EBRI Issue Brief

Medicare Prescription Drugs: Making the New Program Work

Jun 1, 2004 16  pages


  • This Issue Brief reports on the progress that has been made and questions that have been raised about the new Medicare prescription drug benefit that became law in late 2003. The focus is on issues raised during the National Medicare Prescription Drug Congress held in Washington, DC, in February 2004.
  • The first phase of the program, the discount drug card, became effective on schedule in May and June 2004, but this initial step did not end the ongoing partisan debate about whether the new legislation is a significant positive development for seniors or whether it will work as intended.
  • Most questions about the logistics and operation of the prescription drug program will remain unanswered until the second—and more expensive—phase of the program (government-subsidized prescription drug insurance) begins in 2006.
  • There's disagreement about the impact the program will have on state budgets. Supporters of the new law say it relieves the states of current responsibilities of providing needed medicines to medically indigent Medicare beneficiaries. But states fear that residual responsibilities (not all drugs will be covered under the new programs), coupled with reductions in federal aid, will ultimately increase their costs.
  • The use of drug formularies may pose potential problems, particularly for beneficiaries who are unaccustomed to such restrictions on drug purchases. Whether such beneficiaries will be willing to switch drugs in order to take advantage of discounted prices remains to be seen. This reaction will partly depend on how restrictive the formularies are.
  • Critics believe that the new law lacks mechanisms that could drive drug prices down by an appreciable amount and continue to pursue other strategies, including permitting imports from other nations (especially Canada) where drugs cost less.
  • While the law contains language mandating drug counseling, there's little agreement on whether such advice will have much impact on consumption patterns or beneficiary satisfaction.
  • It is still unclear how many firms will offer to provide prescription drug insurance under the Medicare program in 2006 because it is a new and untested product.