Rising Costs Jeopardize Drug Plans for Seniors

New projections released today of dramatically higher prescription drug costs are casting greater uncertainty on President Bush’s budget proposals for revamping Medicare and making it more difficult for lawmakers on Capitol Hill to devise a drug coverage plan for seniors.

One authoritative estimate prepared by the nonpartisan Congressional Budget Office had already predicted that the nation’s seniors will spend nearly $1.5 trillion on prescription drugs over the next 10 years, rising from an annual total of $80.9 billion in 2002 to $227.7 billion in 2011. That’s about 30% higher than similar 10-year CBO predictions made last spring.

Today, those figures gained further weight with a report published by the federal Health Care Financing Administration saying that for the general population, prescription drug expenses--which accounted for 9.4% of all personal health spending in 1999--will continue to rise at a faster rate than any other category of health care services, reaching 16% of personal health spending in 2010.

The HCFA predicts that drug costs will grow at an average rate of 12.6% a year through 2010. That is roughly the same as the budget office’s projections of the annual rate of increase in prescription drug spending by seniors. For those over age 65, the average yearly bill will rise from $1,989 per person next year to $4,818 per person in 2011, it estimates.

The sharp upward revision in senior drug spending means that any congressional plan to subsidize prescription drugs for seniors will cost considerably more than previously anticipated if it offers the same level of coverage.

Medicare, the federal health insurance program that covers 39 million seniors and disabled Americans, provides no reimbursement for outpatient prescription drugs under its traditional coverage plan.

The new figures also signal growing problems for Medicaid, the federal-state health care program for the poor that does cover prescription drugs. About half of the states have already used up the money they budgeted for Medicaid this year, largely because of higher-than-anticipated prescription drug expenses, according to the National Governors’ Assn.

“It’s a two-edged sword,” said Ron Pollack, president of Families USA, a consumer group. “On the one hand, it makes clear that there’s a greater urgency to help seniors. On the other hand, it shows that when you help them it’s going to cost a large amount of money.”

Both sets of numbers reflect two fundamental trends: The price of prescription drugs is rising rapidly and people are using more drugs, said Katherine Levit, director of the HCFA’s National Health Statistics Group. Historically, older Americans have filled more prescriptions than those under age 65, and that trend is expected to continue as more new medications become available and as physicians increasingly turn to pharmaceuticals before recommending surgery or other hospital-based treatments.

The budget office figures, which were presented to congressional staff members about two weeks ago in closed-door briefings on Capitol Hill, are already influencing Senate budget deliberations over how to balance competing demands for money, including drug coverage, tax cuts, defense and education.

Bush did not use the new data when he calculated the cost of his 10-year plan for providing prescription drug coverage for seniors, although he did incorporate similar estimates in a shorter-term plan to help low-income seniors buy prescription drugs, according to officials at the Office of Management and Budget. And Bush probably won’t adjust his numbers when he submits a more detailed budget blueprint to Congress in April, administration officials said.

On Capitol Hill, the new numbers are causing problems for both parties. Democrats say they show that Bush’s Medicare plan is woefully insufficient. But they also wreak havoc with Democratic alternatives, which are more generous to seniors than Republican proposals and which may begin to appear so expensive that many lawmakers will consider them unaffordable.

At a recent Senate committee hearing, lawmakers said the CBO figures suggest that Bush has not allocated enough money to provide a drug benefit for seniors.

“The president’s prescription drug cost estimate is not within hailing distance of what it’s going to take to cover people,” said Sen. Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee.

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said the White House was not able to use the new numbers when it prepared the budget that was released last month. He called Bush’s proposal to spend $156 billion over 10 years on modernizing Medicare and creating a prescription drug benefit “a starting point.”

Bush’s proposal, which has not been fully defined, would make drug coverage available as part of a broad overhaul of the Medicare program. But the $156 billion that Bush allocated for drug coverage and other Medicare changes over the next 10 years would cover only about 10% of the $1.5 trillion that older Americans are expected to spend on prescriptions during the period.

“People disagree on how big the government subsidies need to be, but most people think they would need to be higher than 10%,” said Marilyn Moon, a health economist at the Urban Institute and a former trustee of Medicare’s Hospital Insurance Trust Fund.

Moon said the administration probably is assuming that the Medicare overhaul will generate additional savings that could be used to help underwrite prescription drug coverage. But even if the savings matched the new funding--roughly $150 billion over 10 years--the total subsidy would still cover only 20% of projected prescription drug costs, she noted. “Most Americans who heard Mr. Bush say he would get them good prescription drug coverage would think it’s more than a 20% subsidy,” she said.

Conservatives think the higher drug cost estimates may force Congress to take a harder look at Bush’s proposed Medicare overhaul, under which the government would pay a set amount for each beneficiary, much as employers do for their workers, and seniors would make up the difference if they chose a more expensive plan with more benefits and coverage.

“I think this will exacerbate the underlying debate, which is: To what extent we are going to provide open-ended benefits, or are we going to move towards some kind of mechanism that provides a limit on the cash value of coverage provided by the government?” said Stuart Butler, a specialist in health economics at the Heritage Foundation, a conservative think tank. “As we see drug costs rise and the volume of drugs used rise, the more that debate is going to sharpen and drive the whole discussion.”

A number of factors contribute to the sharp rise in prescription drug spending, according to the HCFA report. When drugs are covered by insurance, more people use them, causing overall spending to rise. That has tended to occur as more people have moved into HMOs, which generally ask participants to cover only small co-payments when they fill prescriptions. Traditional insurance often asks participants to pay hefty deductibles and coinsurance. In addition, several years ago Congress allowed drug companies to begin advertising directly to consumers in magazines and on TV. That has created a higher level of consumer awareness and demand for prescription drugs, particularly the newer and more expensive ones that drug companies push the hardest. In addition, drug companies have come out with a stream of new and more expensive drugs that are covered by patents and therefore have no competition from cheaper generic forms.

The implications of rising prescription drug costs already are visible in the Medicaid program, under which the states pay 50% or less of the health care costs incurred by the poor, and the federal government pays the balance. As drug costs spiral, state health commissioners have found it increasingly difficult to stretch their Medicaid dollars to offer more insurance coverage.

Russ Toal, commissioner of Georgia’s Department of Community Health, said he just asked the Legislature to come up with an additional $100 million this year; 40% of that is needed for prescription drugs.

“How can you extend coverage to the uninsured when the cost of providing drugs for the people you do cover busts your budget?” he asked.

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Prescription Costs

Projected prescription drug spending by seniors:

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2002: $80.9 billion

2011: $227.7 billion

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Spending Per Person

2002: $1,989

2011: $4,818

Source: Congressional Budget Office

Prescription Costs, Los Angeles Times