First 100 Hours: Fixing Medicare Drug Costs

by James Parks, Jan 9, 2007

Just days after convening, the 110th Congress is poised to give seniors a much-needed break on prescription drug prices. The House will vote Friday on the Medicare Prescription Drug Price Negotiation Act of 2007 (H.R. 4), which would require Medicare to negotiate with drug companies for lower drug prices and report back to Congress every six months.

Says Alliance for Retired Americans President George Kourpias:

This is the first test to see whether the new Congress will be senior-friendly. This bill is the first step toward improving Medicare—there are still tough issues like the donut hole that need to be addressed.

Pharmaceutical companies are actively fighting to defeat the legislation. One reason may be the huge profits they are making off Medicare. House Democrats released a report last fall that showed drug manufacturers’ profits increased by more than $8 billion in the first six months after the Medicare drug plan went into effect.

You can take action now to reduce Medicare drug costs. The Alliance, which represents 3 million seniors, is urging its members and working families to call their representatives at 202-225-3121 and ask them to vote for H.R. 4. The bill has strong bipartisan support and was introduced by Reps. John Dingell (D-Mich.), Jo Ann Emerson (R-Mo.), Charles Rangel (D-N.Y.) and Carol Shea-Porter (D-N.H.).

Even though other federal government agencies such as Veterans Affairs routinely use negotiating authority to keep drug costs down, the Bush administration Medicare Part D rules passed by Congress in 2003 forbid Medicare, which provides health care for 42 million senior and disabled Americans, from negotiating lower prices with the drug companies.

Here’s one reason why a change is needed now: More than 2 million seniors nationwide who signed up last year for insurer Humana Inc.’s least expensive Medicare prescription drug plan this year will see their average premium cost jump by 60 percent. In seven states, costs will skyrocket an eye-popping 466 percent—starting this month.

Also, this month some people will find their benefits have changed—and others may even learn they no longer are eligible for the level of coverage they received last year, according to Dianna Porter, policy director of the Alliance. Many Medicare Part D plans will change which drugs they cover, their pharmacy networks, premium amounts and deductible amounts, Porter says.

The biggest change, though, is in the monthly premium for Medicare Part B, the section that provides coverage for doctor and other outpatient services. The Part B premium will increase by 5.6 percent from $88.50 to $93.50 a month—or even higher, says Porter.

The combined cost of the premiums for those seniors who participate in both parts B and D will take about 11 percent of the Social Security benefit the average beneficiary receives in 2006. The costs of the premiums are increasing more rapidly than Social Security, she says.

Health care advocates say Humana kept its prices low in 2006 to gain market share. The Boston Globe reported that in representations to Wall Street investors, Humana said it planned to raise its profit margin on Medicare drug plans and Medicare Advantage plans from 2.5 percent to 3.5 percent in 2006 and up to 5 percent by 2007. The Globe also said:

Under Part D, seniors who go without drug coverage will pay higher prices if they eventually decide to buy it. As a result, many seniors who did not need prescription drugs in 2006 signed up with Humana’s low-cost plan simply to avoid having to pay more if they needed coverage in the future.

Ruben Burks, secretary-treasurer of the Alliance, says:

It certainly looks like Humana planned to trick seniors. The tactic of adding market share and then raising prices is classic bait-and-switch.

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