Medicare Drug Premiums to Be Lower Than Thought

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Most participants in Medicare's (search) new prescription drug benefit will spend about $5 less per month in premiums than originally anticipated because of competition among private plans bidding to offer the benefit.

The savings will also extend to the government. The subsidies it pays the plans to provide the drug benefit will decrease by about $180 per beneficiary next year. The savings translate into at least $5 billion annually based on Wall Street estimates of enrollment rates.

"This is good news for beneficiaries because the cost is turning out to be lower than had been projected by independent experts," said Dr. Mark McClellan, administrator of the Centers for Medicare and Medicaid Services.

McClellan and Mike Leavitt, secretary of the Department of Health and Human Services, announced the new cost projections Tuesday. They have been active in a nationwide campaign to generate participation among the nation's 42 million Medicare recipients.

"We're already seeing not just premium costs go down, but the implication is that prescription drug costs will also go down," Leavitt said.

About two-thirds of the Medicare population are expected to enroll in the new benefit program, which kicks in Jan. 1. Under the program, people will select and enroll in a private plan to obtain drug coverage. They will pay a monthly premium, now estimated at $32 a month. They will also bear other costs, such as copayments and a $250 deductible.

The federal government will pick up more of the costs to assist low-income beneficiaries.

Tricia Neuman, a vice president with the Kaiser Family Foundation, said it's hard to predict whether a $5 per month reduction in premiums will have much effect on enrollment rates.

"Many seniors haven't focused on what the benefit means for them much less thought about the nitty-gritty details, such as premiums and cost-sharing," Neuman said. "But lower-than-expected premiums are always good news."

Neuman said premiums are just one piece that seniors will consider when selecting a plan. The next important piece won't be available until October when recipients learn whether their drugs will be covered by the plans offering coverage in their region, and at what price.

"That's about the time seniors will be more focused on these decisions," Neuman said.

McClellan would not say how many companies have submitted bids to offer the new benefit. He said some plans could drop out.

"We're not quite done yet with the process, but we are very far along, and we're far enough along to see the robust competition that we have is translating as we thought it would into better benefits and lower costs for people with Medicare no matter where they live," McClellan said.

McClellan said drug plans have projected lower cost because they've been able to negotiate lower drug prices and they're encouraging a greater use of generics, among other steps.

The AARP, which is partnering with UnitedHealth Group to offer prescription drug coverage to Medicare beneficiaries, agreed with McClellan's explanation for the lower premiums.

"More and more plans anticipate they can get real savings by using generics and by resorting to less costly drugs, but I think the primary factor is probably the desire to enroll as many people as possible by keeping premiums low," said John Rother, the AARP's director of policy and strategy.