Medicare predicts cut in cost of drug benefit

14% premium reduction based on health plan bids

August 10, 2005|By Ricardo Alonso-Zaldivar | Ricardo Alonso-Zaldivar,LOS ANGELES TIMES

WASHINGTON - Medicare announced yesterday that its new outpatient prescription benefit will cost about 14 percent less next year than estimated, which means less of a squeeze on seniors' budgets and billions in potential savings for taxpayers.

Nationally, the average monthly premium that beneficiaries will pay when the program takes effect in 2006 is expected to be $32.20, down from an estimated $37.37 a month. Premiums will vary across the country, but officials said they are expected to be lower in California because of the high level of enrollment in Medicare managed-care plans.

The new figures are based on bids from dozens of private health plans vying to offer coverage to more than 42 million elderly and disabled people who are eligible for Medicare's first outpatient drug program. Prior estimates were based on government projections of what drug companies were likely to charge.

The lower estimates were good news not only for Medicare recipients and the U.S. Treasury, but also for President Bush. He made the prescription benefit a centerpiece of his domestic agenda, but the elderly met it with skepticism - fearing it would be too costly to participate in. Yesterday's announcement might make it easier for administration officials to drum up enthusiasm for the plan.

The figures announced yesterday by Medicare administrator Mark McClellan came as something of a surprise. Until now, most analysts had predicted the program would be much more expensive than Bush and the Republican-controlled Congress envisioned.

"This is very good news," McClellan said. "What we are seeing is significantly lower costs." He attributed that to "robust competition" among private insurers and managed-care health plans.

The development could prompt more people to sign up for the benefit after Nov. 15, when Medicare starts accepting applications for coverage. Health and Human Services Secretary Michael O. Leavitt has estimated that 28 million to 30 million will enroll this year.

But some health care experts cautioned that costs and premiums could rise steeply in future years. The program is structured so taxpayers pay 75 percent of the cost, and beneficiary premiums must cover the remaining 25 percent.

"Right now, premiums of $32 are a best guess, given that we don't have experience with these types of plans and no one has signed up for this benefit yet," said health economist Paul Fronstin, of the Employee Benefit Research Institute. "In subsequent years, you will have real data to base prices on."

McClellan refused to speculate on any long-range savings as a result of the new estimate for 2006, saying such projections would not be available until Bush submits his budget next year. Estimates released in February shocked many in Congress by putting the 10-year cost of the benefit at nearly $724 billion. A 14 percent saving would reduce that about $100 billion.

The prescription drug benefit is the most significant expansion of Medicare in decades and is seen as a signature domestic policy achievement for Bush. But its complex design - with many coverage options at different prices - has made some seniors leery. Its expected costs have drawn fire from fiscally conservative Republicans, while Democratic liberals denounce its reliance on private plans as an industry giveaway.

The Los Angeles Times is a Tribune Publishing newspaper.

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