Frequently Asked Questions

Guidelines for Citing BEA Information | ID: 170 | Created: Feb-24-2006
Answer

How is the Medicare Prescription Drug Plan reflected in the NIPAs?

Overview

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Public Law 108-173), initiated the Medicare Prescription Drug Plan on January 1, 2006. (The plan is popularly known as Medicare "Part D.") The plan affects significantly the availability and consumption of prescription drugs by certain U.S. consumers. The National Income and Product Accounts (NIPAs) reflect Medicare Prescription Drug Plan transactions beginning with the January 2006 estimates of personal income and outlays. Plan transactions are also reflected in quarterly and annual estimates of gross domestic product and income beginning with the first quarter of 2006. This FAQ briefly describes the key plan transactions, highlights NIPA transactions that are affected by the plan, and indicates where more information about the plan is available.

Key features of the Medicare Prescription Drug Plan

The Medicare Prescription Drug Plan is a voluntary federal government program that is designed to increase the availability and reduce the cost of out-patient prescription drugs to retirees and other eligible persons covered by Medicare. To receive benefits, persons must be enrolled in an approved insurance plan that has a prescription drug component, pay the required premiums, and meet the mandated deductibles. Beneficiaries who qualify for Medicaid are automatically enrolled in the program if they do not select a plan on their own.

Key Medicare Prescription Drug Plan transactions

The Medicare Prescription Drug Plan features four key transactions: Premium payments from enrollees; payments to qualified drug providers on behalf of beneficiaries; "clawback" payments; and "incentive payments." The latter two transactions are described in more detail below.

Medicaid "clawback" payments. Because the Medicare Prescription Drug Plan covers costs formerly covered by Medicaid, the MMA includes a provision requiring that a portion of Medicaid savings realized by state governments be remitted back to the Federal government in recognition of these reduced Medicaid costs. These remittances have been labeled "clawback" payments.

Incentive payments. Given that many retirees are enrolled in their former employers' insurance plans that have an approved prescription drug component, the MMA includes a provision for payments to employers as incentives to continue providing prescription drug coverage to their retirees.

NIPA transactions that are affected by the Medicare Prescription Drug Plan

Government receipts and expenditures account

Premium payments made to prescription drug plans by beneficiaries of the Medicare Prescription Drug Plan are treated as contributions for government social insurance.

Federal government payments for prescription drugs are recorded as government social benefits to persons. These payments include payments made directly to approved prescription drug insurance plans and to employer insurance plans (the previously mentioned "incentive payments") for prescription drugs that are purchased by beneficiaries.

Federal payments to states for Medicaid are recorded in the NIPAs as grants-in-aid to state and local governments. The MMA requires that states return a portion of their savings as the Medicare Prescription Drug Plan assumes coverage for persons formerly receiving prescription drugs under the Medicaid program. Outlays of Federal Medicaid grants have not decreased directly; however, states remit the aforementioned savings back to the Federal government. The remittances ("clawback" payments) are recorded as negative Federal expenditures for grants-in-aid to state and local governments, and as negative state receipts of grants-in-aid to state and local governments.

Administrative expenses to operate the program are recorded as Federal consumption expenditures.

Gross domestic product (GDP)

Within personal consumption expenditures (PCE), consumption expenditures for prescription drugs are included under the PCE healthcare function and as a product category under PCE other nondurable goods.

Federal consumption expenditures and gross investment increased as a result of the costs to administer the new program.

Personal income and outlays

As described above, government social benefits for Medicare include payments made directly to approved prescription drug insurance plans and incentive payments made to employer insurance plans.

Contributions for government social insurance include the premium payments made by beneficiaries of the Medicare Prescription Drug Plan.

Personal outlays reflect purchases of prescription drugs in personal consumption expenditures.

Estimates of the plan's effects. The source data that BEA normally uses to estimate Medicare transactions in the NIPAs reflect Prescription Drug Plan transactions; however, these data do not always permit BEA to separately identify all plan-related effects. Therefore, BEA does not show separate estimates of the plan's effects in monthly Personal Income and Outlays releases, in quarterly GDP releases, or in NIPA tables.

More information about the Medicare Prescription Drug Plan

For more information about the Medicare Prescription Drug Plan, please visit the Center for Medicare and Medicaid Services: http://www.cms.hhs.gov/PrescriptionDrugCovGenIn/

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