August 16, 2006

Medicare officials said strong competition among insurance companies bidding to offer drug coverage for seniors, among other factors, will help them keep premiums at about their current levels next year.

How much each plan will cost won't be announced until this fall and individual plans may raise or lower their premiums. But on average, seniors are expected to pay about $24 in monthly premiums for prescription-drug coverage next year, the same as they are paying this year, officials said.

No companies offering plans right now have dropped out entirely for 2007, but some have modified their coverage, said Mark McClellan, administrator of the Centers for Medicare & Medicaid Services. The next enrollment period starts in November.

Price stability was helped by several factors. Drug costs from 2004 to 2005 rose more slowly than expected. The drug plans, which are administered by private companies with government subsidies, competed fiercely for customers. And this year, more than 75% of seniors chose plans that cost less than average.

But the pricing also came after the Bush administration, under prodding from some lawmakers, made a last-minute change to delay total adoption of a new premium formula. The formula, which had been expected to take effect in 2007, would have raised costs for many seniors and made plans with higher premiums less attractive.

As the November election looms, Democrats have criticized parts of the plan, including the "donut hole," a coverage gap. Many Republicans in Congress have touted the new drug benefits, and five of them recently urged Medicare to keep next year's premiums low.

Yesterday, Medicare officials announced that the new formula will be implemented in several phases, which could spread throughout the next three or four years. This step will require more subsidies from the government, but it will "avoid an abrupt transition," said Richard Foster, Medicare's chief actuary. Seniors already had a "windfall" this year, as the average monthly premium dropped to $24 from the estimated $37, he said.

"It's trying to level the playing field," said Dan Mendelson, president of Avalere Health LLC, a health-care advisory firm in Washington.