 | Highlight on Drugs | | |
Reshaping Medicare: Winners And Losers
Sept. 19, 2003  By Harold J. DeMonaco, M.S.
Massachusetts General Hospital For the 40 percent of seniors without any prescription-drug coverage, the new Medicare bill will ease the economic burden of paying for their medicines. In the year 2000, the average cost to a senior covered under Medicare was $1,525. The predicted cost for prescription drugs by 2010 will grow to $4,412 per year. Congress had to pass some legislation to defray personal costs, but I am skeptical that this short-term cost relief to seniors will have the best long-term economic consequences. Immediate Consequences Medicare has given itself two years to set up the organization and management of the new prescription-drug benefit. During the bridge period until 2006, seniors will be able to purchase a prescription drug “card” for $30 that will save them 15 percent to 25 percent on prescription drugs. In 2006, Medicare will charge a monthly premium for the drug coverage, estimated to be $35 per month ($420 per year). Under the plan, drugs will not be free, but the out-of-pocket costs will be dramatically reduced. The average yearly cost for a senior’s prescription drugs in 2006 is expected to be around $2,850, compared to $1,525 in the year 2000. New and better drug treatments will cost more, and will be only partially offset by patent expirations and approval of more generic versions of drugs. Without the prescription-drug benefit, many seniors on Medicare would pay the entire bill out of their pocket. When the new prescription benefit kicks in in 2006, their out-of-pocket expenses will be reduced and they will save about $1,268 a year. Low-income seniors will be able to gain access to prescription drugs without paying the premium. They will be expected to contribute a co-payment of $1 to $2 for generic prescription drugs and $2 to $5 for brand-name prescription drugs. Back to top Winners And Losers Many seniors will now have access to drugs they otherwise could not have afforded. But the bigger winners are the pharmaceutical companies. They avoid government price controls and the legal importing of drugs from Canada. Are there any potential losers? Time will tell, but it is likely to be those seniors who currently have prescription-drug coverage from their employer. About 28 percent of all seniors have some form of a prescription-drug benefit provided by their employer. Because of increasing costs, many employers will likely take the opportunity to eliminate this expensive option for their older employees. To keep total prescription costs down, most health-insurance companies have increased the co-payments on brand-name drugs and kept the co-pays much lower on generics. The Medicare drug benefit seems to be headed in the opposite direction. The plan reduces out-of-pocket expenses that may desensitize many seniors to the real cost of their prescription drugs. The Medicare prescription-drug benefit has potentially added an entire group of consumers who will become much less price sensitive. At least one investment bank estimates that prescription-drug spending will increase by an additional 9 percent (about $13 billion annually) as a result. Back to top The Bottom Line Without some form of price controls or contracting by Medicare for prescription drugs, past experience suggests that total yearly drug costs are likely to steadily increase. Money to cover the higher costs will probably result in Medicare premium increases and increased taxes. The addition of a prescription-drug benefit to Medicare will help many senior citizens with their medicine costs. It remains to be seen if the costs will be worth the benefit in the long run. Without changes in the way prescription-drug prices are set, the Medicare prescription-drug benefit may in fact backfire and cause the costs to increase faster. Back to top Harold J. DeMonaco, M.S., is senior clinical associate in the Decision Support and Quality Management Unit at the Massachusetts General Hospital and is currently a Visiting Scholar at the MIT Sloan School of Management. He is author of over 20 publications in the pharmacy and medical literature and routinely reviews manuscript submissions for eight medical journals.
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