This week, while President Barack Obama was touting the $250 rebate checks the government would begin sending to seniors to cover some prescription drug costs, Senate Minority Leader Mitch McConnell was warning that many more seniors would be paying higher premiums.
It’s true, as McConnell says, that many seniors will see higher premiums for Part D (that’s the prescription drug coverage) as a result of the increased benefits in the program. How much higher? Monthly premiums vary widely, but for the national average, the cost increase is expected to be $1.28 per month to start, gradually rising to $2.87 per month over the next several years. Furthermore, total out-of-pocket costs — including premiums — will go down on average, according to the Congressional Budget Office. We’ll walk through the details of this claim and explain what the new law means for Part D plans.
On the Senate floor June 8 and in a press release, the Kentucky senator said that "Every $250 Check Means Three Seniors With Higher Premiums." Obama said the checks will go to about 4 million seniors with Part D to help them pay for costs that fall into a gap in coverage known as the "doughnut hole." McConnell, meanwhile, charged: "[F]or every senior who gets a check, more than three other seniors will see an increase in their prescription drug insurance premiums. In other words, behind every $250 dollar check are more than three seniors who will be paying more as a result of this bill."
How does McConnell figure that? He claimed:
McConnell, Senate floor, June 8: The reason for this is that the health care bill Democrats forced on Americans earlier this year requires higher government mandated minimum standards for everyone, so those who opted for anything below that minimum will now see their premiums go up. And the number of seniors in this category far outnumbers those getting a check.
McConnell isn’t talking about minimum benefit standards for all health insurance plans, as his comment may lead some to believe. Instead, he’s talking about changes in required benefits for the Part D program, changes that would essentially eliminate that gap in drug coverage.
Most Part D plans (80 percent) provide no benefits during the gap in coverage, according to data assembled by the Kaiser Family Foundation. For 2010, the plans pay most drug costs (minus a deductible and copays) up to a certain level ($2,830 for the total of both insurance and beneficiary expenses). But then beneficiaries have to pay all of their prescription costs until they reach a "catastrophic level" of just their out-of-pocket costs, $4,550 this year. Insurance coverage picks up again at that point. The new law aims to get rid of this "doughnut hole" by giving those in the gap a 50 percent discount on brand-name drugs starting next year, as agreed to by the pharmaceutical industry. Other subsidies will phase in so that by 2020, beneficiaries are paying 25 percent of drug costs (which is what they pay before they reach the gap). Seniors who want Part D coverage pick the private drug plan that suits them from among many choices.
In order to make his claim, McConnell assumes that anyone not getting a rebate check, or low-income subsidies that are already offered, will pay more. Those seniors, he figures, won’t see out-of-pocket costs go down, since they’re not the ones in the doughnut hole. CBO didn’t make that assumption, or break down who would pay more and who would pay less.
Bear with us as we go through McConnell’s math.
There are 27.7 million seniors who have Part D drug coverage. Of those, about 10 million get low-income subsidies that pay all or most of their premium; an estimated 4 million will get those $250 rebate checks. McConnell spokesman Don Stewart explained to us that the senator subtracted those getting government help to come up with 14 million seniors "who will pay more in premiums." And 14 million is more than three times the 4 million getting the checks.
Will all of those 14 million pay more under the new law? McConnell bases the claim on projections by the nonpartisan CBO. But the CBO never used that 14 million figure. It’s unclear whether all of them will pay more.
The increased benefits will certainly bump up average premiums.
CBO, March 19: Beneficiaries and the federal government share in program costs, which leads to an increase in premiums. According to CBO’s preliminary estimate, enacting those changes would lead to an average increase in premiums for Part D beneficiaries of about 4 percent in 2011, rising to about 9 percent in 2019.
But, CBO said, the better benefits would outweigh any premium increase on average: "However, it is important to note that beneficiaries’ out-of-pocket spending on prescription drugs apart from those premiums would fall, on average, as would their overall out-of-pocket drug spending including premiums."
McConnell’s office argues that "on average" clearly means some will pay more, while others will pay less (that’s true) — and that those paying more will be the 14 million that don’t reach the coverage gap now, or receive other assistance.
CBO doesn’t give that kind of detail. In fact, in an earlier explanation of its Part D premium methodology, it explicitly said it hadn’t broken down the winners and the losers:
CBO, August 28: Those who ended up purchasing a relatively small amount of drugs in a year would pay more in additional premiums than they would gain from lower cost sharing, while those who purchased a relatively large amount of drugs in a year would gain more from lower cost sharing than they would pay in higher premiums. CBO has not estimated the number of beneficiaries who would fall into each of those groups.
McConnell’s office is confident that its assumption is valid. Stewart wrote in an e-mail to FactCheck.org: "We do not see any reason why the other non-premium out-of-pocket spending would decrease for this group [14 million seniors] because the two provisions that CBO says increase premiums only help those individuals who hit the coverage gap (the 4 million)."
It’s a logical argument. But we can’t say for certain whether all 14 million will end up paying more. It’s possible that some seniors could change their prescription choices once the gap is closed to take advantage of the increased coverage — AARP gives out advice now on how to avoid the gap by "explor[ing] a list of alternative drugs that are therapeutically similar to those you take now but could reduce your expenses and stretch your coverage."
But McConnell is right that as of now, a fraction of Part D beneficiaries (23 percent of those not already getting low-income subsidies) are the ones in the gap that stand to benefit from the new law. The others may well end up paying more. How much? That depends, but for some, it could be a couple bucks a month or less.
As the Kaiser Family Foundation explains, premiums for the many Part D plans vary widely, and they have been increasing substantially since the program began in 2006. In 2010, monthly premiums ranged from a mere $8.80 in Oregon and Washington state to $120.20 in Delaware, Maryland and Washington, D.C., KFF found. The national average is $31.94 a month. If we use that average figure, CBO’s projected average increase for next year, due to the health care law, would be an extra $1.28 a month. For 2019, it’s $2.87.