Medicare Part B, or medical insurance, is crucial to senior’s healthcare, offering a wide array of services and equipment. This program’s incredibly popular, as the Centers for Medicare and Medicaid Services (CMS), the agency overseeing U.S. healthcare, expects 52 million Americans to be enrolled in Part B in 2016. Most Traditional Medicare (Parts A and B) enrollees use Part B to file their claims at some point each year, primarily for doctors’ visits, compared to only 25 percent using Part A.
But the Medicare program is facing serious problems, as one of its main financial sources is running low on cash reserves. Much of the blame may lie with typical beneficiaries, who receive lifetime benefits much greater than that contributed into the system. Part B itself may also be impacted by a financial threat involving prescription drug costs. While Medicare Part D covers most drug costs, by law, some are covered by Part B. In October 2015, research found that these cost Part B $20.9 billion. One factor contributing to these prices are many “new” medications, coming to the market in 2007 or later. The large number of “orphan” drugs (meant for diseases with 200,000 or fewer U.S. cases) play a part, as well.
Fortunately, proposed Medicare changes may lower healthcare providers’ drug reimbursements. These would lead to greater reductions for those treating cancer and other diseases, as well as doctors using more expensive drugs. Physicians prescribing lower-cost drugs would also be paid more.
Medicare versus twin financial threats
In 2015, Medicare benefits cost the U.S. healthcare system $605.9 billion: $203.1 billion for Part A and $167.8 billion for Part B. Specifically, Part B derives 25 percent of its costs from monthly premiums and 75 percent from general federal revenues. And while Part B isn’t currently facing serious financial threats, future spending increases will likely require increases in general revenue funding and higher Part B and Part D premiums for beneficiaries. Part B members are covered for two categories of services and equipment:
- Medically necessary, those that prevent, diagnose or treat conditions resulting in debilitating symptoms or side effects. They must meet accepted standards of medical practice, as well.
- Preventive, those that prevent illness or detect illness at an early stage, when treatment is most likely to work.
Medicare’s future may be impacted by a larger problem, involving its financial structure. The overall program is actually paid for through two trust funds: the Supplementary Medical Insurance (SMI) Trust Fund and the Hospital (HI) Trust Fund; this second one is quickly running out of cash reserves. The HI Trust Fund is paid for with: payroll taxes (from most employees, employers and the self-employed); income taxes paid on Social Security benefits; trust fund investment interest; and Part A premiums from those ineligible for premium-free Part A.
The HI Trust Fund pays for certain Part A benefits, but it also goes toward overall Medicare administrative costs. However, the Medicare Board of Trustees estimates that by 2030, the HI Trust would be out of money; this may occur sooner, should expenditures be larger than expected. If this happens, hospitals accepting Medicare would only be reimbursed at a rate equivalent to payroll tax revenue.
But Medicare is also at risk from another financial issue, one due to beneficiaries themselves. According to the Urban Institute, in 2010, Medicare members – male and female — expected to pay an average of $61,000 over their lifetime. They feel they’re entitled to far more for their lifetime benefits: males expected to receive $180,000 and females $207,000 (due to their longer life expectancies). Truthfully, these expectations make Medicare’s financial future unsustainable. And as both men and women are leading longer lives, they’ll rely even more on Medicare’s services.
Part B’s prescription coverage issue
Independent of the greater problems, Medicare Part B is struggling to ensure future affordability, in the face of high drug expenditures. Typically, Medicare Part D covers the majority of prescription drugs through private insurers; however, the government requires Part B to cover certain medications and treatments. Most of the 83 drugs covered under Part B are newer, meaning they only came to market between 2007 and 2013..
In October 2015, the U.S. Government Accountability Office (GAO), the agency responsible for government auditing, reported that $20.9 billion went to 2013 Part B drug expenditures. With the exception of 2011, there have been steady cost increases in recent years. As most drugs were newer, they added $5.4 billion in costs to Part B. In addition, 47 percent are considered “orphan” drugs, meant for diseases with 200,000 or fewer U.S. case; these generally have much higher prices.
