1 The Savings from an Efficient Medicare Prescription Drug Plan Dean Baker January 2006 Center for Economic and Policy Research 1611 Connecticut Avenue, NW Suite 400 Washington, D.C Tel: Fax:
2 2 Contents Title Page Table of Contents Executive Summary Introduction Savings From Having Medicare Negotiate Prices The Cost of an Efficient Medicare Drug Benefit The CBO Estimates of Medicare Negotiated Prices Conclusion Appendix About the Author Dean Baker is the co-director of the Center for Economic and Policy Research. Acknowledgments Kathryn Bogel and Liz Chimienti provided valuable research for this paper.
3 The Savings from an Efficient Medicare Prescription Drug Plan 3 Executive Summary Congress passed the Medicare Modernization Act (MMA) in 2003 in response to the difficulty that many seniors faced in paying for prescription drugs. 1 However, it was not designed in a way to maximize efficiency. Instead, Congress deliberately designed the bill in way that would ensure that private insurance companies would provide the benefit instead of the Medicare administration or a single designated provider. This design both substantially increased the cost of drugs and administrative costs in addition to making the drug program much more complicated for beneficiaries. This paper uses data from the Congressional Budget Office (CBO) and other sources to project the savings from a drug benefit program that is centrally administered as an add-on to the traditional Medicare program. These projections show that: In an alternative high-cost scenario, in which the Medicare system pays as much for drugs as the highest cost country examined by CBO, the savings on drug prices during the initial budget period would be $332 billion compared with the cost of the MMA. In the case of a middle cost scenario, in which Medicare paid the same prices as the lowest cost country in the CBO analysis, the savings over this budget window would be $563 billion. CBO projected that the marketing and the profits of the insurance industry add $38 billion to the cost of the MMA over this seven-year budget window. If Congress had instead created an add-on benefit to the existing Medicare program, this money either could have been used to create a more generous benefit or to 1 The analysis in this paper is similar to the analysis in Sager, A. and D. Socolar, Percent of Medicare s New Prescription Drug Subsidy is Windfall Profit to the Pharmaceutical Industry, Boston, MA: Boston University School of Public Health [http://dcc2.bumc.bu.edu/hs/medicare_rx_bill_windfallpr ofit.pdf]. finance federal and state spending in other areas. The projected combined savings from lower drug costs and lower administrative fees are large enough in the middle-cost scenario to allow for the government to fully cover the projected cost of prescription drugs for Medicare beneficiaries over this budget window, and still leave a surplus of almost $40 billion compared with the projected spending under the MMA. Alternatively, if beneficiaries only paid the premiums projected under the MMA (with no copayments or deductibles) the savings in the middle cost scenario would be large enough to allow the states to keep the $88.5 billion they are required to pay under the maintenance of effort provisions of the MMA, and still save the federal government $80 billion compared to its projected spending on the MMA. In short, the savings from designing a more efficient drug benefit are large enough that they could provide for substantial gains to both the federal and state governments and Medicare beneficiaries compared to the projected costs under the MMA. The paper notes that CBO has reported to Congress that it will not be possible to incur substantial savings from having Medicare negotiate prices directly with the pharmaceutical industry, because its projections already assume that the insurance companies involved in the MMA will secure substantial price reductions from the industry. The paper points out that this assertion is contradicted by CBO s analysis showing that foreign countries, as well as the Veterans Administration, pay substantially lower prices for drugs than the prices that CBO assumed the insurers would be paying under the MMA. CBO has provided no reason for believing that Medicare, given its enormous potential market power, would be unable to negotiate the same sort of discounts with drug manufacturers.
4 The paper also notes that CBO has occasionally made serious projection errors in the past on important public policy questions. At the time that President Bush s tax cuts were being debated in 2001, CBO apparently failed to recognize the stock bubble and the inevitable crash. As a result of this failure, CBO made projections of capital gains tax revenue that overstated collections over the budget horizon by more than $450 billion, compared with actual history and the most recent projections. Given an overstatement of revenue projections of this magnitude, Congress would have been better served if it had found alternatives to CBO s projections when it debated tax policy in Similarly, since CBO has no obvious justification for its assertion that Medicare could not negotiate prices as low as those in other countries, or those negotiated by the Veterans Administration, Congress would be better served by alternative projections of the potential savings from having Medicare negotiate drug prices directly with the pharmaceutical industry. The Savings from an Efficient Medicare Prescription Drug Plan 4
5 The Savings from an Efficient Medicare Prescription Drug Plan 5 Introduction When Congress passed a Medicare prescription drug benefit in 2003, minimizing costs for the government and beneficiaries was not the primary concern. Instead, Congress structured the bill so as to ensure a role for private insurers and even added in subsidies for this purpose. 2 It also prohibited direct negotiation between Medicare and the pharmaceutical industry, which would have led to lower prices as a result of Medicare s enormous bargaining power. As a result, the combined cost of the Medicare prescription drug benefit to beneficiaries and the government is substantially greater than necessary. In addition, the role of competing insurers can make the plan more complicated for beneficiaries. While some beneficiaries may welcome the opportunity to choose between different plans in the hopes of finding a better deal, many beneficiaries may find this process to be quite complicated. The relative advantages and disadvantages of various plans may be difficult to recognize, especially since the insurers can change their benefits after a plan has been selected. Furthermore, beneficiaries needs for drugs may change as well, as their health condition changes over the course of a year. In this sense, the need to choose a plan can be an additional cost for beneficiaries that would not be necessary if Medicare simply offered a basic add-on plan. the combined cost of the Medicare prescription drug benefit to beneficiaries and the government is substantially greater than necessary. While there were clearly political and ideological reasons for designing the Medicare drug benefit in its current form, it is important that the public have an accurate assessment of the potential savings from structuring the benefit in a more efficient way. These savings could be divided between lower costs to the federal government, reducing the cost to state governments, and providing a more generous benefit. This paper projects the financial savings that would result from having a simple add-on drug benefit to the basic Medicare package. Using data from the Congressional Budget Office (CBO) and other sources, it projects separately the savings that could potentially result from having Medicare negotiate prices directly with drug companies and the savings from having a single designated administrator of the program, instead of insurance companies. It then compares the costs of a simple Medicare add-on with the cost of the Medicare Modernization Act. 2 The Office of Management and Budget assumed that the subsidies associated with the Medicare Advantage program, which facilitates entry by private insurers into the Medicare program, would total $46 billion over the original budget window. CBO projected that Medicare Advantage program would lead to $14 billion in public subsidies. The main reason for the difference is that CBO assumed lower enrollment rates in the Medicare Advantage program (CBO, Comparison of CBO and Administration Estimates of the Effect of H.R. 1 on Direct Spending, Washington, D.C.: Congressional Budget Office [http://www.cbo.gov/showdoc.cfm?index=4995&sequence=0].
