10 Years Later: A Look at the Medicare Prescription Drug Program

Statement for the Record
United States Senate Special Committee on Aging Hearing

10 Years Later: A Look at the Medicare Prescription Drug Program

Wednesday, May 22, 2013

Mr. Chairman and Members of the Committee:

I am Max Richtman, President and Chief Executive Officer of the National Committee to Preserve Social Security and Medicare (NCPSSM). I appreciate the opportunity to submit a statement for the record to the Special Committee on Aging for the hearing, 10 Years Later: A Look at the Medicare Prescription Drug Program. My comments today focus on recommendations for improving the Medicare Part D program.

The Medicare Prescription Drug Program, established under the Medicare Modernization Act of 2003, has provided millions of older Americans with access to affordable drug coverage that they previously did not have. In 2012, over 30 million Medicare beneficiaries enrolled in a Part D plan. The National Committee is pleased that the Medicare Part D program is continuing to evolve. In recent years, beneficiary premiums have remained stable and, by 2020, the Part D “donut hole” will be closed because of the Affordable Care Act.

However, the National Committee believes that further improvements to Medicare Part D are needed to reign in drug costs and better serve beneficiaries. This is important because many older Americans struggle to pay for their health care premiums, deductibles and co-payments.

In 2012, over half of Medicare beneficiaries had incomes below $22,500. These individuals are paying, on average, about 26 percent of their Social Security check to cover Part B and D premiums and cost sharing, in addition to paying for health services not covered by Medicare. Because of their lower average household budgets and higher average health care spending, families on Medicare spend 15 percent of their household budgets on health care, which is three times more than what non-Medicare households spend on health care.

The National Committee supports the following improvements to Medicare Part D, which can be made without shifting costs to beneficiaries: 1) Restoring drug rebates for low-income Medicare beneficiaries, 2) Improving access to the Part D Low-Income Subsidy (LIS) and 3) Increasing access to generic and biologic drugs.

1) Restoring Drug Rebates for Low-Income Medicare Beneficiaries

Prior to the implementation of Medicare Part D in 2006, drug companies paid the government rebates for drugs used by beneficiaries who are dually eligible for Medicare and Medicaid. Legislation introduced in the 113th Congress by Senator Jay Rockefeller and Representative Henry Waxman, the Medicare Drug Savings Act (S. 740, H.R. 1588), would restore these rebates. They would require drug manufacturers to pay rebates for the drugs used by individuals who are dually eligible for both Medicare and Medicaid and receive the Part D low-income subsidy. The Congressional Budget Office estimates that the Medicare Drug Savings Act would save $141 billion over 10 years. The National Committee supports this legislation because it would produce significant savings to Medicare without cutting benefits.

2) Improving Access to the Part D Low-Income Subsidy (LIS)

The Medicare Part D Low-income Subsidy (LIS), also known as Extra Help, provides assistance to low-income beneficiaries who are enrolled in Part D with their out-of-pocket prescription drug expenses. The amount of the assistance depends on beneficiaries’ income and assets. In 2013, annual income is limited to $17,235 and assets to $13,300 for LIS eligibility for an individual. The Social Security Administration estimates that the annual value of the LIS benefit is about $4,000 a year. Despite these savings, more than two million low-income beneficiaries eligible for the LIS did not enroll in the program. Reasons for low participation include unawareness of the LIS program, cognitive impairment, lack of basic math skills and/or an inability to meet the asset test.

The National Committee believes that low-income individuals who are eligible to receive extra financial assistance for their prescription drug costs should receive it. Therefore, we support providing additional funding for community-based outreach and enrollment efforts to educate and assist low-income individuals with enrollment. These efforts should provide special attention to assisting populations that are hard to reach, such as those with cognitive impairments or have language access issues. We also support raising the LIS asset test limit because low-income seniors who have accumulated modest assets should not be punished for trying to save for retirement. We urge Congress to examine whether the LIS asset test is denying access to low-income Part D beneficiaries.

3) Increasing Access to Generic and Biologic Drugs

Some brand name drug manufacturers pay generic drug manufacturers to keep less expensive generic drugs off the market for a certain period. The National Committee opposes these “pay-for-delay” agreements because greater use of generic drugs would lower Medicare costs. The Congressional Budget Office found that the use of generics saved Medicare $33 billion in 2007. The National Committee supports the President’s Fiscal Year 2014 Budget proposal that would increase the availability of generic drugs and biologics (drugs made from living organisms and their products) by authorizing the Federal Trade Commission to stop companies from entering into “pay for delay” agreements, which would prevent consumers from receiving access to safe and effective generics. This proposal would save $11 billion over 10 years.

We also support the President’s proposal to accelerate access to affordable generic biologics by modifying the length of exclusivity on brand-name biologics. Beginning in 2014, this proposal would award brand biologic manufacturers seven years of exclusivity, rather than 12 years under current law, and prohibit additional periods of exclusivity for brand biologics due to minor changes in product formulations. This proposal would create $3 billion in savings over 10 years.

In brief, the National Committee urges Congress to consider additional improvements to Medicare Part D, such as the proposals noted, to serve beneficiaries better and lower health care costs. We believe that enhancements can be made to Part D without shifting costs to beneficiaries, especially those with low-income.

Thank you for the opportunity to submit a statement for the record expressing our views.