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10 Essential Facts About Medicare and Prescription Drug Spending

Prescription drugs play an important role in medical care for 57 million seniors and people with disabilities, and account for $1 out of every $6 in Medicare spending. The majority of Medicare prescription drug spending is for drugs covered under the Part D prescription drug benefit, administered by private stand-alone drug plans and Medicare Advantage drug plans. Medicare Part B also covers drugs that are administered to patients in physician offices and other outpatient settings.

After a period of relatively slow growth, total and per capita Part D spending has increased more rapidly in the past few years mainly due to treatments for Hepatitis C, and is projected to increase more rapidly in the next decade as more high-priced specialty drugs become available, according to the recently-released annual report of the Medicare Boards of Trustees.

 

Even with Medicare’s prescription drug coverage, beneficiaries can face substantial out-of-pocket costs, particularly if they use specialty drugs or multiple high-cost brand-name drugs. The following series of graphics examines trends in Medicare spending on prescription drugs, how Medicare coverage affects beneficiary access and costs, and what the public thinks about different options for keeping drug costs down.

1. Medicare accounts for a growing share of the nation’s prescription drug spending: 29% in 2014 compared to 18% in 2006, the first year of the Part D benefit.
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2. Prescription drugs accounted for $97 billion in Medicare spending in 2014, nearly 16% of all Medicare spending that year.
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3. Medicare Part D prescription drug spending – both total and per capita – is projected to grow more rapidly in the next decade than it did in the previous decade.
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4. Part D spending has increased in recent years, in part due to the introduction of new, costly breakthrough treatments for Hepatitis C.
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5. Medicare per beneficiary spending is projected to grow more rapidly for the Part D prescription drug benefit than for other Medicare-covered services over the next decade.
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6. Prescription drugs accounted for nearly $1 in every $5 that Medicare beneficiaries spent out-of-pocket on health care services in 2011, not including premiums.
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7. The expected increase in Part D spending will mean hundreds of dollars more in higher annual premiums and deductibles for beneficiaries over the coming decade.
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8. As a result of the Affordable Care Act (ACA), Medicare beneficiaries are now paying less than the full cost of their drugs when they reach the coverage gap (aka, the “doughnut hole”) and will pay only 25% by 2020 for both brand-name and generic drugs.
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9. Beneficiaries are subject to 5% coinsurance after their out-of-pocket costs exceed the catastrophic threshold ($4,850 in 2016). This can add up to thousands of dollars out-of-pocket, especially for some specialty drugs that treat diseases such as cancer and Hepatitis C.
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10. High and rising drug costs are a concern for the public, and many leading proposals to reduce costs for all patients – including Medicare beneficiaries – enjoy broad support.
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