NCPA - National Center for Policy Analysis


November 3, 2008

The cost of the Medicare prescription drug program fell $6 billion this year -- savings driven by the widespread use of low-cost generic drugs, reports USA Today:

  • Medicare prescription drug spending dropped 12 percent to $44 billion in the fiscal year ended Sept. 30.
  • The prescription drug program for seniors has cost about one-third less -- about $50 billion -- than originally estimated since it started in January 2006.
  • As a result, the monthly premium for basic drug coverage was $26.70 in 2008 -- a third less than forecast.

The drug plan was the most expensive new federal program since the 1960s.  When it started, the Congressional Budget Office had predicted it would cost $74 billion a year by 2008.  The major reasons for the savings are:

  • The use of generic drugs has grown sharply, and now account for 64 percent of Medicare prescriptions compared with 61 percent in the private sector.
  • The program has 2 million fewer participants than originally forecast, because some seniors decided to keep existing drug coverage, and fewer poor people enrolled than expected.
  • Seniors have cut costs to avoid falling into the "doughnut hole" -- a coverage gap in which drug expenses between $2,510 and $4,050 a year are not insured.

About 32 million seniors are now enrolled in the drug program.  The first of 79 million Baby Boomers start entering the program in 2011.

Source:  Dennis Cauchon, "Medicare drug program snips $6B from year's tab," USA Today, October 31, 2008.

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