Health Bill Will Hike Medicare Drug Coverage Premiums 20 Percent, Says CBO

By Fred Lucas | September 3, 2009 | 4:41 PM EDT

( - If the health-care reform bill under consideration in the House of Representatives becomes law, seniors will pay Medicare prescription drug program premiums that are 20-percent higher than they would be under current law, says the Congressional Budget Office.
The increase in premiums will start with an average 5-percent hike in 2011 and reach 20 percent by 2019.
The CBO estimated the increase in premiums in response to an inquiry from Rep. Dave Camp (R.-Mich.), the ranking Republican on the House Ways and Means Committee, who wanted to know how changes to the Medicare system that are incorporated into the House version of the health-care reform bill would impact the premiums paid by seniors for their prescription drug benefit—known as Medicare Part D.
“Overall, CBO estimates that enacting the proposed changes would lead to an average increase in premiums for Part D beneficiaries, above those under current law, of about 5 percent by 2011,” CBO Director Douglas Elmendorf said to Camp in a letter. “That effect would rise over time and reach about 20 percent in 2019.”

The increase in premiums would be tied to increased coverage that closes the so-called doughnut hole in current Medicare prescription drug coverage.
The “doughnut hole” works like this: Once a senior’s total drugs costs--what Medicare pays, plus the deductible and co-payments--exceed a certain amount ($2,700 in 2009), Medicare will cover no more of the person’s drug costs that year until the person spends a certain amount out of his or her own pocket ($4,350 in 2009). When a senior reaches the upper threshold of the “doughnut hole,” catastrophic drug coverage kicks in automatically and Medicare pays 95 percent of the person’s additional drug costs for the remainder of the year.

Under the health care bill in the House of Representatives, H.R. 3200, the “doughnut hole” would be phased out by 2022, when Medicare Part D would cover prescription drug purchases within the window it does not cover as of now. 

“Beyond the 10-year budget window, the premiums would increase slightly more until the doughnut hole was eliminated in 2022, beyond that point, enrollees premiums would grow along with the cost for covered drugs,” says CBO.
The change in the rules would have a varying net financial impact on individual seniors, depending on the volume of their prescription drug use.
“Of course, the effect of total spending would vary among beneficiaries: Those who ended up purchasing a relatively small amount of drugs in a year would pay more in additional premiums than they would gain from lower cost sharing, while those who purchased a relatively large amount of drugs in a year would gain more from lower cost sharing than they would pay in higher premiums,” says CBO.
About 3.8 million seniors were subject to the “doughnut hole” in 2007, according to the Center for Medicare and Medicaid Services (CMS).
Rep. Camp argues that most seniors would suffer a net financial loss under the change envisioned in the health-care bill.

Among Medicare Part D beneficiaries, he said in a statement citing data from CMS, 10.9 percent would save money under the Democratic health bill, while about 76 percent would pay more.

“Health care reform should make health care more affordable, not more expensive,” said Camp. “Clearly, it is time to scrap this bill and start over with open, bipartisan talks.”

However, Robert Kocher of the President’s National Economic Council said in a recent White House video that prescription drugs will become less expensive.

“You will have lower drug costs,” Kocher said. “Right now in the Medicare program, when you reach the point at which Part D can’t cover a drug, you have to pay full price. Under insurance reform, you will pay lower prices for those pills you take.”
However, CBO said in its letter to Rep. Camp that the new rules would cause drug manufacturers to increase prices on new “breakthrough” drugs.

“Drug manufacturers would be constrained from increasing prices for existing drugs but could offset the rebates they would be required to pay for full-benefit dual-eligible individuals by charging higher prices for new drugs – particularly for ‘breakthrough’ drugs (the first drugs that use new mechanisms to treat illnesses),” said CBO.