Costs Grow for Common Medicare Drugs

Outside the doughnut hole, insurers will have to swallow rising drug prices, because under most of the plans, seniors have a fixed co-payment, Ignagni said. Medicare recipients will see some rising premiums, especially in the lowest-cost plans. But even if some of those low-cost plans double their monthly fees, they will still be charging as little as $12 a month.

"The bottom line is that the Medicare prescription drug program is saving money for seniors and disabled persons, as well as for taxpayers," said Ken Johnson, senior vice president of PhRMA, the drug manufacturers' lobby.

Committee investigators say the insurers and drugmakers are looking backward, at last year's performance, not where the drug benefit is heading. In its first year, the program's biggest cost savings came from lower-than-expected enrollments, especially among lower-income seniors. The other big savings came from insurers pushing seniors to generics where they could.

But with that accomplished, continuing cost-containment will rest on holding down climbing prescription drug prices. And investigators say that does not look promising. Medicare actuaries projected last year that insurance companies would extract rebates from drugmakers totaling 6 percent of drug costs in 2007. Instead, they will be 4.6 percent. In dollar terms, Medicare beneficiaries will spend $1.2 trillion on prescription drugs over the next decade. A reduction in discounts from 6 percent to 4.6 percent over a decade would cost beneficiaries and taxpayers about $17 billion in unanticipated prescription costs, with all of that going toward the drug industry.

Brand-name drug prices were expected to climb 7 percent over all of 2007. They nearly hit that mark in mid-April.

To the extent that those increases are pinching insurance industry profits, the taxpayers must beware, the committee has concluded. To lure private insurers into the Medicare drug program, Congress set up federal funds that would hold protect the companies if unanticipated costs arose.

Ironically, last year's lower-than-expected costs may be contributing to this year's higher-than-expected increases, economists say. Drugmakers can raise prices, knowing that the overall program price tag will still be below initial projections.

"It could be that the lower-cost estimates are giving the manufacturers room to push back," Reischauer said.