6 The Savings from an Efficient Medicare Prescription Drug Plan 6 Savings From Having Medicare Negotiate Prices The most obvious potential source of savings from designing a more efficient Medicare drug benefit would stem from having Medicare, or a designated pharmacy manager, negotiate prices directly with the pharmaceutical industry. Such negotiations should in principle allow for very substantial reductions in price, because the pharmaceutical industry sells prescription drugs for prices that are typically more than 200 percent above their cost of production. This means that if a large buyer, like Medicare, were to demand substantial discounts, then the industry could still make a profit on its sales, even if it charged much lower prices than it does at present. This is clearly demonstrated by the fact that other buyers, most notably foreign governments and the Veterans Administration, are able to secure prices that are much lower than what consumers pay in the United States. The pharmaceutical industry must at least cover its production costs and make a normal profit on even the lowest price drug sales to other countries or agencies, otherwise it would not make them. Therefore, if Medicare were able to bargain for drug prices collectively on behalf of its beneficiaries, it should be able to secure a price that is at least as low as the lowest price currently accepted by the industry. 3 In surveying the prices that various countries pay for drugs, CBO found costs ranged from 35 to 55 percent less than the prices paid in the United States. In surveying the prices that various countries pay for drugs, CBO found costs ranged from 35 to 55 percent less than the prices paid in the United States (CBO, 2004a, p 4). 4 This is consistent with a wide range of other studies that have found prices paid by other countries, as well as the Veterans Administration and purchases through the Federal Supply Schedule, are far lower than average drug prices in the United States. 5 This range of prices can be used to construct projections for the discounts that Medicare could receive if it negotiated as a single buyer with the pharmaceutical industry. This range is conservative, since Medicare would be a larger buyer than any of the other countries or agencies in this group, and therefore would have more bargaining power. As CBO noted in assessing the prospect of Medicare bargaining collectively on behalf of its beneficiaries 3 There is an important issue about whether the industry would still have enough money to finance research into the development of new drugs if its profit margins were substantially reduced in the United States. This is a very important question, but the question of how best to finance drug research is a different issue from asking how much money can be saved if a single Medicare selected agent was allowed to negotiate collectively on behalf of Medicare beneficiaries. It is worth noting here that there is considerable evidence that the current system of patent supported research is becoming increasingly inefficient through time (e.g. Dimasi J. R. Hansen, and H. Grabowski, "The Price of Innovation: New Estimates of Drug Development Costs." Journal of Health Economics, 22: ). Baker, 2006[forthcoming]. ( The Growing Inefficiency of Patent Monopolies as a Mechanism for Supporting Prescription Drug Research, Washington, D.C.: Center for Economic and Policy Research). 4 CBO, 2004a, Would Prescription Drug Importation Reduce U.S. Drug Spending? Washington, D.C.: Congressional Budget Office [http://www.cbo.gov/ftpdocs/54xx/doc5406/04-29-prescriptiondrugs.pdf]. 5 Similar analyses of relative prices in other countries can be found in U.S. Department of Commerce, International Trade Commission, Pharmaceutical Price Controls in OECD Countries, Washington, D.C.: U.S. Department of Commerce [http://www.ita.doc.gov/td/health/drugpricingstudy.pdf] and Australian Productivity Commission International Pharmaceutical Price Differences, Australian Productivity Commission, Commonwealth of Australia, [http://www.pc.gov.au/research/commres/pbsprices/finalreport/p bsprices.pdf].
