Medicare Compliance & Reimbursement

Early projections hint at plan's success but rankle skeptics.

Good news about the Medicare drug plan has been hard to come by--and harder yet to believe.

Due to "stronger than expected" competition in the prescription drug market, increasing use of generics and lower overall drug costs, Part D coverage will have "significantly lower premiums and lower costs to federal taxpayers and states," Centers for Medicare & Medicaid Services Administrator Mark McClellan announced at a Feb. 2 hearing with the Senate Special Committee On Aging.

Beneficiaries can now expect to pay $25 per month on average--nearly one-third less than independent experts' original estimate of $37 per month, says CMS. Plus, states' dreaded "clawback" payments will be 27 percent less than original estimates over the next 10 years, the agency predicts. States' clawback savings will reach $700,000, the Department of Health and Human Services confirms in a Feb. 9 statement.

Senators at the hearing were skeptical of the plan's success and the agency's new cost projections. Sen. Elizabeth Dole (R-NC) complained that low-income benes' problems are "simply unacceptable and clearly not what was intended."

Sen. Herb Kohl (D-WI) called the cost projections "ludicrous," and Sen. Hillary Clinton (D-NY) suggested scrapping the entire prescription drug plan and starting over.

CMS claims that drug costs have become lower are also falling under fire--the Consumers Union questions CMS in a Feb. 2 letter about drug plans' stability, noting that the average annual cost of some prescriptions drugs has already increased by nearly 5 percent just one month into the plan.

But Medicare's per-person cost estimates under the new drug plan are almost 20 percent less than original projections, according to CMS. HHS estimates that costs during the next 10 years will level off somewhat but will still be about 10 percent less than original projections. In turn, lower government costs will create significant savings for taxpayers, HHS secretary Mike Leavitt points out.

"Simplification is absolutely the next step in this process, now that we've got the benefit in place," says McClellan. "We're going to see competition lead to more simplicity."

During the program's development, CMS and HHS had estimated that Medicare drug coverage would cost the government about $737 billion during the first 10 years. Net cost-estimates for 2006 through 2015 now are down from $737 billion to $678 billion, CMS reports. Plan cost estimates for 2006 alone are down from $38.1 billion to $30.5 billion. Total cost estimates, without including Medicaid savings, are down from $926 billion to $797 billion, the agency says.