Biotech Values

[DewDiligence]

Medicare's Cost of Drug Benefit
Will Be Lower Than Expected

[The good news is that the cost to taxpayers will be lower than expected for the next few years; the bad news is that the lower cost came about because fewer people than expected signed up for the Medicare drug benefit. The sheer complexity of the new benefit (#msg-8481860) is no doubt responsible for this shortfall.]

http://online.wsj.com/article/SB114651311031340677.html

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By SARAH LUECK
May 2, 2006

WASHINGTON -- Medicare's prescription-drug benefit will cost the government about 20% less during the next decade than was projected a year ago, but largely for reasons outside the government's control.

Most of the reduction will result from lower-than-expected growth in the nation's per capita drug spending, Medicare's actuaries said in their latest projections, which came as part of the annual release of data on the financial health of Medicare and Social Security from the trustees of the programs.

The actuaries said fewer people than expected are signing up for the new coverage. Since last year, Medicare actuaries have lowered estimates for enrollment by May 15 -- this year's deadline for signing up -- from about 37 million to 31.4 million, a move that fueled calls in Congress to give people more time to sign up.

The latest cost projection for the drug benefit is "substantially lower" than projected last year, the trustees report said. Last year, Medicare's actuaries estimated the benefit would cost a total of $997 billion over 10 years, not including savings to Medicaid. Now that estimate is $788 billion. Another reason for the reduction: The private insurers selling the new, government-subsidized coverage achieved discounts on medications sooner than the actuaries had expected. That offset a 4% increase in what the government thought it would spend on Medicare beneficiaries with costly drug bills.

"The outlook for Medicare [drug coverage] is much better," said Mark McClellan, administrator of the federal agency that runs the program. He credited the competition for customers between private insurers that resulted in lower than expected premiums for drug coverage this year. On enrollment, he and Health and Human Services Secretary Michael Leavitt said they are hitting their own goals to have 28 to 30 million Medicare beneficiaries getting drug coverage.

The reduced cost of the drug benefit was a bit of good news accompanying continued warnings about financial trends that are unsustainable in Medicare and Social Security. The reports showed that Medicare's hospital insurance trust fund will be depleted in 2018, two years earlier than forecast last year. Social Security will begin running a deficit in 2017, the same as projected last year, and its accounting trust fund will be exhausted in 2040, one year earlier than projected.

Several of the six trustees, including the secretaries of Treasury and Health and Human Services, said fundamental changes are needed to rein in the costs of the programs. Treasury Secretary John Snow warned of a "looming fiscal crisis" if changes aren't made before Baby Boomers retire. "The message of this report is urgency," Mr. Leavitt said.

But in the near term, little is expected to change. President Bush, in his budget proposal for next year, recommended trimming spending on Medicare provider-payments and raising premiums for higher income beneficiaries. But Congress isn't enthusiastic about tackling the issue with mid-term elections approaching. Mr. Bush also recommended the formation of an entitlement commission to examine Medicare and Social Security, after his attempt to add private accounts to the federal retirement stalled last year.

Still, months after it was suggested, the commission hasn't yet been formed. Mr. Snow said it's "being worked hard," but conversations about who should be on the panel continue between prospective members, the White House and Congress.

The Medicare report held two other important developments. Under a requirement passed with the Medicare drug benefit, legislative action is supposed to occur if Medicare's trustees predict that, within the first seven years of their annual 75-year projections, general revenues fund more than 45% of total Medicare spending for two years in a row. Yesterday's report said that threshold would be reached in 2012. That means the trigger for action would occur in 2007 if projections hold. President Bush would be required to propose legislative changes, and Congress would have to give them fast-track consideration

Also, Medicare beneficiaries will see a big jump in the premiums they pay for physician and other outpatient care, under the portion of the program known as Part B. Medicare officials said yesterday that premiums would increase next year by 11%, to $98.20 a month from $88.50, partly because of a surge in the volume and intensity of Part B services and a decision by Congress to override a reduction in physician payment that was scheduled to occur this year.
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