7 The Savings from an Efficient Medicare Prescription Drug Plan 7 exclusion from the Medicare market could threaten the profitability and even the survival of some drug manufacturers. 6 In fact, the floor on the prices that Medicare could conceivably set would be even lower than the range of discounts currently being received by other countries or agencies. In principle, as long as drug companies can cover their production costs and earn a normal profit on their sales, they would profit by selling their drugs to Medicare rather than being excluded from this huge market. The price of generic drugs gives a reasonable basis for estimating the minimum price that would still be high enough for the industry to earn a profit, since obviously generic companies are able to produce and market their drugs at these prices and still earn a normal profit. According to the Commerce Department the average price of a generic prescription is approximately 30 percent of the price of an average brand drug prescription. 7 Assuming that the brand drug manufacturers are as efficient in producing and distributing their drugs as the generic manufacturers, then they should also be able to make a profit at this price. The second key question is the rate of growth of drug prices. The CBO assumed that baseline per capita drug spending would rise at an average annual rate of 9.0 percent over the ten-year projection period. 8 If Medicare were to negotiate on behalf of its beneficiaries, it would be able to substantially reduce this growth rate. The bulk of this projected growth in average prescription prices is not attributable to higher production costs, but rather a growing gap between prices and production costs. 9 If Medicare acted as a collective buyer of drugs, it could negotiate prices that reflected actual production costs. For purposes of this analysis, it is assumed that the average prescription price negotiated by Medicare would rise in step with the overall rate of inflation. This means that real drug spending would increase only as a result of an increase in the number of prescriptions per person or an increase in the size of the Medicare population. Table 1 shows the projected cost of drugs to the Medicare population, assuming that all drugs are purchased at a price negotiated by Medicare or another agent acting as a single buyer compared with the baseline projected by CBO in CBO, "Issues in Designing a Prescription Drug Benefit for Medicare," Washington, D.C.: Congressional Budget Office [http://www.cbo.gov/showdoc.cfm?index=3960&sequence=0]. The statement goes on to warn that exclusion of manufacturers from formularies might be difficult to sustain politically. 7 The average price for a prescription of a brand drug cost $95.86 in 2004, compared to a price of $28.71 for an average generic prescription (U.S. Commerce Department, Census Bureau, 2006, Statistical Abstract of the United States, Washington, D.C.: U.S. Department of Commerce, Table 126). Even this number is likely to be somewhat inflated, since it includes generic drugs that are sold during periods of market exclusivity. This is the six-month period after the first generic drug equivalent to a brand drug enters the market. During this period, no other generics are allowed to enter the market, which means that the first generic will be able to set higher than normal prices since it must only compete with the brand version of the drug. 8 CBO, 2004b, A Detailed Description of CBO's Cost Estimate for the Medicare Prescription Drug Benefit. Washington, D.C.: Congressional Budget Office [http://www.cbo.gov/showdoc.cfm?index=5668&sequence=0], p 6. 9 The industry has justified this growing gap by noting the rapid rise in its costs for developing new drugs. 10 The numbers are adjusted to exclude drug spending that is covered through the Veterans Administration (VA) drug program. The CBO assumed that the VA would continue its current drug program and that Medicare beneficiaries who qualify for VA drug benefits would stay in the VA program. This accounted for 15.5 percent of baseline spending according to the CBO (CBO, 2004b, 6).
8 The Savings from an Efficient Medicare Prescription Drug Plan 8 Table 1 Projected Spending on Drugs by Medicare Beneficiaries Total Baseline Baseline minus Veterans Administration Drug Purchases High Cost Middle Cost Low Cost Source: CBO and author s calculations, see appendix. The table uses three alternative assumptions. In the high-cost case, it is assumed that the cost of drugs falls by 35 percent from the baseline path projected by the CBO in the absence of the MMA effectively that Medicare negotiates prices that are comparable to those in the highest cost country evaluated by CBO. The mid-cost scenario assumed that Medicare or the buying agent negotiates a price that is 55 percent lower than the baseline cost projected by CBO. This is equivalent to assuming that Medicare negotiates prices that are comparable to the lowest prices in the countries examined by CBO. The low-cost scenario assumes that Medicare negotiates prices that are comparable to the prices that brand drugs would sell at if they were marketed as generics. In each case the growth path assumes that prices would rise by an amount equal to the projected growth rate of the Medicare population, plus CBO s projected inflation rate, plus 1.5 percent annually to allow for additional per person use of prescription drugs. These projections are adjusted to reflect the fact that lower drug prices will lead to some increase in usage. The CBO projections assume that the lowered cost of drugs to beneficiaries under the MMA leads to a 10 percent increase in usage. The projection for the high-cost, middle-cost, and low-cost scenarios assume that lower drug prices will lead to a percent, 20 percent, and 25 percent increases in drug usage, respectively. Table 2 shows the gross savings from this path compared to the spending path CBO projected for drugs under the MMA. In addition to being considerably larger than the percent gross savings path projected by CBO from the 2003 Medicare Modernization Act (CBO 2004, pp 11-14), this projection also is constructed somewhat differently. The CBO projection includes savings that would result from insurers requiring beneficiaries to switch to lower cost drugs and also from restricting their use of drugs. While savings of this sort would 11 These are very crude projections. Without a more precise design, it is not possible to determine how much the price reductions will be for different beneficiaries. Also, it is not clear how much can be said about the impact of very large changes in price on usage. Presumably, price ceases to be a major factor in determining the use for most drugs for many people, once it has already fallen to a low level.
9 The Savings from an Efficient Medicare Prescription Drug Plan 9 still be possible even with a system where there was a single buyer, the potential gains from shifting to lower cost drugs would be considerably smaller if drug prices were pushed down closer to production costs. Similarly, there would be less cost savings associated with restricting beneficiaries access to medically useful drugs. CBO does not break-down the extent to which these restrictions, as opposed to lower drug prices obtained by insurers, account for their projected savings, so it is not possible to directly determine how much of the reductions in drug costs attributable to the MMA are due to these forms of cost control. Table 2 Gross Savings Under MMA and Alternative Scenarios Total MMA High Cost Middle Cost Low Cost Source: CBO and author s calculations, see appendix. Table 3 shows the savings that would result from having a single administrator of the drug program as opposed to having a group of private insurers, as provided for in the MMA. CBO directly estimated the costs attributable to having private insurers administer the program (2004, p 17). These are costs associated with marketing, member acquisition, and member retention in addition to the profit earned by the insurers. There may also be additional savings to providers from only having to deal with a single insurer for drug reimbursements, but such savings would be difficult to measure and are not included in this projection. CBO projected these administrative costs over the original planning horizon to total approximately $38.0 billion. This is the amount that could be saved if Medicare used a single administrator for the prescription drug benefit. Table 3 Savings on Administrative Costs Total Savings on Administrative Costs Source: CBO, see appendix.
