Private Medicare Drug Insurers Are Driving Costs Up and Drug Savings Down

Press Release

Private Medicare Drug Insurers Are Driving Costs Up and Drug Savings Down

Rep. Chris Van Hollen (D-MD) today released a new report on the Medicare Part D prescription drug program, revealing that the high administrative costs of the private Part D insurers, combined with their inability to negotiate significant drug savings, will cost taxpayers and seniors almost $15 billion this year.

"Today's groundbreaking report shows that seniors and taxpayers are not saving money or getting the lowest possible prices on prescription drugs in the Medicare Part D program," said Congressman Van Hollen. "With the failure of private plans to deliver lower drug prices, Medicare beneficiaries end up paying higher out-of-pocket expenses. This failure is also a burden on taxpayers, as they pay approximately three-fourths of the costs of the Part D program. We must stand up for seniors and people with disabilities and give Medicare the ability to get the lowest possible prices for its beneficiaries."

The investigation by the staff of the House Oversight and Government Reform Committee is the first analysis to have access to proprietary data about drug plan costs and drug prices. Key findings include:

* High administrative expenses. The private Part D insurers report administrative expenses, sales costs, and profits of almost $5 billion in 2007 -- including $1 billion in profits alone. The administrative costs of the privatized Part D program are almost six times higher than the administrative costs of the traditional Medicare program.

* Small drug rebates. The drug price rebates negotiated by the Part D insurers reduce Medicare drug spending by just 8.1%. In contrast, rebates in the Medicaid program reduce drug spending by 26%, over three times as much. Because of the difference in the size of the rebates, the transfer of low-income seniors from Medicaid drug coverage to Medicare drug coverage will result in a $2.8 billion windfall for drug manufacturers in 2007. The Part D insurers receive no rebates or other manufacturer discounts for three-quarters of the drugs used by seniors.

* Failure to pass through rebates to seniors. When the insurers do obtain drug price rebates, they do not use the rebates to reduce pharmacy drug prices. This year alone, the private insurers will receive $1 billion in rebates on purchases that seniors in coverage gaps, such as the donut hole, pay for out of their own pockets.

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