NCPA - National Center for Policy Analysis

The Costs Of A Medicare Prescription Drug Benefit

March 10, 2000

In June 1999 President Bill Clinton proposed an outpatient prescription drug benefit to be offered under a new voluntary Part D of Medicare. Beginning in 2002 Medicare would pay half the cost of covered drugs for Part D enrollees, up to a specified cap on benefits.

  • Benefits would be capped at $1,000 in 2002, and would rise incrementally to $2,500 by 2008.
  • The estimated monthly Part D premium would be $25.20 in 2002, rising to $55.50 by 2009.
  • The Congressional Budget Office estimated the new Part D provisions would add $136 billion to federal costs for Medicare through 2009 -- about 24 percent higher than the Clinton administration's estimate of $109 billion.

The main reason for this difference is that the CBO's estimate of spending under current law for drugs by Medicare enrollees was higher than the estimate used by the administration. In addition, the CBO assumed a higher annual rate of growth for drug costs in the near future (11.4 percent) than the administration did (10.3 percent).

Medicare benefit costs would be $238 billion, and subsidies to employers would add another $19 billion. Those costs would be offset by premium revenues of $121 billion. In 2002 about 36 percent of participants would have drug expenses exceeding the $1,000 benefit cap. By 2009, when the cap would be $2,565, about 26 percent of participants would exceed the cap. Part D benefits per participant would average about $600 in 2002, rising to $1,345 in 2009.

Source: Sandra Christensen and Judith Wagner, "The Costs Of A Medicare Prescription Drug Benefit," Health Affairs, March/April 2000.


Browse more articles on Health Issues