10 The Savings from an Efficient Medicare Prescription Drug Plan 10 Table 4 combines the savings shown in Tables 2 and 3 to show projections for the total potential savings from having the drug plan administered by a single administrator who would negotiate prices directly with the pharmaceutical industry. Table 4 Total Savings Under Alternative Scenarios Relative to the MMA Total High Cost Middle Cost Low Cost Source: CBO and author s calculations, see appendix. In the high-cost case, the total projected savings would be $370 billion over the original period. In the middle-cost scenario the projected savings would be more than $600 billion, and in the low-cost case the projected savings would be $785 billion. It is important to realize that these are gross savings on purch ases of drugs by the Medicare population compared with the program put in place by the Med icare Modernization Act; they are not savings to the federal government alone.
11 The Savings from an Efficient Medicare Prescription Drug Plan 11 The Cost of an Efficient Medicare Drug Benefit Savings of the magnitude projected above would have allowed for a qualitatively different benefit. The CBO projected that the MMA would cost just under $400 billion in the original budget window. The savings from designing the benefit in a more efficient manner could have been divided between beneficiaries and state governments, which still must meet maintenance of efforts requirements that offset their savings on Medicaid expenditures, or allowed for a substantial reduction in the cost of the benefit to the federal government. Table 5 shows total federal and state expenditures for prescription drugs over the years with the passage of the MMA (CBO 2004, table 1). The combined levels of state and federal spend ing would be large enoug h to fully c over the costs of beneficiaries drug spending in the middle-cost scenario. This means that if the federal and state government followed the spending path projected by CBO and the drug costs were in line with the projections in the middle scenario, then beneficiaries could have their drug expenditures fully paid by Medicare, with no insurance premiums, deductibles or co-payments. Table 5 The Cost of An Efficient Medicare Drug Benefit (billions of dollars) Total Gross Federal Payments (includes previous Medicaid payments) State Payments Total Government Payments Total Drug Costs High Cost Middle Cost Low Cost Beneficiaries' Premiums Source: CBO and author s calculations, see appendix. Alternatively, it would be possible to design a benefit that would allow for substantial reductions in state payments, coupled with modest insurance premiums or co-payments. If costs followed the path described in the middle scenario, the premium schedule in the MMA would be sufficient to allow the states to cut their contribution in half, and still save the federal government more than $100 billion of its projected spending on the MMA over the ten-year horizon. This would reduce its net expenditure on the MMA by more than onefourth.
12 The Savings from an Efficient Medicare Prescription Drug Plan 12 In the low cost scenario there would be a surplus of more than $220 billion, which the government could devote to some other purpose. Even in the high cost scenario, the combination of government funding and insurance premiums would leave a relatively small gap to be picked up by either modest beneficiary co-payments (an average of approximately $5 per prescription should be sufficient to fill the gap) or small deductibles on drug expenses.
13 The Savings from an Efficient Medicare Prescription Drug Plan 13 The CBO Estimates of Medicare Negotiated Prices Douglas Holtz-Eakin, testifying in his capacity as head of the CBO, has stated that he believed that any savings from having Medicare negotiate prices directly with the pharmaceutical industry would be minimal. 12 He stated that the CBO projections already assumed that the private insurers in the plan had secured large price reductions, so that there would be little possible gain from having Medicare negotiate directly with its considerably larger market power. This claim from CBO seems directly at odds with evidence that it has produced, showing that other countries (as well as the Veterans Administration) pay far lower prices for prescription drugs than the discounts that it assumed that private insurers could secure. Also, as noted earlier, CBO recognized that Medicare could exert enough market power, when acting as a collective buyer on behalf of Medicare beneficiaries, that it could conceivably put a manufacturer out of business, if it excluded it from its formulary. it is important to be clear if CBO believes that the obstacle impeding a low cost drug plan is the political power of the industry, rather than any inherent economic obstacles. In making this statement, CBO did warn that political pressures may make it impossible for a single Medicare buyer to exert this much power. While the political power of the pharmaceutical industry is indeed an important factor counteracting efforts to restrict costs, it is important to be clear if CBO believes that the obstacle impeding a low cost drug plan is the political power of the industry, rather than any inherent economic obstacles. While CBO does an outstanding job in presenting non-partisan analysis on important policy issues, it is worth noting that it has occasionally been wrong on major issues in the past. One important example is its projections for capital gains tax revenue at the time when Congress was debating President Bush s tax cuts in Table 6 shows the projections of capital gains revenue from the Budget and Economic Outlook Fiscal Years , which CBO issued in January of 2001 compared with the projections and actual tax receipts reported in the Budget and Economic Outlook: Fiscal Years CBO, 2004c. Estimate of the Effect of Striking the "Noninterference" Provision as Added by P.L , the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Washington, D.C. Congressional Budget Office, [
14 Table 6 CBO Projections of Capital Gains tax Revenue (billions of current dollars) The Savings from an Efficient Medicare Prescription Drug Plan projection 2005 projection Difference 2001 $129 $100 $ Total $1240 $790 $450 Source: CBO and authors calculations, see appendix. CBO projected a total of $1,240 billion in capital gains tax revenue for the years from 2001 to In its most recent projections (CBO 2005), CBO projects that total capital gains revenue over this period will be $790 billion, a difference of more than $450 billion. (If the impact of higher interest payments was included, this difference would rise to almost $600 billion over this 10-year budget window). If CBO had provided Congress with more accurate projections at the time, it is possible that Congress would have acted differently in voting on tax cuts that year. 13 It is worth noting this failure to accurately project capital gains tax revenue in order to keep CBO s projections on a Medicare drug benefit in perspective. CBO is a tremendously valuable resource in policy debates; however, it is fallible. In the case of its projections on the potential savings from having a single buyer negotiate for Medicare, CBO cites no evidence to support its assertion that no substantial savings are possible. To the contrary, its own research suggests that there is a potential for very large savings. In the absence of any evidence to support its assessment, CBO s judgment on this issue should not be accepted as the final word. Unless CBO can provide some reason as to why Medicare would not be able to accrue the same sort of savings as the Canadian government, the Australian government, or the Veterans Administration, those involved in the debate over designing a Medicare prescription drug benefit should turn to projections that are more firmly grounded in evidence. In the case of its projections on the potential savings from having a single buyer negotiate for Medicare, CBO cites no evidence to support its assertion that no substantial savings are possible. 13 It was possible to recognize that the government was unlikely to see these tax revenues. The stock market was clearly experiencing a bubble, which was almost certain to deflate within the ten-year horizon (see Baker, D. 2002, Letter to Dan Crippen, [http://www.cepr.net/letters/crippen_2002_02_26.htm] and Baker, D. 2000, Double Bubble: The Implications of the Over-Valuation of the Stock Market and the Dollar, Washington, D.C.: Center for Economic and Policy Research [http://www.cepr.net/publications/double_bubble.pdf]).
