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.