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CBO: Seniors Will Pay 20% More for Prescription Drug Coverage if H.R. 3200 is Enacted

September 02, 2009

The Congressional Budget Office (CBO) estimated that the House Democrat health care bill (H.R. 3200) would force seniors to pay an additional 20 percent more for their Medicare prescription drug coverage (Part D).  Under H.R. 3200, seniors would pay 5 percent more in Part D premiums in 2011, increasing to 20 percent by 2019. 
H.R. 3200 includes three significant changes to the Medicare Part D program.  First, the bill extends Medicaid price controls to dual eligible seniors, those seniors enrolled in both Medicare and Medicaid.  Secondly, the bill phases out the doughnut hole by 2022.  And finally, the bill provides 50 percent discounts for those not receiving low-income subsidies for the drugs they purchase in the doughnut hole. 
If the Democrats’ Health Bill Becomes Law:

  • CBO estimates that seniors will have to pay 20% higher premiums for Medicare prescription drug coverage (Part D).
  • According to the Centers for Medicare and Medicaid Services’ (CMS) data from 2007, more than 12 million of the 15.8 million seniors (76%) who are not eligible for low-income assistance will pay higher premiums without gaining any benefit from the policies in H.R. 3200.  These seniors will see their net spending on prescription drugs increase under the Democrats’ policy.
  • According to CBO, new prescription drugs, especially those which are breakthrough treatments, will have higher prices as a result of H.R. 3200.

Why will seniors pay more for Part D coverage?
CBO primarily attributes the increase in Medicare Part D premiums to two policies:

  1. Phasing out the doughnut hole will increase costs to the Part D plans.  As a result plans will be forced to charge seniors more for prescription drug coverage.
  2. By extending Medicaid price controls to Part D, prescription drug manufacturers will provide less-generous price discounts to the drug plans, causing the plans to pass through these increased costs to seniors.  Additionally, drug companies will increase the prices they charge for new drugs in order to offset the revenue they will lose if this policy becomes law. 

Which seniors will see their net costs increase under Part D?
CBO cleverly found that the average senior spending across the entire Part D program will decrease.  But, buried deep within their letter, CBO admits that there are winners and losers: “The net effect on drug spending would differ among beneficiaries depending on the amount of their purchases in a year.” CBO chose not to elaborate on this critical point, obscuring the fact that these policies will affect seniors differently and that most seniors will in fact see their combined Part D premiums and other out-of-pocket prescription drug costs increase under H.R. 3200.

Here’s the math:

  • According to the latest Part D claims data available on CMS’ website, there were 26.2 million Medicare beneficiaries enrolled in a Part D plan or Medicare Advantage plan with drug coverage in 2007. 
  • Of these, 8.3 million seniors had drug spending that put them into the doughnut hole.  
  • However, 4.5 million of the 8.3 million seniors in the doughnut hole were eligible for low-income assistance and receive their normal subsidies in the doughnut hole, so they will not see their prescription drug spending decrease.  
  • The remaining 3.8 million seniors are the only ones that may see their prescription drug spending decrease. 

This means that Democrats are proposing to increase Medicare Part D premiums for the vast majority of seniors by 20 percent in order to reduce the drug spending of  at most 14.5 percent of those enrolled in Part D.  Alarmingly for millions of seniors, the bill will drive up Part D premiums without any reductions to the cost of their prescription drugs.
Medicare Part B premiums will also increase.

  • In addition to the increase in prescription drug premiums, seniors can also expect to pay higher Medicare Part B premiums if H.R. 3200 becomes law. 
  • An earlier CBO analysis of the Democrat health care bill found that Part B premiums would increase by $24.9 billion.