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Medicare drug plan $13B under budget

Published Nov. 29, 2006

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

The credit goes to competition among the dozens of private insurance companies administering the program for the cost coming in at $30-billion in 2006, about 30 percent below the projected $43-billion, President Bush says.

However, two other key factors also play a role, according to figures from the agency that oversees the benefit: lower-than-expected enrollment and drug prices that went up less than expected.

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

Democrats say they can cut costs further by having the government directly 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.

Democrats in Congress have talked of changing the program, but the savings - combined with high satisfaction rates among seniors and the disabled - could make that unlikely.

After Congress created the drug benefit in 2003, Medicare officials estimated 39-million people would enroll or get their coverage through employers, About 22.5-million seniors and disabled people did enroll in the plans. An additional 6.9-million stayed in plans operated by their former employers.