Success of Drug Plan Challenges Democrats

The Medicare drug benefit has enrolled 22.5 million seniors, some of whom had no previous drug coverage.
The Medicare drug benefit has enrolled 22.5 million seniors, some of whom had no previous drug coverage. (By Stephen J. Carrera -- Ap)
By Lori Montgomery and Christopher Lee
Washington Post Staff Writers
Sunday, November 26, 2006

It sounded simple enough on the campaign trail: Free the government to negotiate lower drug prices and use the savings to plug a big gap in Medicare's new prescription-drug benefit. But as Democrats prepare to take control of Congress, they are struggling to keep that promise without wrecking a program that has proven cheaper and more popular than anyone imagined.

House Democrats have vowed to act quickly after taking power in January to lift a ban on Medicare negotiations with drugmakers, which they hope will save as much as $190 billion over a decade. But House leaders have yet to settle on a strategy and acknowledge that negotiation is, in any case, unlikely to generate sufficient savings to fill the "doughnut hole," the much-criticized gap in coverage that forces millions of seniors to pay 100 percent of drug costs for a few weeks or months each year.

Drug-company lobbyists, Bush administration officials and many congressional Republicans are preparing to block any effort to increase federal control over drug prices, saying the Medicare benefit is working well. They contend that instead of saving money, government negotiations could raise drug prices for all consumers while limiting choices for people on Medicare.

"This is going to be much more of a morass than people think," said Marilyn Moon, director of the health program at the American Institutes for Research and a former trustee of the Social Security and Medicare trust funds. Negotiating drug prices is "a feel-good kind of answer, but it's not one that is easy to imagine how you put into practice."

The Medicare drug benefit, one of the Bush administration's signature domestic programs, was created in 2003 and took effect in January. It has enrolled 22.5 million seniors, some of whom had no previous drug coverage.

Polls indicate that more than 80 percent of enrollees are satisfied, even though nearly half chose plans with no coverage in the doughnut hole, a gap that opens when a senior's drug costs reach $2,250 and closes when out-of-pocket expenses reach $3,600. By the latest estimates, 3 million to 4 million seniors will hit the doughnut hole this year and pay full price for drugs while also paying drug-plan premiums.

The cost of the program has been lower than expected, about $26 billion in 2006, according to the nonpartisan Congressional Budget Office. The cost was projected to rise to $45 billion next year, but Medicare has received new bids indicating that its average per-person subsidy could drop by 15 percent in 2007, to $79.90 a month.

Urban Institute President Robert D. Reischauer, a former director of the Congressional Budget Office, called that a remarkable record for a new federal program.

Initially, he said, people were worried no private plans would participate. "Then too many plans came forward," Reischauer said. "Then people said it's going to cost a fortune. And the price came in lower than anybody thought. Then people like me said they're low-balling the prices the first year and they'll jack up the rates down the line. And, lo and behold, the prices fell again. And the reaction was, 'We've got to have the government negotiate lower prices.' At some point you have to ask: What are we looking for here?"

Republicans contend that Democrats were looking for a campaign issue.

In the Nov. 7 elections, public anger over the doughnut hole helped many Democratic candidates, who pointed to the ban on government negotiations and accused Republicans of selling out to the pharmaceutical industry.

Republicans, by and large, did a poor job of defending the program, said Thomas A. Scully, a Republican and the former head of the federal unit that runs Medicare. He played a key role in creating the drug benefit.

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