15 The Savings from an Efficient Medicare Prescription Drug Plan 15 Conclusion The Medicare Modernization Act approved by Congress in 2003 was not designed to create the most efficient possible prescription drug insurance for Medicare beneficiaries. As a result, it costs th e government and benefici aries considerably more than is necessary. If Medicare were allowed to negotiate directly with the drug industry, or to allow a single agent to negotiate on its behalf, it could purchase drugs at prices that are far lower than CBO projected that private insurers would pay under the system put in place in the MMA. In addition, a single provider of prescription drug insurance would save tens of billions of dollars in administrative fees that result from having private insurers with marketing costs and profits. An efficient Medicare drug benefit could allow for substantial savings for both the federal and state governments, in addition to lower cost insurance for beneficiaries. It could also allow for a much simpler benefit, since beneficiaries would not be forced to wade through details of various prescription drug plans in order to determine the best one. In this way, a more efficient Medicare drug benefit could allow for substantial gains all around. An efficient Medicare drug benefit could allow for substantial savings for both the federal and state governments, in addition to lower cost insurance for beneficiaries.
16 The Savings from an Efficient Medicare Prescription Drug Plan 16 Appendix Table 1 -- The baseline projection for prescription drug spending is taken from CBO (2004b). It uses the projection that Medicare beneficiaries would spend $1.61 trillion on prescription drugs over the years , with $1.36 trillion spent by those not covered by the VHA (p. 5). The growth in per capita spending is assumed to be 9.0 percent annually, with the Medicare population growing at approximately 2 percent annually. The top row shows total drug spending, while the second role shows spending minus the costs covered by the VHA. The lines for high cost, middle cost, and low cost project spending assume that drug prices are reduced by 35 percent, 55 percent, and 70 percent respectively, as discussed in the text. The numbers are adjusted in accordance with the assumption that these price reductions, respectively, lead to 15 percent, 20 percent, and 25 percent, increases in drug usage. Table 2 This table shows the difference between spending on drugs under the baseline scenario and the spending path projected for high cost, middle cost and low-cost scenarios shown in Table 1. The projected savings for the MMA are derived from the CBO assumptions shown in CBO (2004b) Table 3. This table shows gross savings rising from an average of just under 20 percent in 2006 to 25 percent in In addition, the table shows additional savings of between 1.6 percent and 2.5 percent due to the rule that discounts need not apply to Medicaid s Best-Price Provision. These savings are offset by projections of countervailing price and use effects, which increase spending on drugs. The projections incorporate these assumptions, interpolating the years between 2006 and Table 3 This table shows the amount of annual administrative expenses attributable to marketing and profits as described in CBO 2004b, p 17 and also in CBO (2004b) Table 3. This number is calculated by multiplying the assumed ratios for administrative expenses in CBO (2004b) Table 3 (10.7 percent in 2006 and 5.6 percent in 2013), interpolating the years in between. Table 4 This table sums the savings shown in Tables 2 and 3. Table 5 This table uses the projections for state payments and beneficiaries premiums found in CBO (2004b) Table 1. The projection for gross federal payments combines net new spending on MMA with the prior federal drug spending commitments shown in CBO (2004b) Table 1. The projected payments for drugs are taken from Table 1 above. Table 6 This table shows projected capital gains tax revenue for the budget horizon from the Budget and Economic Outlook: , Table 3-6 and from the Budget and Economic Outlook: , Table 4-3.
