Retiree Prescription Drug Prices Soar

Most medications used by seniors significantly increased in cost last year.

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The price of the brand name prescription drugs most widely used by Medicare beneficiaries increased 9.7 percent in the 12 months ending in March 2010, according to a new AARP Public Policy Institute report. This is the highest spike in retiree drug prices observed since AARP began tracking drug prices in 2002. The average annual cost for a single brand name medication was about $2,190 and individuals using three brand name prescriptions paid $6,580. The majority of the 219 brand name drugs in the study (88 percent) increased in price between April 2009 and March 2010.

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Generic drugs continue to be a better deal. The costs for generic prescriptions typically used by seniors dropped by 9.7 percent over the same time period. “Generic drugs have long been a bright spot among the dark clouds, with prices falling nearly as quickly as brand names are rising,” says AARP executive vice president John Rother. “We encourage every consumer to talk to her doctor about safe, affordable alternatives that could save thousands of dollars each year.” The annual cost of three generic prescriptions has declined by $51 since last year to an average of $931. One generic medication cost the typical senior $310.

However, a minority of generic drugs that significantly dropped in price accounted for much of the decline in medication costs. Just 21 of the 185 generic prescription drugs studied decreased in price. Most (86 percent) of the generic drugs did not change in price between April 2009 through March 2010 and four generic drugs now cost more.

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

Costs for specialty drugs including biologic and injected drugs often used to treat cancer, multiple sclerosis, and other chronic conditions climbed 9.2 percent. Specialty drug costs can range from $1,000 to more than $20,000 per month. About two-thirds of specialty drug products increased in price over the course of the study.

Higher drug prices raise out-of-pocket costs for Medicare Part D beneficiaries when they are required to pay for a percentage of drug costs. Rising prescription prices could also cause more seniors to reach the donut hole gap in prescription drug coverage, which begins when a senior has spent $2,830 on medications in 2010. Part D beneficiaries must then pay all their drug costs until catastrophic coverage kicks in when a patient has spent $4,550 out-of-pocket.

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The health reform bill, signed by President Obama on March 23, gradually fills in the donut hole, but doesn’t completely close it until 2020. Medicare recipients who reach the gap this year will get a $250 rebate. Pharmaceutical manufacturers will be required to provide a 50 percent discount on brand-name prescriptions in the coverage gap beginning in 2011.