Senate Drug Bill Expensive for Seniors

Published October 1, 2003

Many Medicare beneficiaries could pay up to 50 percent more for their medicines–in some cases $600 more per year–under the Senate’s Medicare drug entitlement.

Unfocused Drug Benefit

While some Medicare beneficiaries lack coverage for prescription drug costs, many have at least some form of insurance to cover those expenses. For example, nearly one-third of Medicare-eligible retirees received some form of health insurance coverage from their former employers in 1999. Retiree health insurance coverage often includes generous coverage for prescription drugs.

At present, seniors who have prescription drug benefits from their former employers are able to fill their prescriptions upon payment of a small co-payment (usually less than $10 per prescription) or a minimal yearly coinsurance amount.

The Medicare legislation enacted by both the House and Senate threatens to shrink dramatically the number of beneficiaries who currently enjoy employer-provided prescription drug benefits. This is especially the case with the Senate legislation (S. 1). The Congressional Budget Office (CBO) estimates 37 percent of Medicare beneficiaries with existing prescription drug coverage stand to lose their benefits if the Senate proposal becomes law.

That means millions of seniors would be dumped, regardless of their personal preferences, into the new Medicare entitlement. While this would help them pay for their medicines, it would also increase–in some cases significantly–the amount of money they would pay out-of-pocket.

Senate Budget Committee Analysis

Senate Budget Committee staff, using data and analysis supplied by the Centers for Medicare and Medicaid Services (CMS), recently completed a study of the impact of the Senate Medicare legislation on seniors’ out-of-pocket costs. Their analysis estimates the out-of-pocket costs Medicare beneficiaries with existing drug coverage would have to pay under the Senate bill in 2006 (the year the prescription drug benefit would take effect) and compares this figure with the amount beneficiaries would pay in 2006 under their existing drug coverage.

CMS estimates the average Medicare beneficiary with existing prescription drug coverage will consume approximately $3,080 worth of prescription drugs in 2006. With existing prescription drug coverage, that senior would pay, on average, $1,057 in out-of-pocket costs (plus any plan premiums) for prescription drugs in 2006.

Under the Senate Medicare proposal, the average Medicare beneficiary would pay approximately $1,678 in out-of-pocket costs (plus plan premiums) for prescription drugs during 2006–an increase of almost 60 percent over the amount they would pay under their existing drug coverage.

The extra $621 the average Medicare beneficiary will have to spend on prescription drugs in 2006 is more than the average American spent in 2001 on dairy products, fruits and vegetables, cereals, and bakery products combined.

While the poorest Medicare beneficiaries would see some improvement in their out-of-pocket costs under the Senate bill, many low-income seniors would see their prescription drug costs rise.

Take, for example, the Medicare beneficiary who has existing prescription drug coverage and whose annual income in 2006 will be somewhere between $14,506 and $16,923. Under his/her existing prescription drug plan, that senior would pay an average of $1,223 in out-of-pocket costs for prescription drugs during 2006. Under the Senate bill, the senior’s out-of-pocket costs would rise approximately 35 percent, to an average of $1,652.

The news is even worse for seniors who make slightly more money: A Medicare beneficiary with existing drug coverage whose annual income in 2006 is between $19,341 to $24,175 can expect to pay, on average, more than 50 percent more in out-of-pocket costs for prescription drugs under the Senate Medicare proposal. (See accompanying graph.)

Hurting Seniors

The Senate Medicare bill would cost federal taxpayers almost $400 billion … yet it might actually hurt more seniors than it would help. Rather than targeting a prescription drug benefit to those who really need it, members of Congress in both houses have chosen instead to pass a universal entitlement that would end up costing millions of seniors significantly more than they pay now. Seniors can only hope this flawed approach doesn’t survive conference committee negotiations.

Lanhee J. Chen is Winnie Neubauer Visiting Fellow in Health Policy Studies at The Heritage Foundation. This article, first published on July 15, 2003 as WebMemo #312, is available on the Internet (with footnotes) at