The Effects of Congressional Proposals on Prescription Drug Costs for Medicare Beneficiaries. Overview


  • The House Republican plan would provide real relief for seniors and disabled Americans: those who now pay full retail prices would typically see the costs of each prescription cut by 60-85 percent, and their overall out-of-pocket drug costs would fall by as much as 70 percent – in exchange for a stable and affordable premium starting at $34 per month.
    • The savings from the House Republican plan include a substantial price discount, made possible by letting all seniors aggregate their purchasing power for the first time. It’s common sense: the first step toward lower prescription drug costs for seniors is to give them the same means to get lower drug prices that are widely used for those under 65.
    • The House proposal also includes generous catastrophic protection for all seniors who have high out-of-pocket drug expenses – targeting this help to those who need it most.
    • It would provide even greater relief for about 17 million seniors with incomes below 175% of poverty – who would generally pay only $2-5 for each prescription. And those with incomes below 150% of poverty would pay no monthly premiums, while those with incomes between 150% and 175% of poverty would pay reduced premiums.1
    • This benefit would also yield $40 billion in savings for states over 10 years, helping to ease the serious budgetary problems they face due to rising drug costs in Medicaid.
    • All of this would be done in a manner that is far more fiscally responsible than many drug benefit proposals that have been circulated this year – which have full 10-year price tags of $600-750 billion or even higher.
  • A recent Senate Democratic drug proposal sought to reduce its apparent cost by terminating its benefits after 2010 – but this would not provide the secure entitlement contained in the House bill. Even when it is available, its design would actually raise retail prices by 15% or more on the drugs seniors use most – which is one reason it must impose steep co-pays of $40 to $60 for most prescriptions. As a result, most seniors would pay less out-of-pocket for their prescriptions under the House Republican plan than under the Senate Democratic drug proposal. And the costs of this Democratic plan would quickly exceed $100 billion per year, driving up its true 10-year cost to at least $600 billion and probably more.
  • The outline of a drug benefit just released by House Democrats is even more expensive – $750-800 billion over 10 years, if not more – and could lead to even higher drug prices or require government price controls. But this proposal would increase Medicare’s financing shortfall by 2% or more of GDP. The added burden would either threaten Medicare’s existing benefits or require a new tax on every working American of $2,000 or more by 2030 – just when the Baby Boom is counting on Medicare.

1 In 2005, 150 percent of poverty would correspond to about $14,500 in annual income for a single individual and about $19,500 for a couple. 175 percent of poverty would be about $17,000 for singles and $23,000 for couples.

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