Costs for Medicare Drug Plan May Rise 7% in 2007

As the deadline for enrolling in the Medicare drug plan approaches, the government has announced that seniors and disabled beneficiaries may have to pay as much as 7% more for their benefits next year.

The early estimates of next year’s cost increases come as officials are launching an all-out drive to get drug coverage for at least 90% of seniors, either through Medicare or an employer-provided retiree plan, by May 15.

The program has attracted about 30 million elderly and disabled people, officials said Thursday. “If we keep the same pace of enrollment, we have a shot at being able to achieve 90% of all seniors and [disabled] people in this country with prescription coverage,” said Health and Human Services Secretary Mike Leavitt. “If we had said that a year ago, people would have thought we were overreaching.”

To reach that goal, Medicare must sign up nearly 3 million people in about three weeks. Some lawmakers are seeking to extend the deadline to keep seniors who do not sign up in time from having to pay financial penalties.

Critics and independent experts said it might be difficult to reach 90% without a deadline extension, because the 30 million signed up so far included many people who already had coverage.

It is estimated that about a third of the current total previously lacked prescription benefits. The rest had been enrolled in other government programs and in employer-backed retiree health plans that are now receiving Medicare subsidies.

“They have not yet reached their coverage goal, but they are clearly moving closer,” said Tricia Neuman, director of Medicare policy for the Kaiser Family Foundation.

When Congress created the prescription benefit program, it stipulated that the government would issue guidelines each year for raising costs. Lawmakers decided that the share paid by beneficiaries should be indexed to reflect annual increases in prescription drug prices and consumer spending on medications. Cost sharing for other Medicare benefits is regularly adjusted for inflation.

For the drug program, the 6.86% increase guideline for next year means that the current $250 annual deductible could rise to $265. Premiums and co-payments might also change.

And the coverage gap known as the doughnut hole could expand from $2,850 to $3,051 next year. After meeting the deductible, seniors would be covered for up to $2,400 of prescriptions, but beyond that they would have to pay the full bill until drug costs reached $5,451, with an out-of-pocket maximum of $3,850. Medicare would pay 95% of further costs.

“Every number that is built into the Medicare Part D framework is going up a little bit,” said Joanne Hustead, a health policy specialist with the Segal Co., a benefits consulting firm. “From the perspective of beneficiaries, it means they will have to pay a little more out of pocket.”

Exactly how individual drug plans will apply the new financial guidelines remains unclear. The individual plans are operated by private insurance companies, and they have wide latitude to design their own benefits, as long as the value of the coverage is equal to or greater than Medicare’s standard package.

To remain competitive, some insurers may decide to absorb costs that could be passed on to seniors.

“You could keep the beginning of the doughnut hole in about the same place,” Medicare Administrator Mark B. McClellan said in an interview. “It could look very similar to what the coverage is this year.”

Other experts said beneficiaries were likely to see some costs go up, such as the co-payments they are charged when they pick up their prescriptions at the pharmacy.

“I don’t see how [Medicare] can get away with saying it’s a wash,” said David Lipschutz, an attorney with California Health Advocates, a nonprofit group that advises Medicare recipients. “The plans might use different mechanisms, but they are going to bring costs up for people.”

Costs are all but guaranteed to rise next year for the poorest beneficiaries, some 6 million people whose prescriptions were previously covered by Medicaid. Although these beneficiaries have no annual deductible and no coverage gap, their co-payments may increase from $2 to $2.15 for generic drugs, and from $5 to $5.35 for brand name medicines.

The amounts may seem minuscule, but many state-sponsored Medicaid plans previously charged no co-payments. California’s Medi-Cal program had charged $1, a fee that pharmacies often waived. State officials and independent experts are concerned that the Medicare co-payments may be too much for low-income people who take 10 or more medicines.

“The greater impact could be on low-income people,” Neuman said.

An industry spokesman said it would probably take several weeks for drug plans to figure how to incorporate the new financial guidelines. Most of the private drug plans offering the drug benefit have opted not to follow the standard benefit package designed by Congress and Medicare, instead designing alternatives of equal or greater value.

Many plans offer no annual deductible. And Medicare-managed care plans that combine prescription and medical benefits frequently do not charge monthly premiums. Instead, most plans have chosen to recoup costs from beneficiaries by charging co-payments that range from about $5 for generic drugs to $60 or more for brand-name medications.

“What you would implicitly expect is that those co-payment structures would have to change,” said a financing specialist for Medicare, who spoke on condition of anonymity. “A $10 co-pay might have to go to $11.”