Is a Medicare Rebate Proposal a Way of Taxing Seniors?

A proposal to add Medicaid-style rebates to the Medicare Part D program has been introduced in Congress by Representative Henry Waxman (D-CA) and Senator Jay Rockefeller (D-WV). It has also been endorsed by the White House. The proposal would require drug manufacturers to pay a Medicaid-style premium for the opportunity to sell prescription drugs to low-income seniors who qualify for Medicare and Medicaid. But that would force other seniors to pay higher premiums as a result, according to an analysis by the American Action Forum:

  • Medicare Part D rebates would increase prescription drug premiums for 17.7 million seniors by 20 to 40 percent.
  • Medicare Part D rebates would increase annual out-of-pocket spending for 17.7 million seniors by as much as $208.80 per year.
  • Medicare Part D rebates would increase the total out-of-pocket drug costs for seniors nationwide by $1.5 billion to $3.7 billion per year.

Comments (4)

Trackback URL | Comments RSS Feed

  1. Bruce says:

    Answer to your question: Yes. I think it is an indirect tax.

  2. Devon Herrick says:

    Good point! If an entire industry faces a tax, the tax can (mostly) be passed on to consumers in the form of higher prices. In this case the tax is a rebate drug makers would pay to Medicare. It would have the effect of raising costs across the board for Medicare Part D plans, which would translate into higher premiums. Premiums will climb as it is. By closing the donut hole, Congress has changed the benefit structure in such a way as too cause costs to explode. The end result will be that many healthy seniors will not bother to enroll until they are sick because the penalty for doing so cannot exceed 30%.

  3. Dennis Byron says:

    @ devon herrick

    I’d look into that statement saying there is only a “30% penalty” for not signing up for D when you are eligible (typically when 65 or for any period without minimum creditable coverage thereafter). I’m pretty sure it’s a fixed amount each year (but that it potentially changes each year) times the number of months without coverage. So in percentage terms it could be infinity or whatever percent higher if the D plan’s premium is zero up to a small percentage if the D plan’s premium is $100 plus, depending on the months without coverage. There is a hard upper bound based on the number of months (somewhere between 60 and 70) that D has existed but I don’t think it can be looked at as a general percentage. Seniors should check with their local SHIP volunteer counselor (often through a senior drop-in center or like organization) before deciding to go without or drop Part D coverage. The counseling is free.

  4. Devon Herrick says:

    @ Dennis

    Thanks for the info. The penalty is approximately 1% of the base premium times the number of months a seniors goes without coverage. Something made me think there is an upper limit to the number of months a senior can be penalized for but I will have to check into it.