Celebrating Pork The Dubious Success of the Medicare Drug Benefit Dean Baker March 2007 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202 293 5380
Waste and inefficiency in the Bush Medicare prescription drug plan: Allowing Medicare to negotiate lower prices could save $30 billion a year By Roger Hickey & Jeff Cruz In cooperation with Dean Baker,
CONGRESSIONAL BUDGET OFFICE U.S. Congress Washington, DC 20515 Douglas W. Elmendorf, Director November 4, 2010 Honorable Paul Ryan Ranking Member Committee on the Budget U.S. House of Representatives Washington,
Issue Brief January 2013 Reducing Waste with an Efficient Medicare Prescription Drug Benefit BY DEAN BAKER* When Congress was debating the Medicare drug benefit in 2003, there were many who advocated that
Part D payment system paymentbasics Revised: October 204 This document does not reflect proposed legislation or regulatory actions. 425 I Street, NW Suite 70 Washington, DC 2000 ph: 202-220-3700 fax: 202-220-3759
Medicare Part D The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added voluntary prescription drug coverage to Medicare, the federal health insurance program for seniors
Issue Brief November 2007 Changes in the Cost of Medicare Prescription Drug Plans, 2007-2008 BY JOSHUA LANIER AND DEAN BAKER* The average premium for Medicare Part D prescription drug plans rose by 24.5
cepr CENTER FOR ECONOMIC AND POLICY RESEARCH briefing paper Defaulting on The Social Security Trust Fund Bonds: Winner and Losers Dean Baker 1 July 23, 2001 SUMMARY The United States government has never
Prescription Drug Pricing Anna Cook Julie Somers Julia Christensen Congressional Budget Office January 30, 2009 Manufacturers Shipments of Drugs Through the Supply Chain Key Prices in the Pharmaceutical
The Impact of Prescription Drug Prices on Seniors Over the years medicine has changed, particularly with respect to prescription drugs: more drugs are available, they are more frequently prescribed, and
UNITED STATES HOUSE OF REPRESENTATIVES COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM MAJORITY STAFF OCTOBER 2007 PRIVATE MEDICARE DRUG PLANS: HIGH EXPENSES AND LOW REBATES INCREASE THE COSTS OF MEDICARE
1 BEA BRIEFING Affordable Care Act Transactions in the National Income and Product Accounts Benjamin A. Mandel THE PATIENT Protection and Affordable Care Act, often called the Affordable Care Act (ACA),
Fact Sheet Setting the Record Straight about Medicare Keith D. Lind, JD, MS As the nation considers the future of Medicare, it is important to separate the facts from misconceptions about Medicare coverage,
Impact of the Medicare Part D Program on the NC Medicaid Program Fiscal Research Division December 7, 2005 What is Impact of the Medicare Part D Program on the NC Medicaid Program? The Medicare Prescription
Winning Affordable Medications for All Citizens of Nevada Alan Sager, Ph.D. Professor of Health Services and Co-Director, Health Reform Program Health Services Department Boston University School of Public
The following Questions and Answers address program policies and procedures as they relate to how the PACE Program is working with Medicare Part D in 2015: 1. If I have PACE or PACENET, why should I enroll
Forum Brief 2004 Kansas Health Policy Forums The Medicare Reform Act: What Are the Consequences for Kansas? Thursday, March 18, 2004 Noon 2:30 Lunch provided 212 SW Eighth Avenue, Topeka, KS Lower Level
Medicare (History and Financing) Note: Please pay attention to dates on slides and data; CMS has discontinued the publication of some valuable figures and these are occasionally referenced for prior years.
United States Government Accountability Office Report to the Chairman, Committee on Commerce, Science, and Transportation, U.S. Senate July 2014 PRIVATE HEALTH INSURANCE Early Effects of Medical Loss Ratio
The Impact of Cutting Social Security Cost of Living Adjustments on the Living Standards of the Elderly Dean Baker and David Rosnick September 2011 Center for Economic and Policy Research 1611 Connecticut
Maintaining the Affordability of the Prescription Drug Benefit: How Managed Care Organizations Secure Price Concessions from Pharmaceutical Manufacturers Introduction The purpose of this paper is to explain
820 First Street, NE, Suite 510, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056 email@example.com http://www.cbpp.org Revised April 4, 2001 COST OF TAX CUT WOULD MORE THAN DOUBLE TO $5 TRILLION
UNITED STATES HOUSE OF REPRESENTATIVES COMMITTEE ON GOVERNMENT REFORM MINORITY STAFF SPECIAL INVESTIGATIONS DIVISION OCTOBER 2006 BENEFITS OF PROPOSED DEMOCRATIC MEDICARE DRUG PROGRAM REFORMS IN NEW YORK
820 First Street NE, Suite 510 Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056 firstname.lastname@example.org www.cbpp.org Revised February 15, 2008 THE PRESIDENT S BUDGET AND THE MEDICARE TRIGGER by James Horney
POLICY BRIEF Visit us at: www.tiaa-crefinstitute.org. September 2004 The 2004 Report of the Social Security Trustees: Social Security Shortfalls, Social Security Reform and Higher Education The 2004 Social
CALIFORNIA By the numbers: Medicare Part D 3,687,561 Medicare Part D beneficiaries in California 1,638,344 278 Beneficiaries enrolled in Medicare Advantage prescription drug plans in 2015 1 Number of Medicare
Health Reform: The Cost of Failure and the Implications of Success Bowen Garrett John Holahan June 17, 2010 National Association for Business Economics www.healthpolicycenter.org The Affordable Care Act
An Examination of Student Loan Interest Rate Proposals in the 113 th Congress David P. Smole Specialist in Education Policy June 5, 2013 CRS Report for Congress Prepared for Members and Committees of Congress
LABORPARTY Financing Just Health Care Labor Party Briefing Paper Revised February 2002 The Labor Party proposes a national health insurance program for the United States that would provide universal coverage
Fiscal Policy Project The Tax Revenue Benefits of Health Care Reform in New Mexico Executive Summary by Kelly O Donnell, Ph.D. for New Mexico Voices for Children August 2011 Updated August 2012* The Patient
Medicare Rx Drug Benefit David Moskowitz, R.Ph, MBA. Senior Healthcare Analyst 2001 2004 M O N T H FEBRUARY 27 th Overview of Rx Benefit proposal Challenges Co-pays Deductibles Coverage gap Catastrophic
Estimated Impact of Medicare Part D On Retiree Prescription Drug Costs By Richard Marchel, FSA, MAAA Kevin Dolsky, FSA, MAAA Table of Contents Sections I. Description and Purpose... 1 II. Data and Methodology...
