Desperate to Diminish “D”
There is a concerted effort taking place right now among pundits and bloggers on the left to demonstrate that the success of the Medicare Part D prescription drug program is an illusion. Contrary to conventional wisdom, they say, consumer choice and market competition have little or nothing to do with the cost savings the program has achieved.
So, why is this line of argument taking place right now? The next open season for Medicare Part D beneficiaries is still months away and, consequently, this program is usually not on Washington’s radar screens during the summer months.
In fact, the struggle to define the success of Part D is really all about the political battle over Medicare reform. You see, those who advocate moving toward a Medicare premium support model, one in which beneficiaries would have the opportunity to choose from a menu of private health plans, regularly cite the cost-effectiveness of Medicare’s prescription drug program to make their case. After all, by 2013, the exceedingly popular Part D program will still have costs 32 percent less than the Congressional Budget Office originally estimated.
It’s a pretty compelling case for choice and competition. Therefore, those who want to stop any movement toward a premium support model have to first destroy the Part D storyline.
So, in May, the left-leaning Center on Budget and Policy Priorities issued a paper saying that it’s not competition between private plans driving Part D savings. Instead, fewer beneficiaries than expected had enrolled in the Part D program, resulting in lower costs. And on top of that, there was a decline in growth for pharmaceutical sales throughout the healthcare system, and Part D was a fortunate beneficiary of this trend. Not surprisingly, liberal pundits picked up this baton and ran with it.
This week, though, Joe Antos of the American Enterprise Institute dug a little deeper into the numbers and found that the storyline being trumpeted by premium support opponents is, in fact, fatally flawed.
In his column on the website Real Clear Markets, Antos looked at the number of Part D beneficiaries and pointed out that, even if you increase that enrollment number to the level anticipated by CBO and multiply those additional individuals by the estimated federal cost per enrollee, that still only accounts for 17 percent of the Medicare Part D cost savings.
He also looked at the claims that Part D benefited from the national slowdown in pharmaceutical spending and found that the drop in drug spending was far greater in Medicare than it was in the overall health market. Antos further pointed out that, if Medicare Part D had been structured like fee-for-service Medicare and each prescription was paid for individually the way Medicare pays for other health services, costs would go up because the Medicare bureaucracy would have no incentive to encourage generic medications over brand-name drugs. Competing private plans have an incentive to reduce costs while still retaining the loyalty of their beneficiary customers, thus leading to Part D’s substantial savings.
As Antos writes, “Health plans freed from excessive regulation and perverse payment incentives are capable of finding better ways to provide the care patients need. And seniors, given the proper information, can navigate a system that offers them choices of competing plans.”
Medicare Part D has demonstrated that seniors can, in fact, successfully utilize a system that offers them multiple options for coverage. And contrary to the revisionists trying to rewrite Part D’s brief history, the program does serve as a model for using choice and competition to generate value.
