Public payers foot greater pharmacy costs

Maybe it sounded like a good idea at the time, but when the drug benefit portion of the Medicare Modernization Act kicked into gear, it caused a shift in who would pay what in terms of pharmacy costs. Through 2005, private health insurance had covered most of the cost of prescription drugs. That picture is changing as public payments, mostly under Part D, are projected to exceed private health insurance and out-of-pocket payments, according to data from the Centers for Medicare and Medicaid Services.

Pharmacy costs were estimated to account for 11 percent of all health care expenditures in 2004. That is expected to increase to 15 percent in 2014.

Out-of-pocket spending growth is expected to remain essentially flat in 2005, and then to decrease substantially in 2006 because of Part D.

Growth in out-of-pocket spending for drugs has remained slower than that of private health insurance spending. Additionally, the out-of-pocket share of health care spending is expected to decline from 15.1 percent in 2004 to 12.6 percent by 2015, according to CMS. For 2007 through 2015, annual drug spending growth is projected to remain in the range of 8 percent to 8.4 percent, as upward and downward pressures on growth essentially offset each other.

Expect Medicare spending to slow slightly for 2005, then spike in 2006 at 25.2 percent, because of the implementation of the Medicare Part D benefit. In 2007, however, growth is expected to decelerate to 5.9 percent, and then to accelerate to an average of 7.6 percent for the remainder of the forecast. CMS attributes this average to the enrollment shift from fee-for-service Medicaid to managed care plans.

Pharmacy costs by payer

Source: Centers for Medicare and Medicaid Services

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