Medicare costs come in $13 billion under budget

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ASSOCIATED PRESS

The Medicare drug benefit has cost nearly $13 billion less than expected this year -- a rare federal program coming in under budget -- and projections show it will cost about $200 billion less in its first decade than initially estimated.

President Bush credits competition among the dozens of private insurance companies administering the program for the cost coming in at $30 billion in 2006, about 30 percent below the projected $43 billion.

But figures provided to the Associated Press by the agency that oversees the benefit for the elderly and disabled show two other factors: lower-than-expected enrollment and drug prices that went up less than expected before the benefit kicked in.

Democrats say they can cut costs further by having the government directly negotiate drug prices with pharmaceutical companies on behalf of beneficiaries. Rep. Nancy Pelosi, the incoming House speaker from California, says granting the government that authority will be one of her priorities for the new Congress' first 100 hours.

Why the program has been costing less than anticipated will be an important element of that debate. To date, however, there has been little detailed analysis of how the savings are being achieved.

The Centers for Medicare and Medicaid Services, the federal agency that oversees the new drug benefit, provided the AP with its accounting of where the program saved money this year:

• Lower than projected enrollment: $7.5 billion.

• Competition: $6.9 billion.

• Drug prices rising less than expected in the two years before the benefit even began: $3.7 billion.

About $141 billion of projected savings over the decade result from slower growth in drug prices, said John Shatto, a Medicare actuary.

The savings being achieved by the program could make it harder for Democrats to make changes, particularly with surveys showing high satisfaction rates among seniors and the disabled. So Democratic lawmakers may focus on where the savings are coming from.

"Republicans would have you believe that the drug and insurance companies have sacrificed profits in the name of competition, but nothing could be further from the truth," said Rep. Pete Stark, California Democrat. "In fact, the dirty little secret is that costs are lower because of low enrollment and a slowdown in drug spending."

Leslie V. Norwalk, the acting administrator for the Centers for Medicare and Medicaid Services, says enrollment is actually lower because the agency's actuaries underestimated how many people already had drug coverage before Jan. 1, when the Medicare benefits started.

Nearly 10 million fewer people enrolled in the program than projected after Congress created the drug benefit in 2003.