Policy Documents

Cost Shifting Debt Reduction to America’s Seniors: Medicare Part D Rebates Would Dramatically Increase Drug Premiums

Douglas Holtz-Eakin and Michael Ramlet –
July 21, 2011

Congress is considering changes to the Medicare prescription drug program, known as Part D, which created a competitive market for prescription drug plans and has proven to be a dramatic success in controlling prescription drug costs.

The changes would subject Medicare Part D to the mandatory prescription drug rebates that currently apply to Medicaid. Medicaid requires pharmaceutical manufacturers to pay a minimum federal rebate on prescription drugs purchased by the program’s beneficiaries. Part D, by contrast, relies on private rebates negotiated directly between prescription drug plans and manufacturers.

This report finds imposing a Medicaid-style rebate in the Medicare Part D program would likely raise monthly premiums for seniors by between 20 to 40 percent.

Medicare Part D has been successful because it has harnessed competition for the benefit of Medicare beneficiaries. Imposing a Medicaid-style approach to Medicare Part D would put the popular program at risk. While federal policymakers must indeed tackle the unsustainable growth in entitlement programs, including Medicare, this report finds imposing mandatory prescription drug rebates in Part D is not the solution. Imposing such rebates would dramatically raise, not lower, the premiums paid by America’s seniors and seriously undermine proven success in harnessing competition in entitlement programs.