Drug Prices Outpace Inflation

But seniors have options to lower prescription costs

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Prescription drug prices for medications commonly used by seniors are rising far faster than the costs of other consumer goods and services. The average price of brand name prescriptions typically used by Medicare beneficiaries has increased 9.3 percent since September 2008, up from an 8.7 percent increase last year, according to a new report from the PRIME Institute at the University of Minnesota and the AARP Public Policy Institute. The rate of inflation over the same period, measured by the Consumer Price Index, fell 0.3 percent.

The annual cost for three brand name medications this year averaged $6,134, up $605 since September 2008. “Even as the cost of most goods and services drops, a person taking just one brand name drug now pays $200 more per year than a year ago,” says John Rother, executive vice president of AARP. Only nine of the 219 brand name products analyzed had no change in price.

[See America's Best Affordable Places to Retire.]

Generic drugs, however, have become an even better deal. Costs for 185 generic prescriptions widely used by seniors fell by an average of 8.7 percent in 2009, a slowdown from the 11.2 percent generic price decrease in 2008. The average person taking three generic medications paid $937 in 2009, $63 less than last year. However, price cuts among just 28 of the 185 generic drugs studied contributed to the average decrease in costs. Most of the generic products (155) had no change in cost and two medications had a price increase this year.

The pharmaceutical industry takes issue with AARP’s report. “Discounts and rebates can significantly lower the cost of many brand-name drugs,” points out Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America. “Unfortunately, medicines are always looked at as a cost and never seen as a savings, even though medicines often reduce unnecessary hospitalizations, help avoid costly medical procedures, and increase productivity through better prevention and management of chronic diseases.”

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The rise in drug prices can impact a retiree’s pocketbook, even after they qualify for Medicare Part D prescription drug coverage. Premiums, deductibles, copays, and other cost-sharing provisions vary considerably among various Part D plans. Some beneficiaries must pay a percentage of drug costs. Higher prescription prices also cause seniors to hit the doughnut hole gap in Medicare Part D coverage sooner. The gap begins when a Part D beneficiary incurs $2,830 in drug spending in 2010. The senior must then pay for the full cost of medications until they reach $6,440 in total medication costs and catastrophic coverage begins.

Prescription price increases will hit seniors particularly hard in 2010 because Social Security recipients will not recieve a cost-of-living increase. Entitlement payments do not rise in years when the Consumer Price Index falls. But seniors can shop around for the prescription drug coverage that best meets their needs once a year. Medicare's annual open enrollment period began on November 15 and lasts until December 31.

[See How to Pick the Best Medicare Part D Prescription Drug Plan.]