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Category: Annual Medicare Plan Changes
Published on 2006-08-15 22:49:03

     As a result of strong competitive bidding by health plans and beneficiaries’ choices, the national benchmark that determines Medicare’s subsidy toward the cost of drug coverage will decline in 2007, the Centers for Medicare & Medicaid Services (CMS) announced today.   CMS also announced that the average cost of the Medicare prescription drug plans will remain stable or decline in 2007 and that the agency expects the actual average premium paid by beneficiaries to remain around $24 or less.  

“Competition and smart choices have been the two most important factors in the success of Medicare drug benefit, which is serving beneficiaries at a far lower cost than expected,” said CMS Administrator Mark McClellan, M.D., Ph.D.  “Bids are down because of strong competition and if beneficiaries once again choose less costly plans, we will actually see premiums go down on average in 2007.  We want to make sure that we continue this stable, effective approach to providing low-cost coverage.”

While competitive bids for both stand-alone prescription drug plans and Medicare Advantage (MA) prescription drug plans have been lower than independent analysts projected last year, bids are notably lower for Medicare Advantage plans. The average Medicare Advantage prescription drug plan bid is 18 percent lower in 2007 than 2006 and Medicare Advantage drug premiums are expected to be significantly lower in 2007 for beneficiaries.  The lower bids reflect the effects of aggressive competition as well as lowered costs resulting from better care coordination and drug benefit management techniques.

After the drug benefit bidding process for 2006, the average premium offered by plans was around $32.   But because beneficiaries overwhelmingly chose Part D plans with lower-cost options, the actual average premium was $24 in the first year of the program. 

Based on the strong competitive bids for 2007 and by transitioning to the weighted average bid, or benchmark, average premiums will again be around $24 for beneficiaries and the cost of drug coverage to taxpayers will be lower.  In addition, the vast majority of beneficiaries will have access to Medicare drug plans that cost them the same or less than their coverage in 2006.

“The power of Medicare beneficiaries making informed choices has already reduced the cost of the drug benefit to beneficiaries by 25 percent on average in 2006, and as a result of continuing strong competition, more savings are on the way,” Dr. McClellan added.  “This situation has never happened before:  overall costs of drug coverage for beneficiaries and the government are being held down.  To build on this success, we will continue to work with beneficiaries through our local grassroots efforts, which include counseling to make informed choices on plans that meet their needs in 2007.”

    To enable seniors and people with a disability to share in the substantial savings resulting from their informed choices in 2006, CMS is transitioning from a “uniform weighted” benchmark to a “weighted average” benchmark based on beneficiary enrollment in 2006.  This is similar to transition approaches that CMS commonly uses in implementing other payment systems.  This will ensure that beneficiaries who have made choices that lowered the cost of the drug benefit will continue to have access to low premiums in 2007.  For beneficiaries who qualify for the extra help (Low Income Subsidy), the 2007 bids complement the transition demonstration announced in June.  Beneficiaries will have greater stability in their plan options in 2007.

With this strong competition between plans, if seniors once again choose less costly plans, we will actually see premiums go down on average in 2007.  We are taking steps to continue this effective approach to providing low-cost coverage and to enable seniors to share in some of the substantial savings that their choices have created for Medicare,” said Dr. McClellan.

Because of competition and the transition approach announced for the low-income subsidy benchmark, 7 out of 8 beneficiaries receiving the extra help can stay in their current plan with no premium in 2007, and they will have a significant amount of choices if they want to switch.  CMS plans to work with these prescription drug plans and will take all necessary measures to ensure that all beneficiaries who need to switch in order to remain in a zero-premium plan are successfully reassigned to plans for 2007.

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Note:  The benchmark notice can be found at www.cms.hhs.gov/ MedicareAdvtgSpecRateStats/ Downloads/ ptcd2007_20060815.pdf 

As reference, here are the weighted average monthly premiums for a standard or basic Medicare Part D prescription drug plan reported by HHS since the beginning of the Medicare Part D program:

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