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Ten Facts About Medicare Spending on Prescription Drugs

New hepatitis C medications fuel rising costs

The Kaiser Family Foundation has examined 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. The foundation found that total and per capita Part D spending has increased rapidly in the past few years, mainly because of new, costly treatments for hepatitis C virus (HCV) infection.

The foundation listed 10 key points about Medicare spending on prescription drugs:

  1. Medicare accounts for a growing share of the nation’s prescription drug spending: from 18% in 2006 (the first year of the Part D benefit) to 29% in 2014. Medicare’s share of U.S. drug spending is projected to increase to 34% by 2024.
  2. Prescription drugs (Part B and Part D benefits) accounted for $97 billion in Medicare spending in 2014––nearly 16% of all Medicare spending that year.
  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. Total Part D benefit spending increased by 7.4% from 2006 to 2015, and is projected to increase by 9.2% between 2015 and 2025. Similarly, total Part D spending grew by 2.5% in 2006–2015 and is expected to increase by 6.0% in 2015–2025.
  4. Part D spending has increased in recent years, in part because of the introduction of new, costly breakthrough treatments for HCV infection. Spending on these drugs more than doubled from $421 million in November 2014––shortly after the first of the new HCV drugs had entered the market––to $864 million in March 2015.
  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. Annual Medicare per-beneficiary spending for Parts A, B, and D is projected to increase by 3.2%, 4.6%, and 5.8%, respectively, between 2015 and 2025.
  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. Long-term care facilities accounted for 32% of out-of-pocket spending, followed by medical providers (23%), prescription drugs (19%), dental (11%), outpatient care (6%), skilled nursing facility and home health care (5%), and inpatient care (4%).
  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. The average annual premium in 2016 is $409. This is expected to grow to $846 by 2025.
  8. As a result of the Patient Protection and Affordable Care Act, Medicare beneficiaries are paying less than the full cost of their drugs when they reach the coverage gap (the “doughnut hole”) and will pay only 25% by 2020 for both brand-name and generic drugs.
  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 HCV infection.
  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––have received broad support. In a Kaiser Family Foundation survey conducted in August 2015, 86% of respondents said drug companies should be required to release information to the public on how they set their drug prices, and 83% said the federal government should be allowed to negotiate with drug companies to get a lower price for medications for people on Medicare.

Source: Kaiser Family Foundation; July 7, 2016.

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