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Getting Seniors, Taxpayers the Best Deal on Prescription Drugs through Medicare Part D

Getting Seniors, Taxpayers the Best Deal on Prescription Drugs through Medicare Part D
The new prescription drug benefit offered through Medicare is helping millions of seniors and persons with disabilities access their needed medications. But when Congress approved this program, it left it to the private insurance companies to offer drug coverage, and it specifically prohibited Medicare from negotiating lower prices from the drug companies. Seniors now face a baffling array of insurance plans with different prices and drugs covered, and premiums are expected to increase at triple the rate of inflation this year alone. The drug benefit is expected to cost $729 billion over the next decade.

Consumers Union, the nonprofit publisher of Consumer Reports magazine, recommends that Congress immediately remove the ban on Medicare drug price negotiation, and pass legislation that would create an alternative, Medicare-operated drug plan that will have predictable premiums, co-pays and a dependable list of covered drugs. We believe these changes will dramatically lower the cost of the drug program to Medicare beneficiaries and taxpayers, and create more comprehensive and efficient drug coverage for those Americans who desperately need it.

Problem: Taxpayers and Seniors Pay Too Much

Medicare has enormous buying power, which it uses to negotiate low prices for health care services provided by doctors and hospitals. But Congress specifically prohibited Medicare from negotiating similar lower prices for prescription drugs. Meanwhile, the Department of Veterans Affairs negotiates drug prices for its beneficiaries, and has achieved savings up to 46 percent.

Because private insurance plans slice up Medicare’s bulk buying power, these smaller plans are unable to negotiate the lowest possible price like Medicare could. Consumers Union found that seniors in one large Florida county could get a better price in 80 percent of instances by shopping around for prescriptions retail than they could get by paying the “full-cost” price under their Medicare insurance plan.

And a recent Congressional study projected that if Medicare negotiated prices 25 percent lower than what it now pays, $61 billion would be saved over the next decade on premiums, co-pays and out-of-pocket costs. These possible savings beg the question: Why wouldn’t Congress want to give Medicare the power to get lower drug prices?

Problem: Complexity and Confusion

Unlike traditional Medicare health coverage (Part A and B), where Medicare directly offers the health coverage to seniors, the Part D drug benefit is offered by private insurance companies. That means seniors and people with disabilities must choose from about 50 to 60 plans per state offered by dozens of different insurance companies. These plans are allowed to change the prices they charge, as well as the drugs they cover, but enrollees can only change their plans once per year.

More than three-fourths of beneficiaries are in plans that are increasing their premiums this year, and over one-fourth are in plans that are raising premiums by at least 25 percent, according to a recent study by the Kaiser Family Foundation. Adding to the confusion, the Government Accounting Office found that private plans give out incorrect information approximately one-third of the time. How can seniors be expected to shop around for the best, most cost-effective drug insurance plan when the plans later can change their prices, or don’t provide adequate information?

Problem: The Doughnut Hole Coverage Gap

In approving the drug benefit, Congress opted to stretch its dollars by not covering prescription drug costs after a certain point – the so-called ‘doughnut hole.’ Once an individual and Medicare spend a total of $2,250 in a calendar year, no drugs are covered until the individual pays another $2,850 out of their own pocket for medications. After that, Medicare covers 95 percent of the cost of drugs.

While estimates vary, it’s clear that millions of people hit the coverage gap in 2006. Experience tells us that those without financial help to pay for medicines are often forced to go without drugs, split pills
in half, or forgo other basic needs. Distressing for many seniors is the fact that they must continue to pay their monthly premiums for drug coverage while in the doughnut hole – meaning they are paying for insurance when that same insurance isn’t helping pay for their drugs!

The Solution: Price Negotiation and a Medicare Option

While the Part D prescription drug program offers an important benefit to many seniors and person with disabilities, the plan is too complicated and far too expensive for the benefits it provides. Consumers Union strongly supports legislation in the Congress that would give Medicare the authority to negotiate lower prescription drug prices. We also support giving seniors an option of buying Part D coverage directly from Medicare, ensuring consistent premiums, drug coverage and prices. Savings from price negotiation and other cost-effectiveness measures could – and should – be used to close the doughnut hole coverage gap.

How a Typical Part D Plan Works*
Cost of drugs What you pay What Medicare plan pays
$0 – $250 $250 $0
$251 – $2,250 $500 $1,500
$2,251 – $5,100 $2,850 $0
Subtotal $3,600 $1,500
Drug costs over $5,100 5% 95%
*Dollar figures are for 2006. They will be adjusted each year for the rate of drug inflation