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Medicare Drug Plan

The Medicare Part D — Prescription Drug Plan — is about to come into effect. Get important information from NOW's resources linked below.

FORTUNE magazine's Web site featured a headline April 30, 2004 reading "10 Stocks for the Health-Care Boom." The magazine went on to note that boom in pharmaceutical stocks was a result of a number of factors — chief among them the new Medicare prescription-drug bill which may well cost well over $500 billion. FORTUNE also noted that the federal government's own figures estimated 2003 health care spending at $1.7 trillion or 15 percent of the entire economy.

At the top of the health care economy are prescription drug costs. Average prices have been increasing at multiples of the cost of living for many years. And, the prices of the most popular prescriptions are increasing fastest of all. Spending on prescriptions has also increased rapidly, according to the National Institute for Health Care Management amounting to $154.5 billion in 2001. Increases in spending are due to a variety of causes: aging of the population, an increasing number of prescriptions and a shift toward more expensive drugs. But the burden doesn't fall equally on the public. Watchdog group Public Citizen has found that seniors account for 13% of the population but receive 34% of prescriptions. A recent study by the non-profit National Center for Policy Analysis estimates that the average senior household spends $955 a year on prescriptions.

There was great hope that the new Medicare drug benefit would help alleviate high drug prices for seniors at least. However, the WALL STREET JOURNAL recently reported that the savings seniors hope to see at the pharmacy are already being eroded by price increases on the drugs they use most something akin to a department store marking up prices in order to put them "on sale" later.


Prices for prescription drugs have risen at a much higher rate than the Consumer Price Index over the last decade. In 2001 alone prescription prices rose at more than six times the rate of inflation. The average price of retail prescriptions in 2002 was $54.58.

The Benefit Gap

One of the most confusing, and contentious, aspects of the new Medicare drug benefit relates to the gap in coverage between regular and catastrophic benefit levels. Below Tricia Neuman, Sc.D., Director of the Medicare Policy Project of the Henry J. Kaiser Family Foundation explains the new benefit coverage. View a graphic of the benefit gap.

Beneficiaries who sign up for the new drug benefit will pay a monthly premium, estimated to $35 per month in 2006. Beneficiaries will be responsible for the first $250 in drug expenses, and then will pay, on average, a 25 percent coinsurance until they reach the benefit limit ($2,250 in 2006). Once they reach the benefit limit, they will face a gap in coverage (called the "hole in the doughnut") in which they will pay 100 percent of their drug costs up to $5,100 in total drug spending (equal to $3,600 in out-of-pocket spending). The beneficiary will then pay the greater of $2 for generic drugs, $5 for brand name drugs, or 5% coinsurance for all drugs above the out-of-pocket limit. These benefit levels are indexed to rise annually with the growth in per capita drug spending for the Medicare population. As a result, the benefit gap is expected to increase from $2,850 in 2006 to $5,066 in 2013.

More information:

Prescription Drug Price Stats

Average U.S. Retail Price of Prescriptions, 2002:  $54.58
Percent Change in Total Sales of Retail Prescriptions between 2001 and 2002:  12.2%
Percent Increase in the Average Price of Retail Prescriptions between 2001 and 2002:  9.5%
Average Cost Per Prescription for Seniors 1992
Average Foreign-to-American Prescription Drug Price Ratios, 2001
Direct-to-Consumer Ad Spending by Drug Companies (in billions)
Profit as % of revenue, 2001:
Fortune 500 Drug Companies:
All Fortune 500 Companies:
Fortune 500 Drug Companies Comparison of Revenue in 2001:
R&D as % of Revenue:
Profits as % of revenue
Marketing & Admin as % of Revenue:
Kaiser Family Foundation; America's Other Drug Problem: A Briefing Book on the Rx Drug Debate, Public Citizen, April 2003; Prescription Drug Expenditures in 2001: Another Year of Escalating Costs, May 6, 2002, National Institute for Health Care Management; FORTUNE 500

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