The swift passage by the Democrat-led House of a bill requiring the federal government to negotiate Medicare drug prices sets the stage for what is certain to be a key issue in the 2008 elections. The bill calls upon the Health and Human Services (HHS) secretary to negotiate with drug companies on behalf of seniors, while at the same time barring the government from setting up a formulary as a means of negotiating. Those who favor the bill say it will mean lower drug prices, thus keeping beneficiaries from falling into the "doughnut hole" gap in coverage.
The bill passed decisively, despite President Bush's promise of a veto–and a Congressional Budget Office report that estimated the bill would have little effect on federal spending because the HHS secretary would be unable to negotiate better prices on drugs than those negotiated by prescription drug plans now. "The real issue lurking in the background is price controls," says Paul Ginsburg, president of the Center for Studying Health System Change.
Companies are following the bill carefully–particularly those that still offer other post-employment benefits (OPEB) to their retirees. Standard & Poor's analyst Howard Silverblatt estimates that 280 companies on the S&P 500 index offer OPEB, which consists mainly of retiree drug benefits. And 78% of 302 big companies recently surveyed by Kaiser/Hewitt said they expect to offer prescription drug coverage in 2007.
Recommended For You
To be sure, companies are of two minds on the role of government in healthcare and retiree prescription drug benefits. While most are opposed to government entitlement programs, OPEB is a costly item for them to shoulder alone. Indeed, some experts predict companies will dump their OPEB and move retirees over to Medicare Part D plans to avoid the fallout from FAS 128, which required employers to move OPEB and pension liabilities out of the financial footnotes and onto the balance sheet as of Dec. 31, 2006. "Only 22% of it is funded. When [my OPEB obligations] go up 5%, it costs me 5% more," says Silverblatt, noting companies are desperate to remove the obligations. Says Helen Darling, president of the National Business Group on Health: "You can be assured that if the government were to offer to pick up the benefits, then companies would take them up on the offer. It would have a huge impact on corporate balance sheets."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
