Different Reasons Suggested for
Medicare's Good News

By Kevin Freking, Associated Press

November 29, 2006

Approximately 22.5 million seniors and disabled people enrolled in the Medicare drug plans. An additional 6.9 million stayed in plans operated by their former employers.

That leaves enrollment in the program nearly 10 million short of government projections.

The Medicare drug benefit has cost nearly $13 billion less than expected this year, a rare federal program coming in under budget.

President Bush credits competition among the private insurance companies administering the program for the cost coming in at $30 billion in 2006, about 30 percent below the projected $43 billion.

But figures provided to the Associated Press by the agency that oversees the benefit show two other key factors: lower-than-expected enrollment and drug prices that went up less than expected before the benefit kicked in.

``The costs have been driven down not by the government but by the collective voices of millions of consumers,'' Bush said shortly before the Nov. 7 elections.

Democrats say they can cut costs further by having the government negotiate drug prices with pharmaceutical companies on behalf of beneficiaries. Rep. Nancy Pelosi, the incoming House speaker, says granting the government that authority will be one of her priorities for the new Congress' first 100 hours.

Why the program has been costing less than anticipated will be an important element of that debate. To date, however, there has been little detailed analysis of how the savings are being achieved.

The Centers for Medicare and Medicaid Services, the federal agency that oversees the new drug benefit for the elderly and disabled, provided the AP with its accounting of where the program saved money this year:

• Lower-than-projected enrollment: $7.5 billion.

• Competition: $6.9 billion.

• Drug prices rising less than expected in the two years before the benefit even began: $3.7 billion.

Offsetting the savings somewhat were higher costs in some areas, including for catastrophic drug expenses -- those that occur when people have drug bills of more than $5,100. Those additional costs bring the net savings down to nearly $13 billion.

After Congress created the drug benefit in 2003, Medicare officials estimated that 39 million people would enroll or get their coverage through employers who receive a tax credit for providing a benefit.

About 22.5 million seniors and disabled people did enroll in the Medicare drug plans. An additional 6.9 million stayed in plans operated by their former employers. That leaves enrollment in the program nearly 10 million short of government projections.