By Mark Miller
CHICAGO Feb 21 There will be good and bad news
next year for seniors using Medicare's prescription drug
Overall, enrollees can expect a year of flat or decreasing
Medicare prescription drug costs, according to data released
last week by the federal government. The government said
Medicare's per-beneficiary drug costs fell 4 percent last year.
As a result, some of the most important numbers in the program's
2014 Part D will drop by roughly the same amounts.
The number that will matter most to seniors is the standard
annual plan deductible. The federal Centers for Medicare &
Medicaid Services (CMS), which administers Medicare, said last
week that it will be $310, down from $325 this year (the numbers
are proposed, and still could be revised).
And insurance plan premiums - which won't be known until
this fall - could reflect the decline in drug prices. Although
some Part D premiums jumped sharply in 2013, average rates have
been flat for several years, ranging from $37 to $40, according
to Jack Hoadley, research professor at the Health Policy
Institute of Georgetown University.
"Premiums are driven by insurance plan estimates of what
their average cost will be to treat a patient, so it's fair to
say we're likely to see relatively flat premium growth next
year," he says.
WHY COSTS ARE GOING DOWN
The moderation in drug costs is in sync with a broader
slowdown in healthcare expenditures. The Congressional Budget
Office said earlier this month that Medicare per-beneficiary
spending rose only 0.4 percent in fiscal 2012, and overall
Medicare spending was up just 3 percent.
The lower spending on prescription medicines results mainly
from the expiration of patents on some of the most widely used
drugs, such as Lipitor, made by Pfizer Inc.
"There's been a major shift to much less expensive
generics," Hoadley says. "It's not just the drugs that went off
patent, but also competing drugs that are still on patent, but
where the patient can switch to a generic."
The exception, he notes, has been new biologic drugs used to
treat conditions such as cancer, rheumatoid arthritis and
multiple sclerosis. Those drugs remain relatively expensive, but
may save healthcare dollars in other areas. "Biologics could put
upward pressure on drug costs in the years ahead, but that could
still be a good thing if it leads to better treatment and
THE BAD NEWS
The wrinkle in the outlook is that because of the lower
prices, for the first time in the Part D program's history,
beneficiaries will enter the infamous "donut hole" more quickly
than before. And that will likely cause confusion and
consternation among the 19 percent of seniors affected by it.
Seniors fall into the "donut hole" when spending on drugs
(the combination of what the individual and the insurance
company spend) reaches a predetermined threshold. This year, the
number is $2,970; after that point, the senior pays 50 percent
(a new change this year from the Affordable Care Act) of
brand-name drug costs, until individual spending exceeds $4,750.
But for 2014, the CMS has proposed that beneficiaries enter
the hole when combined spending reaches $2,850 - $120 less than
in 2013. That means seniors would start paying more
out-of-pocket at a lower level of spending. That will surprise
seniors, since one of the key touted benefits of President
Barack Obama's healthcare reform law is the gradual closing of
the donut hole entirely between now and 2020.
What is going on here?
The donut hole entry point isn't related to the ACA at all.
It is determined by a formula tied to per-capita total Part D
drug expenses - that 4 percent decline. Meanwhile, the
out-of-pocket maximum is determined by the ACA and it also will
be smaller next year - $4,550, down $200. Overall, the size of
the donut hole shrinks by $80.
With me so far? Good - because the big thing going on with
the donut hole under health reform is the reduction in the share
of drug costs borne by seniors who enter the gap.
Before passage of the ACA, seniors in the gap paid 100
percent of all drug costs. Now, they pay 50 percent
out-of-pocket for brand-name drugs, with the rest made up by
insurers and discounts from pharmaceutical manufacturers. For
generics, they pay 79 percent. Enrollees' out-of-pocket burden
for brand-name and generic drugs will gradually fall to 25
percent by 2020 - the same percentage applied for standard
"More people could reach the coverage gap next year, but
there will be better coverage in the gap once you get there,"
says Tricia Neuman, vice president of Kaiser and director of the
foundation's Medicare policy work.