NCPA - National Center for Policy Analysis

Annual Caps on Medicare Prescription Drug Benefits

November 27, 2003

To overcome political barriers to providing a Medicare drug benefit, observers say it must be designed in such a way that it provides adequate coverage at a reasonable cost. Some of the proposals feature an annual dollar limit, or "cap," on benefits. Such caps are common in Medicare+Choice plans that provide drug coverage.

A $750, $1,000 or $2,000 annual dollar limit on drug benefits is typical. Based on 2001 claims data, researchers say that if Medicare beneficiaries who filled at least one prescription were subject to caps:

  • Twenty-two percent would exceed an annual cap of $750 per year.
  • Fourteen percent would exceed an annual cap of $1,000 per year.
  • But only four percent would exceed an annual cap of $2,000 per year.

Across all levels of dollar limits, beneficiaries who exceeded their caps would have had a 2-fold to 3-fold average increase in out-of-pocket spending.

The highest total prescription expenditures for patients who would have exceeded the cap were for drugs to treat chronic conditions (15 of 20). However, for almost one-third of these top selling drugs (7 of 20), there are lower-cost generic versions or a generic medication available in the same therapeutic class that could have saved the patient money.

Source: Chien-Wen Tseng, Robert H. Brook, Emmett Keeler and Carol M. Mangione, "Impact of a Annual Dollar Limit or 'Cap' on Prescription Drug Benefits for Medicare patients," Journal of the American Medical Association, July 9, 2003.


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