Affordable Care Act Non-Group Health Insurance: Many Insured Americans with High Out-of-Pocket Costs Forgo Needed Health Care SPECIAL REPORT / MAY 2015 WWW.FAMILIESUSA.ORG Executive Summary Since its passage
Statement of Dan L. Crippen Director Medicare Reform: Providing Prescription Drug Coverage for Seniors before the Committee on Energy and Commerce Subcommittee on Health U.S. House of Representatives May
Generational Aspects of Medicare David M. Cutler and Louise Sheiner * Abstract This paper examines the generational aspect of the current Medicare system and some stylized reforms. We find that the rates
820 First Street NE, Suite 510 Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056 email@example.com www.cbpp.org August 7, 2009 AN EXCISE TAX ON INSURERS OFFERING HIGH-COST PLANS CAN HELP PAY FOR HEALTH
A Spring 2001 I SSUE B RIEF A MERICAN A CADEMY of A CTUARIES Providing Prescription Drugs to Seniors: A Patchwork of Coverage Prescription drug coverage for seniors is a key issue being debated at both
An Important Message on Medicare Prescription Drug Plans Coming to the U.S. Virgin Islands in 2006 What are Medicare Prescription Drug Plans? Beginning January 1, 2006, Medicare Prescription Drug Plans
Fiscal Policy chapter: 28 13 ECONOMICS MACROECONOMICS 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to
BARACK OBAMA S PLAN FOR A HEALTHY AMERICA: Lowering health care costs and ensuring affordable, high-quality health care for all The U.S. spends $2 trillion on health care every year, and offers the best
The Truth About Gov. Romney s Medicare and Medicaid Reforms These Changes Would Shift Costs to Seniors, Health Care Providers, Businesses, and States By Topher Spiro July 2012 Introduction Republican presidential
This article is reprinted with permission from Benefits Compliance Advisor http://store.hrhero.com/hr-products/books/benefits-compliance. Copyright 2011 M. Lee Smith Publishers LLC. Pay or Play? How Health
The Cost of Care for the : What Do We Spend, Who Pays, and What Would Full Coverage Add to Medical Spending? Issue Update 2004 Jack Hadley, Ph.D. and John Holahan, Ph.D. Prepared for the Kaiser Commission
Latest House Republican Budget Threatens Medicare and Shreds the Safety Net Instead of Reducing Health Care Costs, Blueprint Shifts Costs to Seniors, Providers, Businesses, and States Topher Spiro March
INSIGHT on the Issues AARP Public Policy Institute Medicare Beneficiaries Out-of-Pocket for Health Care Claire Noel-Miller, PhD AARP Public Policy Institute Medicare beneficiaries spent a median of $3,138
The Key to Stabilizing House Prices: Bring Them Down Dean Baker December 2008 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net
First Time Underwater The Impact of the First-time Homebuyer Tax Credit Dean Baker April 2012 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 0 Washington, D.C. 20009 202-293-53
The Health Insurance Tax Will Hurt. The new health insurance tax will increase the cost of health care benefits, harming those who need help the most: small businesses, families who work for a small business
Prescription Drugs as a Starting Point for Medicare Reform Testimony before the Senate Budget Committee Marilyn Moon The nonpartisan Urban Institute publishes studies, reports, and books on timely topics
The Public Cost of Privatized Medicare How Medicare Advantage is hurting Medicare beneficiaries and other New York taxpayers Prepared by USAction Education Fund For release by Citizen Action of New York
Prepared Statement of Natalie Pons, Senior Vice President, Assistant General Counsel, Health Care Services CVS Caremark Corporation Before the Subcommittee on Regulatory Reform, Commercial and Antitrust
Medicare Part D Prescription Drug Coverage GENERAL INFORMATION Coverage Medicare Part D coverage is available to everyone enrolled in Medicare Drug plans are offered by insurance companies and other private
SNHPI Safety Net Hospitals for Pharmaceutical Access Why the 340B Program Will Continue to be Important and Necessary after Health Care Reform is Fully Implemented Since 1992, the 340B drug discount program
Medicare: Changes Made by the Reconciliation Act of 2010 to Senate-Passed H.R. 3590 Patricia A. Davis, Coordinator Paulette C. Morgan Holly Stockdale Analyst in Health Care Financing Sibyl Tilson Jim Hahn
ISSUE BRIEF VOL. 5, NO. 10, 2005 This ongoing series provides information on how to develop programs to educate Medicare beneficiaries and their families. Additional information about this and other projects
AHIP Comments to House Ways and Means Committee Work Groups Urging Repeal of the ACA Health Insurance Tax April 12, 2013 I. Introduction America s Health Insurance Plans (AHIP) is the national trade association
HEALTH POLICY BRIEF MARCH 2010 Consumer Options When Advantage Plans Withdraw or Change Their Benefits SUMMARY Advantage Plans, private plan alternatives to traditional, will likely undergo a lot of changes
New England Fiscal Facts Winter 004/005 Issue No. 33 Federal Reserve Bank of Boston States May Face Higher Spending in Give-and-Take of Medicare/Medicaid Changes by E. Matthew Quigley Thursday, July 1,
Prescription Drug Coverage for Medicare Beneficiaries: A Summary of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 Prepared by Health Policy Alternatives, Inc. for The Henry
JUST THE FACTS On Retirement Issues MARCH 2005, NUMBER 16 CENTER FOR RETIREMENT RESEARCH A T BOSTON COLLEGE SOCIAL SECURITY S FINANCIAL OUTLOOK: THE 2005 UPDATE AND A LOOK BACK BY ALICIA H. MUNNELL* Introduction
FISCAL FACT Aug. 2015 No. 477 The Economic Effects of Adopting the Corporate Tax Rates of the OECD, the UK, and Canada By Scott A. Hodge President Key Findings Using the Tax Foundation s Taxes and Growth
Overview of Policy Options to Sustain Medicare for the Future Juliette Cubanski, Ph.D. Associate Director, Program on Medicare Policy Kaiser Family Foundation firstname.lastname@example.org Medicare NewsGroup Journalism
Maryland Medicaid Program Maryland s Pharmacy Discount Waiver Tuesday, November 19, 2002 Debbie I. Chang Deputy Secretary for Health Care Financing Maryland Department of Health and Mental Hygiene Overview
Chair Pomeroy and Members, Social Security has met the social insurance promise to ensure workers will not have to live in old age poverty. This promise needs to be guaranteed for current and future workers.
