In The Fight At The Fiscal Cliff, Don’t Throw The Valuables Over The Side

Published December 6, 2012

While Washington political leaders are clashing at the edge of the Fiscal Cliff, they need to make sure they don’t throw the valuables over the side during the fight.

One of the ideas “on the table” in the Fiscal Cliff negotiations would target the Medicare Prescription Drug program with a new layer of rebates. This is a misguided idea that was included in a deficit-reduction plan by the Simpson-Bowles commission, which is being seen as a framework for the Fiscal Cliff negotiations.

While Part D may look like an easy place to pick up new money, the rebate plan would do much more damage in the long run by undermining a successful program that is saving both taxpayers and seniors money.

The Medicare Part D drug program is a rare government program that is under-budget. The program is costing taxpayers 46 percent less today than expected when Congress created the benefit in the Medicare Modernization Act in 2003.

It is saving money precisely because it relies on market forces – competition and consumer choice – and not the government price and benefit controls which plague other government programs.

And Part D is saving seniors money as well. The average basic premiums for free-standing Medicare prescription drug plans are half what they were expected to be at this point when the program was created – about $30 a month vs $60 a month based upon initial estimates.

Lower prices and more choices for seniors. Saving money for taxpayers. Those are not statements you see often in government programs, especially as prices elsewhere in the health sector continue to climb above the rate of inflation year after year.

The Simpson-Bowles proposal calls for mandatory Medicaid-level rebates for drugs used by Medicare Part D beneficiaries who also are eligible for Medicaid – so called “dual eligibles.” Duals are both poor and elderly, and many have multiple chronic conditions that can require numerous medications.

Simpson-Bowles would treat the Medicare Part D benefit for lower-income seniors like Medicaid, forcing drug makers to give kickbacks to the government – or rebates, in budget parlance. The rebate proposal is estimated to save $49 billion by the year 2020 by requiring drug companies to extend the Medicaid rebates to dual-eligibles.

This is just another tax that will undermine the successful Part D program and make it harder for lower-income seniors to get the drugs they need.

The reasons are complex, involving the bidding architecture of the program and enrollment numbers. Drug plans would have less incentive to participate, and competition would be diminished, undermining the forces that have led to the program’s success.

Today, private drug plans participating in Part D have an incentive to provide the greatest choice of drugs at the lowest price to attract the greatest number of participants. Seniors have shown they are smart shoppers who know how to search for value, selecting plans that provide them the medicines they know they need, a range of choices for drugs they may need in the future, and at the best price. The market is responding to these competitive forces.

Healthy seniors drive the success of the program, making more choices and lower prices available to duals as well.

More than 30 million seniors are enrolled in Part D plans. A recent survey conducted for the Healthcare Leadership Council by KRC Research found that 9 out of 10 seniors are satisfied with their prescription drug coverage for its cost, convenience, and coverage. A 2011 study in the Journal of the American Medical Association said that Part D drug coverage saves Medicare about $1,200 per beneficiary annually in lower hospital, nursing home and other medical costs.

The Simpson-Bowles Part D rebates would undermine competition, result in fewer choices of drugs for the sickest seniors, and wind up costing taxpayers and seniors more over the long run.

The Simpson-Bowles commission also recommended strengthening the powers of the Independent Payment Advisory Board, another bad idea that will put unelected technocrats in charge of Medicare spending decisions. They will gain control over hundreds of billions of dollars in Medicaid spending, with virtually no responsibility to heed the complaints of seniors or even members of Congress. The IPAB should be repealed, not strengthened.

Greater powers for the IPAB and the Part D rebate proposals should be tossed aside in the budget talks as bad ideas that would undermine a successful program – Part D – and make a bad program – IPAB – worse.

Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on free-market ideas for health reform. Originally published at