Medicare Drug Costs to Be Reduced for Seniors, U.S. Says

The elderly and disabled enrolled in Medicare will pay less for drugs next year and insurers that offer plans with extra benefits will see taxpayer subsidies reduced because of record low spending growth, the U.S. said.

The standard deductible for Medicare’s drug program, called Part D, will be $310 in 2014, about 4.6 percent less than this year, the Centers for Medicare and Medicaid Services said in a statement. Copayments also will be reduced for the program that began in 2006.

It’s the first time Medicare recipients have received an annual reduction in out-of-pocket costs for drugs, the government said. “Historically low growth” in health-care spending for the nation’s 50 million Medicare beneficiaries also led to a 2.2 percent reduction in government payments next year to Medicare Advantage plans offered by companies including UnitedHealth Group Inc., the biggest U.S. health insurer.

People enrolled in Medicare will see “a direct and positive impact on their pocket books,” Ron Pollack, executive director of Families USA, a health-consumer advocacy group in Washington, said in a telephone interview. “In the long term, it means that some of the dire concerns about the future sustainability of Medicare are somewhat relieved, and that will probably reduce the inclination to shift greater cost burdens on Medicare beneficiaries as part of future budget deliberations.”

The Congressional Budget Office said Feb. 5 that Medicare spending grew in 2012 at its slowest rate in more than a decade. Costs rose 3 percent, or about $16 billion, and will increase about 4 percent this year, the agency said.

Slowing Costs

There’s no consensus on why health-care cost growth has slowed, Pollack said. One culprit may be the recession from 2007 to 2009, while President Barack Obama has credited the 2010 health-care overhaul he signed, the Affordable Care Act.

“The Affordable Care Act helps us strengthen Medicare Advantage and Part D,” Jonathan Blum, deputy administrator of the agency, said yesterday in his agency’s statement. “We are working to ensure that people with Medicare have affordable access to health and drug plans, while making certain that plans are providing value to Medicare and taxpayers.”

About one-quarter of Medicare’s participants choose Advantage plans, which provide extra benefits such as fitness programs and eye glasses compared with the traditional program. Minnetonka, Minnesota-based UnitedHealth has more Advantage customers than any other company, according to Bloomberg Industries.

Reviewing Proposal

Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the Washington lobby group that represents UnitedHealth and other insurers, said in an e-mail that his group was reviewing Medicare’s announcement and declined to comment further.

The government’s payment reduction to private insurers for the Advantage plans is higher than an estimate by Matthew Borsch, an analyst with Goldman Sachs Group Inc. Borsch in a note to clients before the announcement yesterday estimated the rate change would range from a 1 percent increase to a 1 percent reduction.

The extra benefits in the Advantage plans are worth an estimated $900 a year for beneficiaries, Borsch said.

The reduction in cost-sharing for Medicare drug programs, which are often included in Advantage plans, is probably due in part to increased use of generic drugs, said Ariel Gonzalez, director of family health and federal advocacy for AARP, the lobby group for people ages 50 and older.

“Lower priced generics are key,” he said in an e-mail sent by a spokeswoman for the group.

Charles Cote, a spokesman for the Pharmaceutical Care Management Association, which represents companies such as Express Scripts Holding Co. that administer Medicare drug plans, said his industry’s work has also helped.

The companies “are continuing to lower costs for both patients and public programs,” he said in an e-mail.

Before it's here, it's on the Bloomberg Terminal.