New Congressional leadership is moving on their promise to eliminate the Medicare Part D "doughnut hole." But filling the doughnut hole coverage gap is proving a significant political challenge.
In 2007, under the standard Medicare plan, the doughnut hole coverage gap "opens" when drug costs that both the beneficiary and the drug plan pay reaches $2,400. When seniors spend a total of $3,850 out-of-pocket, catastrophic coverage starts and the drug plans picks up about 95% of costs after that.
Recently, the House passed legislation that would allow the federal government to bargain for lower drug prices on behalf of Medicare's Part D enrollees. Although allowing the government to negotiate drug costs has widespread public support, this measure faces significant political hurdles. Critics say that it will not produce enough savings to fill the doughnut hole.
A study released last year by Representative Henry A. Waxman (CA) estimated that the savings from negotiating drug costs would range from $61 to $96 billion over ten years. The nonpartisan Congressional Budget Office has estimated that filling the hole would cost the government $450 billion over the same period.
A major weakness of the legislation is a provision that would prohibit the government from creating a list of approved drugs, known as a formulary. Without the power to bump a drug off the list of approved drugs, some analysts say the government would have no bargaining clout.
The Department of Veterans Affairs, for example, negotiates much lower prices than Medicare Part D plans can get. In order to do so, however, the VA has a national formulary. If a drug manufacturer wants its drug on the list of approved drug, discounts must be offered. Under federal law, the VA is guaranteed a discount of about 24% off the average price paid to the manufacturer. In addition to the guarantee, the government negotiates deeper discounts.
The prospects for the legislation are uncertain in the Senate, but even if legislation passes, President Bush might veto it. TSCL believes that the government should be allowed to negotiate prices with drug manufacturers.
Sources: "Medicare Coverage Gap May Be Hard To Bridge," Christopher Lee, The Washington Post, January 8, 2007. "Bill On Medicare Drug Cost Is Called Weak Medicine," Ricardo Alonso-Zaldivar, The Lost Angeles Times, January 6, 2007.
March 2007
