Transcript Medicare Rx Drugs

Medicare Reforms
November 1, 2006
Overview of 2003 Changes
“The Medicare Prescription Drug,
Improvement and Modernization Act of 2003”
More commonly called the “Medicare
Modernization Act”
Changes included
Drug discount cards started in 2004 - temporary
Additional preventative benefits in 2005
Rx drug coverage started in 2006
Rx Drug Coverage: 2006+
Original Bush Proposal – if you want Rx
coverage, you would have to choose a
managed care option (Rx is the “carrot”)
You may choose to stay entirely within trad’l
Medicare, but then would not get Rx benefit
Legislation that passed treated Rx as a
pure add-on benefit – no managed care
provision included in the final bill
Designing an Rx Drug Bill
Should participation by Medicare beneficiaries
be mandatory or voluntary?
How would you allocate scarce dollars?
Should there be an annual premium to join?
Early expenditures vs. catastrophic expenditures?
Would you use deductibles or co-pays?
Would the politics of coverage influence your
design
Distribution of Rx Drug Spending for 2006 Medicare Beneficiaries
10.0
8.7
9.0
8.5
8.2
8.2
7.9
8.0
7.9
7.5
7.4
% of population
7.0
6.4
6.2
6.1
6.0
5.1
5.0
4.5
4.3
4.0
3.3
3.0
2.0
1.0
0.0
0
1-200
201-500 501-800 801-1100 11011500
Median = $1,700
Mean = $2,730
15002000
20002500
25013000
Spending Range
30013500
35014000
40015000
50006000
6000-10k
10k+
Rx Coverage (some details vary by plan)
Pay premium of about $37 per month
Deductible = $250
Medicare covers 75% of costs between $250
and $2,250, you pay 25%.
You pay 100% of costs between $2,250 and
$5,100 (for a total of $3600 in out of pocket
expenditures) – the “doughnut hole”
Medicare pays 95% of costs after the $5,100
Rx
s
7000
6000
5000
4000
3000
2000
1000
0
35
0
75
0
11
50
15
50
19
50
23
50
27
50
31
50
35
50
39
50
43
50
47
50
51
50
55
50
59
50
pe
ns
e
Ex
Out of Pocket Expenditures
New Rx Drug Plan
$842 “break-even”
Total Rx Expenditures
Financing Controversy
In January 2003 State of the Union address,
Bush outlined Rx drug plan that would cost
$400 billion over 10 years
CBO published similar estimate
Became law in Nov 2003
In December 2003, projection increased to
$534 billion over 10 years
In 2005, estimates of net cost 10year costs
grew to $720 billion over 10 years
What Happened?
Primarily an artifact of 10-year budget
window used for federal budget
accounting
2004 and 2005 were “no cost” years
But 2014 and 2015 costs are over $100
billion per year
This was entirely predictable!
NPR story
Current Status
“Liberals have said that Bush devised a
‘stingy’ benefit in which many seniors
would be faced with thousands of
dollars worth of drug bills.”
“Conservatives have argued that an
open-ended entitlement to prescription
drug coverage would cost far more than
the Treasury could afford”
– Connolly & Allen, Washington Post, 2/9/05 page A1.