Research & Commentary: Medicare Part D’s Success

Published May 14, 2014

Medicare Part D has been a great success by most objective measures. Despite the program’s success, the Centers for Medicare and Medicaid Services and the Obama administration have begun to call for a change in the pricing rules of the prescription drug program. 

Currently under Part D, private insurance plans compete against each other for the business of senior Medicare recipients, offering different benefits, costs, and levels of coverage. Seniors choose which plan works best for them, and the government subsidizes the premiums. This competition leads to lower prices for seniors and lower costs for taxpayers: Unlike other government health care programs, Medicare Part D has cost much less than originally estimated. 

One proposal, which has been withdrawn by the Obama administration but is likely to be considered in the future, is a set of proposed rules from CMS that would limit the number of Part D plans that can be offered in a particular region, weaken the current guarantee that certain classes of medications must be fully available to patients with serious illnesses, and limit the ability of health plan providers to negotiate with pharmacies and suppliers to reduce drug costs. 

The CMS proposal would drastically reduce the number of plans available to seniors. A study by Avalere Health found the rule change limiting the number of prescription drug plans (PDPs) per region could end up forcing 39 percent of all enhanced plans to be eliminated in 2016. The Avalere study also forecast that the regional limit, which holds standalone PDP sponsors to one basic and one enhanced plan per region, would require “214 of the current 552 enhanced PDPs to be terminated or consolidated with an existing plan.” The new rules also would dramatically increase the cost of the program. A study by the Milliman actuarial firm concluded the rules would raise the cost of Medicare Part D by $1.6 billion per year.

Although the proposed rules have been pulled for now, CMS Administrator Marilyn Tavenner noted in a letter to Congress that similar changes will be considered in the future: “We will engage in further stakeholder input before advancing some or all of the changes in these areas in future years.” Rep. Renee Ellmers of North Carolina is sponsoring H.R. 4160,  the Keep the Promise to Seniors Act, which would prevent these rules from being implemented.

Medicare Part D has saved billions of taxpayer dollars by replacing price controls with market discipline, and it provides medications to the neediest of Americans at a lower cost than was expected. The CMS proposal would increase costs for providers and beneficiaries, limit competition, and decrease seniors’ access to vital prescription drugs. Instead of foisting unnecessary changes on a successful program, legislators should be using the market mechanisms at the heart of Part D as a model for overall Medicare reform.

The following articles examine Medicare Part D and the proposed changes to the competitive bidding process from various perspectives. For more information on Medicare Part D, visit The Heartland Institute’s Medicare Part D Web site at

A Decade of Success: How Competition Drives Savings in Medicare Part D
Paul Howard and Yevgeniy Feyman of the Manhattan Institute review data from the Centers for Medicare and Medicaid Services, the Congressional Budget Office, and other sources to determine which factors—market competition, patent expirations, or other national trends (including private-sector innovations such as tiered formularies and preferred networks)—explain the overestimates of Part D costs.

Proposed Rules for Part D Would Create Undue Disruption for Seniors
In this Heritage Foundation Issue Brief, Alyene Senger and Robert Moffit examine the Obama administration’s proposed Medicare rule. The rule would undercut patient choice and reduce the competition that controls costs in Medicare Part D. They conclude: “Bottom line: The Administration’s effort to cancel or reduce Part D plans was no more popular than its policy to cancel plans or reduce competition in the commercial health insurance markets. As the Administration reevaluates the rules, it would be wise to avoid the same mistakes as the original plan.” 

How Medicare Part D Beat the Odds—and Why Policymakers Should Care
David Kendall of Third Way praises Medicare Part D and argues consumers will save money if given choices and support in making coverage decisions; smart policy changes will reduce costly hospital stays; and automated tools can identify and enroll low-income populations. 

Survey: Medicare Prescription Drug Benefit Earns High Marks 10 Years After Enactment
This release from Medicare Today discusses the results of a nationally representative survey that found nine out of 10 seniors with Medicare prescription drug coverage are satisfied with their coverage: “Ninety-seven percent report that their coverage works well, and nearly three out of four seniors say it works ‘very well.’ Additionally, the survey results show that overall satisfaction remains constant at 90 percent from the previous year and in line with the upward trend from 78 percent to 90 percent seen since the Part D program was first implemented in 2006.” 

Competition and the Medicare Part D Program
Douglas Holtz-Eakin of the American Action Forum argues the Medicare Prescription Drug Benefit (Part D) has been an unmitigated success: “A market-based approach to further federal entitlement program [sic] offers additional opportunities for controlling taxpayer costs and generating high levels of beneficiary satisfaction.” 

