Fact Sheets

DRUG BENEFIT ENROLLMENT UP, COSTS DOWN FROM COMPETITION AND BENEFICIARY CHOICES

Enrollment Surge Before Deadline Led to High Participation in Medicare Part D

With a surge in enrollment ahead of the May 15 deadline, over 2 million people signed up for Medicare Part D coverage since May 1.  As a result, well over 38 million Medicare beneficiaries have good drug coverage – that’s over 90 percent of all beneficiaries.  The surge in enrollment in Part D, which included many beneficiaries with good health status, is helping to keep the cost of drug coverage down by avoiding “adverse selection” problems for the program.

Beneficiaries Chose Low-Premium Plans That Are Driving Down Costs

Not only did large numbers of beneficiaries enroll; beneficiaries overwhelmingly chose plans that cost less than the average.  In July 2005, the expected average premium, based on the best estimates of the CMS Actuaries, was $37.  Based on the actual choices that seniors have made, the average premium that beneficiaries will pay in 2006 is now about $23, down from the most recent estimate of $25.  This more than one-third reduction in premiums reflects both strong competition among plans, and a response of seniors to these choices showing they were informed and clearly favored lower-cost plans. By choosing plans that met their needs at a much lower cost than expected, both beneficiaries and taxpayers are saving more than expected.  The projected cost of the drug benefit has come down greatly – by 20 percent between the 2005 Trustees Report and the 2006 Trustees Report.  Based on the results of the Part D open enrollment process, Medicare expects to announce another significant downward revision in estimated Part D costs next month.

Building On Larger-Than-Expected Savings from Strong Competition and Informed Beneficiary Choices

The new drug benefit enables Medicare, like the Federal Employees’ Health program (FEHB), to take steps to assure that beneficiaries get quality coverage at the lowest possible cost.  Based on this year’s experience with strong competition and informed beneficiary choices, Medicare will use its authority now in a way that will allow low income beneficiaries to continue to have zero premium drug plan options next year.  Our intent is to determine how to make adjustments as necessary to moderate premium increases for all beneficiaries during the transition.  We expect that this will result in premiums that will increase on average by about medical inflation, but that will depend on the actual plan bids.

To promote effective competition that builds on the savings achieved through beneficiaries’ own choices this year, Medicare will implement a transitional approach to determining the federal contribution to the drug benefit for low-income Medicare beneficiaries in 2007.   In particular, we will conduct a transition from the method of calculating the plan subsidy in 2006, before the unexpectedly high level of competitive savings in the drug benefit was observed, to the “weighted-average” method based on actual plan enrollments and costs.  The transitional approach means low-income beneficiaries will have greater stability in their zero-premium plan options, and it provides an additional incentive for plans to bid low to continue to serve low-income Medicare beneficiaries. 

Medicare will also review the plan bids for 2007 to determine if transitional methods for determining the government’s premium contribution for all beneficiaries are necessary to avoid any disincentives for beneficiaries to enroll in low-cost plans, which led to much lower costs than expected this year.  We will evaluate the impact of the transitional approach for determining zero-premium choices for low-income beneficiaries, and any other transitional methods, to ensure that we are able to provide the most effective support for high-quality, low-cost drug coverage.