Strong Competition Holding Down Cost of Medicare Part D

Due in large part to strong competitive bidding by health and prescription drug plans and beneficiaries’ choices, the Centers for Medicare & Medicaid Services (CMS) reported that the anticipated average premium paid by beneficiaries for standard Part D coverage in 2008 will be roughly $25. This is nearly 40% lower than originally projected when the benefit was established in 2003 and also lower than projected earlier this year.

“Competition and smart choices have been two important factors in holding down the cost of the Medicare drug benefit. The Part D program is serving beneficiaries at a far lower cost than originally expected,” said CMS acting deputy administrator Herb B. Kuhn. “Medicare drug benefit bids continue to be well below projections because of slower than expected growth in prescription drug costs generally, in part because of increased generic usage, effective plan negotiation, and strong competition.”

The estimated actual average premium for 2008 of roughly $25 for basic coverage is far below the original estimate for 2008 of $41, and is even below the most recent estimate of $27 from the 2008 Mid-Session Review. The average expected premium for basic coverage in 2008 is higher than the actual average for 2007 (about $22) due primarily to technical adjustments required by law rather than increased bids.

Approximately 87% of beneficiaries enrolled in a stand-alone prescription drug plan (PDP) will have access to Medicare drug plans that cost them the same or less than their coverage in 2007. Thus, the majority of beneficiaries could avoid any premium increase in 2008 by enrolling in a lower-cost stand alone PDP in their region. Moreover, many beneficiaries have access to a Medicare Advantage Prescription Drug (MA-PD) plan with lower premiums. It will be important for beneficiaries to compare their coverage options for 2008 based on overall cost, coverage and convenience to select the plan that best meets their needs.

MA-PD premiums continue to be lower than PDP premiums. On average, in 2007, the MA-PD premiums prior to rebates are about $7 lower than those for PDPs. In 2008, they will average $11 lower. The lower MA-PD bids and premiums reflect the effects of aggressive competition as well as lower costs resulting from better care coordination and drug benefit management techniques. In practice, many MA-PD plans also apply a portion of their rebates from Parts A and B to reduce their Part D premiums, in many cases to zero.

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