the table below shows, however, this would generally lead to higher out-of-pocket costs for seniors when they go to purchase the drugs that they use most often.
- Virtually all seniors will benefit from the 20% coinsurance rate contained in the House Republican bill – which could cut their average costs for these drugs to about $15 per prescription.
- Even when enrollees have to pay 50% coinsurance, the kind of price discounts that are likely to be available under the House Republican plan mean that their average coinsurance will be the same ($37) as the average co-payments in the Senate Democratic proposal for preferred drugs.
- The examples below are based on publicly available data on drug prices for 2001, but even with some inflation in subsequent years the average senior would pay less out-of-pocket for their drugs under the House Republican plan (even assuming that the price discounts obtained for these drugs are only about 15%).
|Most Popular Drugs for Seniors||House Republican Plan||Senate Democratic Plan|
|Spending Rank||Drug Name||2001 Avg. Price *||Discounted Price **||20% Coins.||50% Coins.||Co-Pay (preferred)||Co-pay (non-pref)|
NOTES: * Price data from “Prescription Drug Expenditures in 2001,” National Institute for Health Care Management (www.nihcm.org); data not available for Vasotec, the 10th most used drug among seniors (by total spending). ** Assumes a 15% price discount; discounts could be higher for some drugs. *** Generic drug.
- These examples show how the lower drug costs that will result from the House Republican bill make its benefits go much farther to help seniors get the drugs they need.
- These savings would add up for seniors. For instance, under the 2002 House Republican bill, a senior who buys $2,000 worth of drugs today would see their total costs reduced to $1,500-$1,600 – of which they would pay $650-$700 out of pocket. Under the Senate Democrat’s drug benefit, the same person would have co-payments of approximately $1,000 – thus paying about 50% more out-of-pocket.
- In fact, most seniors would pay less out-of-pocket for their drugs under the House bill than under the Senate Democrat’s plan, even though the House bill includes a modest deductible. And these savings also help keep beneficiary premiums and government costs down under the House Republican plan.
- The outline of a drug benefit just released by House Democrats is even more expensive – $750-800 billion over 10 years, if not more. Financing the extra costs of this benefit could force Medicare into bankruptcy by 2016 (or possibly sooner), if the Medicare Part A Trust Fund were used to cover these added costs (as suggested by proposal to use the Part A “surplus” toward the drug benefit). Or, if it is financed through massive infusions of general revenue only, it will threaten the security of Medicare’s existing benefits.
- The additional general revenue needed for this benefit in 2030, when the Baby Boom is fully counting on Medicare, would amount to more than 2% of GDP – which would correspond to a tax of over $2,000 in today’s dollars on every working American. Medicare would face this enormous financing burden at the time when its Part A Trust Fund is projected to be insolvent and when its Part B Trust Fund also requires massive support – thus adding to the threat to all of Medicare’s promised benefits.