Outgoing Medicare Chief Cites Drug Savings

By Christopher Lee
Washington Post Staff Writer
Saturday, October 14, 2006

The Medicare prescription drug benefit is on pace to cost the federal government about $30 billion this year, far less than the $43 billion originally projected, outgoing Medicare chief Mark B. McClellan said yesterday.

The lower cost is a result of cheaper-than-expected premiums, fewer people than anticipated enrolling in the new coverage, and slower growth in drug spending, said McClellan, who is returning to the private sector next week after 2 1/2 years as administrator of the Centers for Medicare and Medicaid Services.

McClellan, 43, spent his last day having breakfast with a dozen reporters, conducting a conference call about Medicare's online tools for consumers and talking with his staff.

"And I've got a few boxes to pack up -- photos and things like that," said McClellan, who added that he was "probably just going to go home and collapse" at day's end.

The economist and physician previously served as commissioner of the Food and Drug Administration and as a member of the White House's Council of Economic Advisers. Leslie V. Norwalk, No. 2 at CMS, will take charge as acting administrator.

McClellan plans to announce an affiliation with a Washington think tank on Monday. The Texan said he is pleased that independent surveys show that 80 percent of people who signed up for the new drug benefit are satisfied with their plans. But what he is most proud of has been his emphasis on shifting Medicare toward better-coordinated, prevention-oriented care, he said.

"We have got to move in this kind of direction to have a sustainable, innovative, affordable health-care system," he said.

The lower costs, he said, are due largely to the competition among insurers to lure seniors to their plans. When Congress created the benefit, the average monthly premium was expected to be $37; it has turned out to be $24. And instead of rising to $40 next year as projected, the average premium should be $26, he said.

A House Democratic analysis, however, concluded that the average monthly premium in 2007 will be about $29, and that some beneficiaries will see far steeper increases. The analysis calculated that the average cost of the lowest-priced plan will rise 44 percent, to $13.58.

McClellan has called the analysis "misleading" because it does not account for seniors who have drug coverage through HMO-style Medicare Advantage plans.

Another factor in holding down costs is enrollment. There are 43 million people on Medicare, the federal health insurance program for the elderly, and actuaries estimated that 38 million would seek the new drug coverage.

Instead, about 23 million seniors enrolled in drug plans directly through Medicare, and 7 million others got coverage through employers that received a Medicare subsidy to continue private drug plans for their older employees and pensioners, officials said. An additional 5 million seniors get drug coverage through the Department of Veterans Affairs, and about 2.5 million are covered through the Federal Employees Health Benefits Program.

Predictions that many employers would drop their plans and send older workers or retirees to Medicare for drug coverage did not come to pass, McClellan said.

Finally, costs were lower than predicted because about 60 percent of the prescriptions filled under the new benefit were for generic drugs, compared with the national average of about 52 percent, he said.

The drug benefit's costs are projected to climb to $48 billion next year, in part because people who enrolled as late as this May will be on the books for all of 2007. But because that estimate does not reflect the latest cost data from the plans, McClellan doesn't expect it to stick.

"I think it's unlikely that we're going to see anything but a significant reduction in that $48 billion projection," he said.

© 2006 The Washington Post Company