Health Care: Don t Forget Saving Families $2,500 By Hanns Kuttner Hudson Institute Health Care: Don t Forget Saving Families $2,500 By Hanns Kuttner President-elect Obama offered a concrete proposal to
Fighting Medicare Fraud More Bang for the Federal Buck prepared for Taxpayers Against Fraud Education Fund by Jack A. Meyer President Economic and Social Research Institute APRIL 2005 Statement of Purpose
Addressing Fiscal Sustainability and Fixing the Social Security System: Two Challenges Facing the Nation The Honorable David M. Walker Comptroller General of the United States AARP Board of Directors Annual
Issue Brief July 2013 Financial Engineering: The Simple Way to Reduce Government Debt Burdens BY DEAN BAKER AND SHEVA DIAGNE* Since a high debt-to-gdp ratio is still viewed as a serious problem in policy
The Benefits of a Financial Transactions Tax Dean Baker December 2008 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net The
1 Sustaining the PBS for the future Dr Brendan Shaw, Chief Executive, Medicines Australia Speech to 2 nd Future of Medicare Conference 11 November 2010, Sydney Thank you for the opportunity to speak with
THE BASICS Participation is voluntary. The income level and assets of beneficiaries determine the level of prescription assistance they will receive. Beneficiaries with incomes over 150% of the Federal
Response to the New Brunswick Government Consultation on a Prescription Drug Plan for Uninsured New Brunswickers Brief submitted by The New Brunswick Nurses Union April 2012 Background The New Brunswick
Glossary Acute inpatient: A subservice category of the inpatient facility clams that have excluded skilled nursing facilities (SNF), hospice, and ungroupable claims. This subcategory was previously known
GAO United States Government Accountability Office Report to Congressional Requesters June 2006 MEDICARE PART D Prescription Drug Plan Sponsor Call Center Responses Were Prompt, but Not Consistently Accurate
PO Box 350 Willimantic, Connecticut 06226 (860)456-7790 (800)262-4414 1025 Connecticut Ave, NW Suite 709 Washington, DC 20036 (202)293-5760 MEDICARE PART D PRESCRIPTION DRUG COVERAGE 2016 Se habla español
california Health Care Almanac : Slow But Steady august 2012 Introduction In 2014, implementation of the Affordable Care Act (ACA) will cause a spike in US health spending; analysts project an increase
STEPPING INTO MEDICARE Invaluable help from the name you know and trust Blue Cross and Blue Shield of Illinois Blue Cross and Blue Shield of Illinois offers a great array of plans that pick up where Medicare
CONGRESSIONAL BUDGET OFFICE U.S. Congress Washington, DC 20515 Douglas W. Elmendorf, Director June 4, 2014 Honorable Elizabeth Warren United States Senate Washington, DC 20510 Dear Senator: As you requested,
Third dquate Quarter 2015 Earnings Conference Call Larry Merlo President & Chief Executive Officer Dave Denton Executive Vice President & Chief Financial Officer October 30, 2015 Forward-looking Statements
Statement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net) Before the U.S.-China Economic and Security Review Commission, hearing on China and the Future of Globalization.
finding the balance between public and private health the example of australia By Zoe McKenzie, Senior Researcher This note provides an overview of the principal elements of Australia s public health system,
MEDICARE PRESCRIPTION DRUG PLANS: THE DEVIL IS IN THE DETAILS Cori E. Uccello, FSA, MAAA, MPP Senior Health Fellow American Academy of Actuaries and John M. Bertko, FSA, MAAA Member, American Academy of
The Case for a Tax Cut Alan C. Stockman University of Rochester, and NBER Shadow Open Market Committee April 29-30, 2001 1. Tax Increases Have Created the Surplus Any discussion of tax policy should begin
Estate Tax Concepts for Edward and Tina Collins Joseph Davis, CLU, ChFC 215 Broad Street Charlotte, North Carolina 26292 Phone: 704-927-5555 Mobile Phone: 704-549-5555 Fax: 704-549-6666 Email: email@example.com
Managing Your Health Care Costs in Retirement Plain Talk Library If you re approaching retirement or you re already retired, you probably have many questions about the financial issues the years to come
820 First Street NE, Suite 510 Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056 firstname.lastname@example.org www.cbpp.org Updated March 28, 2012 FEDERAL GOVERNMENT WILL PICK UP NEARLY ALL COSTS OF HEALTH REFORM
THE MEDICARE CATASTROPHIC COVERAGE ACT OF 1988 Staff Working Paper October 1988 The Congress of the United States Congressional Budget Office This paper was prepared by Sandra Christensen, of CBO's Human