Manhattan Moment: Obama and Biden will turn Medicare into Medicaid

Published October 14, 2012

Vice President Biden: “If we just did one thing, if we just — if they allow Medicare to bargain for the cost of drugs like Medicaid can, that would save $156 billion right off the bat.”

In his debate with Paul Ryan last Thursday, Vice President Biden basically proposed demolishing Medicare Part D, the enormously successful — and bipartisan — program for covering prescription drugs for seniors. Today, Medicare Part D strikes a careful balance between protecting seniors from high drug costs, while encouraging pharmaceutical companies to invest in the next generation of treatments for serious diseases like Parkinson’s, depression, Alzheimer’s and cancer. Biden’s plan would destroy that balance, imperiling innovation, killing jobs and threatening seniors’ access to innovative medicines.

The federal government doesn’t “bargain” through Medicaid. Rather, it sets prices and expects drug-makers to follow. Extending those price controls to Medicare would diminish U.S. based innovation and kill jobs.

Part D may be the most successful part of Medicare today. It provides a safety net for seniors, protecting them from high drug costs, while also giving them an incentive to shop for the most cost-effective private-sector drug plans that cover the medicines they need.

The program has been an enormous success by every reasonable measure. Compared to initial projections in 2005, Medicare Part D spending is over 40 percent below government estimates.

The nonpartisan Congressional Budget Office, the Medicare Trustees, and the Centers for Medicare & Medicaid Services (the government department that runs Medicare) agree that competition between private plans — a system called competitive bidding — has helped keep Part D’s costs low.

In fact, the average bid submitted by Part D plans this year (to take effect in 2013), was actually lower ($79.64) than the bid in the plan’s first year, 2006 ($92.30). The actual cost to seniors is subsidized, with average monthly premiums around $30. The lowest-cost Part D plan for seniors, offered by United Health, costs just $15 a month.

Even former Obama administration Medicare chief Don Berwick, who “loves” Britain’s single-payer health care system, has said that “a competitive market and good competition among Part D plans,” played a leading role in keeping Part D costs below estimates.

The principle behind Medicare Part D is simple: Private prescription drug plans negotiate with drug companies to get the lowest prices possible on their medicines, both branded and generic. Plans cover a basic menu of drugs, as required by Medicare, but have the power to tweak their formularies beyond that, to offer seniors the best mix of coverage and pricing.

The Medicare Trustees find that “many brand name prescription drugs carry substantial rebates,” ranging from 20 to 30 percent, and that such rebates have increased (on average) since the program’s inception.

A recent survey found that 90 percent of seniors in Part D are satisfied with their coverage. Among potentially vulnerable populations, 91 percent of poor seniors (making less than $15,000 annually) were satisfied, along with 83 percent of seniors with disabilities, and 90 percent of those with chronic ailments.

Inflicting Medicaid price controls on Part D would have many effects, almost all of them bad. A 2011 study by the American Action Forum of a similar proposal to the one Biden discussed on Thursday night, to apply Medicaid price controls to “dual eligibles” (who are enrolled in both Medicare and Medicaid) and low-income seniors in Part D, would save the government $135 billion over 10 years.

But they also found that the proposal would kill 238,000 jobs in the pharmaceutical and related industries by 2020. To add insult to injury, the authors of the report wrote that “the rebates would make at least some drugs money-losers; these drugs would be withdrawn from the market,” because companies could no longer recoup the enormous costs of bringing those medicines to market. Seniors, in other words, would lose access to these medicines.

Facing sharply reduced profits, pharmaceutical companies could also be expected to reduce investments in new medicines. One early study (2006) from the Manhattan Institute that examined the potential effects of price controls on Part D found companies would bring six to 12 fewer medicines to market every year.

Perhaps someone should ask President Obama or Vice President Biden which cures they are willing to let Americans go without.

The administration often derides its opponents for their supposed disregard for the suffering of vulnerable Americans who are dependent on safety net programs like Medicare.

But imposing Medicaid price controls on Medicare would harm the most vulnerable and sickest seniors today and in the future. Worse yet, it would irreparably damage a program — Part D — that is working to offer seniors high quality drug coverage at an affordable cost.

Turning Medicare into Medicaid is clearly their plan. But what are they really trying to accomplish?

Paul Howard is the director of the Manhattan Institute’s Center for Medical Progress. He is also a member of Mitt Romney’s Health Care Policy Advisory Group. Originally posted by the Washington Examiner at