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Medicare Drug Plan cost $32 billion in 2006

In 2006, introduction of the U.S. Medicare Part D prescription drug benefit increased the number of seniors' prescriptions by 158 million, at a cost of $32 billion to Medicare, a new study concludes.

Reporting in the November/December issue of the journal Health Affairs, the study authors noted that many seniors who enrolled in the Medicare drug benefit already had prescription drug coverage, so the new benefit reduced the average amount paid by seniors per day of therapy by 18.4 percent, while increasing their use of prescription drugs by only 13 percent.

"The rhetoric surrounding Medicare Part D's potential impact on seniors' medication use and savings on drug costs doesn't match the reality. The increase in drug utilization and decrease in cost to the elderly was relatively minor," study co-author Frank Lichtenberg, a business professor at Columbia University, said in a prepared statement.

Beginning in January 2006, the Medicare Part D drug benefit was available to all 43 million Medicare beneficiaries. In this study, the researchers analyzed data on 584 million prescriptions filled at the Walgreens pharmacy chain from September 2004 to December 2006.

They found that Medicare patients paid about 66 cents per day of medication therapy in September 2004. That decreased to about 53 cents per day of medication therapy by December 2006.

However, after they factored in the increased number of prescriptions that followed the introduction of Medicare Part D, the researchers concluded that the amount paid by patients decreased only 5.6 percent, while the amount paid by private insurers increased by 22.3 percent.

The researchers also examined by how much Medicare Part D reduced private insurance coverage or spending, known as the "crowd-out rate." They found that every seven prescriptions paid for by Medicare crowded out five prescriptions and resulted in only two additional prescriptions being used. Medicare spent about $203 for each additional prescription for the elderly, about 3.5 times as much as the average price ($57) for a prescription in 2006, the researchers said.

Overall, the U.S. government spent $32 billion on the new drug benefit in 2006, and that's expected to accumulate to $797 billion by 2015, according to the Congressional Budget Office.

"Our findings do not necessarily mean that the Medicare Part D program is economically inefficient, because there are potential long-term health care savings when people can afford to take necessary medications," Lichtenberg said. "However, we need to think carefully about the economic implications of this program, which the federal government will ultimately have to raise taxes to pay for."

Another study in the November/December issue of Health Affairs found that overall annual out-of-pocket health spending by Medicare beneficiaries increased 50 percent between 1997 and 2003, from $1,667 to $2,501.

The study, by researchers at the Kaiser Family Foundation and University of California, Los Angeles, also found that the oldest, frailest and poorest Medicare beneficiaries spend a much greater portion of their income on premiums and health services than other beneficiaries.

In 2003, those in the top quarter of spending shelled out 30 percent of their income for health care, while those in the top 10 percent spent nearly 60 percent of their income on health care. Overall, 40 percent of beneficiaries spent more than 20 percent of their income on health.

The findings "raise important questions about how much of their incomes beneficiaries can reasonably be expected to spend on their health care and whether current out-of-pocket spending levels are affordable," the researchers wrote.

Out-of-pocket health care expenses could continue to increase, making health care less affordable and accessible for all but the highest-income beneficiaries, the study authors warned.