The GAO found that almost 2/3 of these new Part B medications are for ophthalmologic or cancer-based diseases, which are usually very expensive. Their findings also illustrate how a small number of treatments can increase Medicare Part B’s costs. For 2013, 20 new drugs were shown to make up 92 percent of all new Part B drug expenditures; in fact, nine prescription drugs accounted for 76 percent of new Part B drug costs:
- Lucentis (Ranibizumab; $1.37 billion) – This drug is used for “wet” age-related macular degeneration (AMD), the leading vision loss cause, affecting more than 10 million Americans. It involves the loss of the eye’s central vision and fine detail; wet AMD is the more advanced, severe form.
- Eylea (Aflibercept; $1.09 billion) – The most common and effective AMD clinical treatment, it involves periodic intravitreal (into the eye) injections of a chemical (anti-VEGF).
- Prolia (Denosumab; $665 million) – This medication treats osteoporosis (thinning of bone density) in postmenopausal women.
- Treanda (Bendamustine hydrochloride; $332 million) – This injection is used for chemotherapy and the treatment of chronic lymphocytic leukemia (CLL) and indolent (slowly growing) B-cell non-Hodgkin’s lymphoma.
- Lexiscan (Regadenoson; $257 million) – For cardiac stress tests, this intravenous (IV) drug increases arterial blood flow, providing doctors with detailed information about blood flow into the heart.
- Yervoy (Ipilimumab; $224 million) – This cancer immunotherapy drug treats late-stage, metastatic melanoma (a deadly skin cancer); it supercharges patients’ immune systems to recognize and destroy cancer cells.
- Privigen (Immune Globulin Intravenous; $184 million) – This medication is an IV replacement therapy for primary immunodeficiency (PI), a group of more than 250 rare, chronic disorders, in which the body’s immune system is missing parts or functioning improperly.
- Provenge (Sipuleucel-T; $183 million) – A prostate cancer drug, it’s the first and only FDA-approved immunotherapy treatment for advanced prostate cancer.
- Soliris (Eculizumab; $150 million) – This drug treats two life-threatening, rare genetic diseases: 1.) paroxysmal nocturnal hemoglobinuria (PNH), a deadly blood disease; and 2.) Hemolitic Uremic Syndrome (aHUS), a progressive disease targeting the body’s immune system, leading to blood clots.
These drugs’ high prices are actually a major financial concern. Without proper coverage, some seniors could be responsible for meeting 20 percent of a medication’s expenses. Traditional Medicare’s lack of an annual out-of-pocket limit could also make costs skyrocket. For example, Soliris, the world’s second-most expensive drug, with more than $400,000 in annual costs, basically has no competition. Therefore, its price can be as high as its manufacturers want; in 2013, it cost $340,500 per beneficiary.
For seniors, taking on the drug companies’ pricing efforts practices isn’t practical, as this just eats up a lot of time, with few satisfactory results. The better option for Medicare beneficiaries is to educate themselves about additional, less expensive coverage options. One choice would be purchasing Medigap supplemental plans, sold by private health insurers, to help pay for some costs not covered by Traditional Medicare (e.g., copayments, coinsurance, deductibles). Many consumers also purchase Medicare Advantage (MA, or Part C) plan, sold by private insurers. MA plans cover Traditional Medicare’s services; in 2016, their out-of-pocket limit is $6,700. Therefore, members requiring expensive drugs covered by Part B would benefit financially from these plans.
But there may be good news, in regard to Part B’s rising drug costs, should proposed changes Medicare take effect. They involve lowering healthcare providers’ drug reimbursements, which would benefit those treating cancer and other diseases, including ophthalmologists, oncologists and rheumatologists. Specifically, these would target drugs costing more than $480 per day. Meanwhile, physicians prescribing lower-cost drugs would be paid more.