[WSJ] WASHINGTON (Dow Jones)–A plan unveiled this week by the pharmaceutical industry to reduce health-care costs in the U.S. by $80 billion will help consumers’ wallets but will put the government on the hook for a greater share of drug costs, according to health-care experts.

President Barack Obama Monday embraced a plan under which pharmaceutical companies will slash drug costs for elderly Americans who participate in the federal government’s Medicare Part D program and whose annual prescription drug use costs between $2,700 and $4,350.

This gap in coverage is referred to as the ‘donut hole’ because the government will help people pay for prescription drugs anywhere outside of that range. The hole exists because Congress didn’t want to overburden the federal budget when it passed the Medicare Part D program in 2006.

The drug industry’s main lobby, PhRMA, said under the plan companies would cover up to 50% of drug costs while a person’s drug expenses fall in the donut hole. About 3.4 million Americans fall into this hole, meaning they have to cover the full cost of their prescription drugs, according to data from the non-profit Kaiser Family Foundation.

Consumer advocates welcomed the industry’s commitment but said the donut hole should be completely closed. “It is good the pharmaceutical industry has stepped up to the plate and said ‘we will help’,” said Steve Findlay, a senior health-policy analyst at the Consumers Union. But he said the hole should be phased out.

Findlay and others remain cautious about the plan because few details about how it will work have been released. Unlike earlier commitments by the pharmaceutical industry to reduce health-care costs, this one has teeth. The plan will be included in a health-care reform proposal being drafted by the Senate Finance Committee, according to a congressional aide with the committee. The aide wouldn’t elaborate on details of the plan.

While the proposal would help consumers, it will also likely increase sales for drug companies because people frequently stop taking their medication once they have to pay for them out of pocket.

Ken Johnson, a senior vice president at PhRMA, acknowledged that the plan may increase sales of certain drugs but said $80 billion will still be coming off drug companies’ balance sheets. “If that’s not a sacrifice, I don’t know what is,” he said. He added that the real payoff is for patients who will now be able to afford their prescription drugs.

Johnson wouldn’t provide more details of how the plan will work, saying they are still working with Congress on the issue.

Bonnie Washington, a vice president at Avalere Health LLC, said the plan will likely, at least in the short term, boost the amount the federal government has to pay under Medicare Part D. The plan essentially speeds people through the donut hole to the point where their drug expenses will be supported by the government, she said. Washington previously worked for Novartis AG (NVS) and the Center for Medicare and Medicaid Services under President Bill Clinton.

In the long run, she said, the plan could reduce health-care costs because it will keep people on their medications and keep them away from costly hospital visits that can be avoided by continuing to take their drugs.

-Jarod A. Favole