Medicare's new prescription drug coverage will have significantly lower premiums and lower costs to federal taxpayers and states, as a result of stronger than expected competition in the prescription drug market and lower drug costs.

That is the view of Mark McClellan, who heads up the Centers for Medicare and Medicaid Services.

Last week, he announced that premiums are now expected to average $25 a month - well down from the $37 projected in last July's budget estimates - and the overall cost to taxpayers for 2006 will be 20% lower than forecast. And the savings have been achieved by lower costs, rather than any change in enrollment into the drug benefit plan, he stressed.

"The new drug coverage is the most important new benefit in Medicare in 40 years, and as a result of strong competition in the prescription drug marketplace, it will cost much less than had been expected," Dr McClellan said.

"With lower prices, more use of generic drugs, and other effective steps to slow down drug spending, the winners are the beneficiaries and the taxpayers."

Drug coverage in 2006 is now expected to cost the federal government $30.5 billion down from a previously estimated $38.1 billion.

For the 10-year period from 2006-2015, the ‘total’ Medicare drug benefit cost, without accounting for Medicaid savings, is now estimated to be about $130 billion less - $797 billion compared to an estimated $926 billion last year.

As of last month, about 24 million Medicare beneficiaries now have drug coverage, with about 3.6 million self-enrolled in the new stand-alone prescription drug plans and around 300,000 new enrollees in Medicare Advantage plans with drug coverage.