Part D Can Be a Model for Medicare Reform
Grace-Marie Turner of the Galen Institute examines Medicaid for potential savings. For a Congress divided over where and how best to reduce spending, tackling the issue of chronic diseases should be a national priority in the broader Medicare reform debate. The question is, how best to do it? There is one program that offers a solution, a program that has been consistently popular and under budget since its enactment: the Medicare prescription drug benefit (Part D), Turner argues. 

Increasing Medicare Part D Enrollment in Medication Therapy Management Could Improve Health and Lower Costs
Bruce Stuart, F. Ellen Loh, Pamela Roberto, and Laura M. Miller contend targeting efforts to improve medication adherence, especially among people with high health-care needs, can improve health and lower health care spending. To this end, Medicare requires insurance plans that provide prescription drug (Part D) coverage to offer specialized medication therapy management services to optimize medication use for enrollees with high drug costs, multiple chronic diseases, and multiple covered drugs. 

Medicare Drugs: Why Congress Should Reject Government Price Fixing
Medicare Part D drug prices are currently set by private negotiation within a market of intense competition among drug plans. A proposal by U.S. Sen. Amy Klobuchar (D–MN) would replace that with government “negotiation.” Writing for The Heritage Foundation, Robert E. Moffitt argues the proposal would gut Medicare Part D, a program that has exceeded expectations in the breadth of nationwide health plan participation, stable and low-cost premiums for Medicare beneficiaries, and a stunning “bend in the cost curve” unique in the health care sector of the economy.

The Case for Competition
Writing for The Heritage Foundation, James C. Capretta argues a market-based approach to reform would harness the power of financial incentives to encourage health care consumers to choose the best, most efficient means of getting services and would reward providers for finding ways to deliver more for less. Capretta argues Medicare Part D provides strong evidence that competition and consumer choice can control the growth of health care costs for Medicare beneficiaries. 

Obama’s Medicare Part D Changes Undermine Successful Program
James L. Martin of the 60 Plus Association discusses the efforts to change the Medicare Part D program and opposes the proposed price controls. Conservatives were vocal champions of Medicare Part D in last year’s national election because it has proven that free-market reforms work and can be a significant contributor in curing our healthcare and budget ills,” he writes. “The president should acknowledge the success of Part D instead of attempting to undermine it. If he truly cared about seniors and strengthening Medicare for future retirees, he would build on this model of reform and quit trying to fix the one thing in Washington that ‘ain’t broke.'” 

Cost Shifting Debt Reduction to America’s Seniors: Medicare Part D Rebates Would Dramatically Increase Drug Premiums
Douglas Holtz-Eakin and Michael Ramlet find imposing a Medicaid-style rebate in the Medicare Part D program would likely raise monthly premiums for seniors by 20 to 40 percent. 

Medicare: Negotiated Drug Prices May Not Lower Costs
Alain Enthoven and Kyna Fong examine the claim that allowing the government to negotiate with pharmaceutical companies would lead to lower prices than those achieved by private drug plans. Enthoven and Fong provide several reasons why this is not the case. 

Don’t Sink Medicare Part D With Price Controls: A TCCRI Issue Brief
The Texas Conservative Coalition Research Institute argues against the imposition of price controls on Medicare Part D: “Medicare Part D is a real rarity: a government program that works. Part D provides seniors the medicines they need and keeps costs down. Washington should use Part D’s free-market approach to modernize other entitlements, not sink Part D through the failure of price controls.” 

Tampering with Part D Will Not Solve Our Debt Crisis
Joseph Antos and Roland (Guy) King of the American Enterprise Institute examine the possible effects of establishing a rebate to the government for low-income seniors under Medicare Part D. Although legislating a rebate in Part D may change who pays what amount for the drugs, it will not lower the cost of the products, the authors conclude: “Higher-income enrollees could see their costs rise or benefits deteriorate as a consequence of the rebate policy. Medicare might also face higher costs because of the poorer deals negotiated by Part D plans, undercutting net savings to the government after factoring in the rebate revenue.” 

The Effect of Medicare Part D on Pharmaceutical Prices and Utilization
Professors Mark Duggan and Fiona Scott Morton evaluate the effect of Medicare Part D on the price and utilization of pharmaceutical treatments. Using data on product-specific prices and quantities sold each year in the United States, they found Part D substantially lowered the average price and increased the total utilization of prescription drugs by Medicare recipients. The results further indicate the magnitude of these average effects varies across drugs, as economic theory predicts.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at 

If you have any questions about this issue or the Heartland Institute Web site, contact Heartland Institute Government Relations Director John Nothdurft at [email protected] or 312/377-4000.