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House Bill Would Balance Medicare Part D Benefit Cost Increases with Lower Drug Costs

Janice Simmons, for HealthLeaders Media, September 1, 2009

Medicare beneficiaries would see their Part D prescription drug benefits rise by 5% in 2011—and by 20% in 2019—under provisions found in HR 3200, the House's healthcare reform bill, according to the Congressional Budget Office (CBO). However, beneficiary spending on prescription drugs—apart from those premiums—on average would fall.

Under the House reform proposal, beneficiaries' premiums would rise for two reasons: Phasing out the doughnut hole—the gap between the end of the initial coverage range and the catastrophic threshold—and spending more above the catastrophic threshold. This means prescription drug plans would be responsible for covering more.

Next, under new provisions of the bill, pharmaceutical manufacturers could offset the rebates they would be required to pay for full benefit dual-eligible individuals by charging higher prices for new drugs—particularly breakthrough drugs.

Because enrollees pay for about 25% of the cost of coverage through their premiums, premiums would also be higher. In return for those higher premiums, enrollees' would receive greater protection against incurring high drug costs, CBO said.

HR 3200 proposes several changes to the Medicare Part D program, CBO said, that would impact federal spending and premium costs:

  • It would create a new rebate program that under various circumstances would require pharmaceutical manufacturers to pay the federal government the difference between the statutory rebate under Medicaid and the rebates paid to Medicare's prescription drug plans. Specifically, this policy would apply to covered drugs dispensed to full-benefit dual eligible individuals, which are beneficiaries who are enrolled in both Medicare and Medicaid.
  • It would phase out the doughnut hole by extending the benefit's initial coverage limit and lowering the catastrophic threshold at specified rates. This would result in eliminating the doughnut hole by 2022.
  • It would apply to covered drugs dispensed to full benefit dual-eligible individuals for beneficiaries who are enrolled in both Medicare and Medicaid. Since the statutory rebate provided under Medicaid is usually larger than those negotiated by the plans providing the Medicare drug benefit, the provision would reduce federal spending, CBO said.

According to CBO's estimate, the provisions could save the federal government as much as $30 billion over the 2010 to 2019 period. CBO did not estimate the impact of each provision separately because their effects are closely connected.


Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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