Debate and Estimates Rise Over Medicare Drug Benefit

As proposals proliferate to establish a Medicare pharmacy benefit, the cost estimates continue to soar. The White House began in February by proposing to spend a measly $190 billion over ten years. Then bipartisan Senate and House groups started talking about $350 billion programs. Most recently, AARP offered a $750 billion plan - $350 billion in outlays plus a $400 billion "reserve fund" to support broader Medicare reform.

Projected Prescription Spending Not Covered by Medicare

The Senate Finance Committee reviewed those ideas at a hearing last month that generated skepticism on all sides. Thomas Scully, administrator of the Centers for Medicare and Medicaid, defended the administration's low-end proposal as a starting point for negotiations. Scully indicated he was open to discussing larger proposals, but not the hefty AARP plan. AARP executive director William Novelli predicts that seniors won't enroll in a coverage plan with $50 monthly premiums, as is likely under programs in the middle range.

Meanwhile, the Congressional Budget Office (CBO) announced higher estimates for Medicare outlays on prescription drugs. CBO expects Medicare enrollees will spend $1.8 trillion on medicines between 2003 and 2012, compared with $1.5 billion estimated last year for the decade between 2002 and 2011. The estimates increased largely because later years (2013) have much higher spending projections than near-term years. However, CBO also expects per-person spending will grow more than 10 percent annually during that same ten-year period. For 2003, CBO estimates that the average Medicare beneficiary will spend $2,400 for outpatient prescription medicines, but the median outlay will be a more representative $1,500 per person.

To keep the numbers down, House republicans are drafting legislation that may include new cost-containment features. Representative Bill Thomas (R, California), chairman of the House Ways & Means Committee, is considering proposals to promote generics prescribing through reduced co-pays or a requirement that the patient cover the difference between the cost of a generic and a brand-name medicine. Another idea is to reduce co-pays for unadvertised brand products compared with heavily promoted medicines.

In response to widespread pessimism that Congress will agree on a Medicare benefit plan this year, PhRMA launched an ad campaign urging Congress to act. PhRMA's "Now's the Time" campaign began last month with TV commercials and print ads in Washington-area media. The message is that seniors need access to "the best state-of-the art life-saving medicines." In other words, no generics, please.