An Rx for Drug-Price Spikes
Medicare drug prices are soaring. Don't take it lying down.
By Cybele Weisser

(MONEY Magazine) – IF YOU OR SOMEONE IN YOUR FAMILY IS ELIGIBLE FOR the new Medicare drug plan, chances are you spent hours trying to find the plan that offered the most coverage with the least out-of-pocket cost for your prescriptions. Unfortunately, it appears that your plan may cost you more than you thought.

Prices for brand-name prescription drugs are rising faster than ever. A recent AARP survey found that wholesale prices for the 200 most common brand-name drugs rose 3.9% in the first three months of this year, the largest quarterly increase since the study began six years ago and three times the rate of the consumer price index. In theory, the new Medicare drug plan (known as Part D) was supposed to keep a lid on prices for beneficiaries by sending more customers to private insurers, which could then negotiate for bulk-purchase discounts from pharmaceutical companies. Yet a separate survey from the consumer group Families USA (which used Medicare's own data) found that during the first five months of the plan, the prices that Part D plans charged for the 20 most common drugs for seniors increased by an average of 3.7%.

So is the new system simply not working? Hard to say just yet. Even with high prices, nearly everyone who has no other coverage will still save money under a Part D plan. And the fact that drug prices are going up doesn't necessarily mean you're getting hurt. Peter Ashkenaz of the Centers for Medicare and Medicaid Services, which administers Medicare, says most seniors are protected from price increases because they selected plans with no deductibles or with flat co-pays ($20 per prescription, say) rather than co-insurance, which would require them to pick up a percentage of the cost.

Yes, but co-insurance isn't the only way for seniors to feel the squeeze, says AARP policy director John Rother. Some 85% of Part D plans require participants to pick up the full cost of their drug bills over $2,250 and under $5,100 each year, a gap known as the "doughnut hole." Higher prices mean many seniors may find themselves in that hole sooner than expected. And insurers may also pass along their higher drug costs in the form of premium hikes in 2007. "One way or another, wholesale prices will get passed on to the consumer," says Rother.

While the experts argue, it's up to you to prevent your budget from going into sticker shock. "You have to remain vigilant," says Vicki Gottlich, a lawyer at the Center for Medicare Advocacy, which provides counseling to Medicare beneficiaries. How?

• DON'T AUTOMATICALLY RE-UP Open enrollment for 2007 Part D coverage starts in mid-November. If you do nothing, you'll continue on the plan you already have. If your plan has dropped coverage for drugs you take or raised the prices significantly, you may need to switch. You can comparison shop at medicare.gov.

• WATCH THE DOUGHNUT HOLE A study by the Kaiser Family Foundation predicts that up to a quarter of Medicare beneficiaries will exceed the $2,250 coverage limit this year. If you're one of them, it may be worth paying higher monthly premiums to switch to one of the plans that offer doughnut hole coverage.

• GO GENERIC Another AARP study found that the price for the 75 most commonly prescribed generic drugs actually fell in the first three months of the year. Talk to your doctor or pharmacist about finding a generic equivalent. It's the same medicine, just, you know, cheaper.

Drug Prices Break Out

The prices of several popular drugs climbed faster than inflation in the wake of Medicare's Part D plan.

NOTE: Median price change in Part D plans.

SOURCE: Families USA survey, June 2006.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.