What a 76-cent drug premium decrease says about Medicare’s future
What does a 76-cent decrease in Medicare drug premiums say about the future of health policy?
That’s been the subject of much debate, ever since news broke last week that Medicare’s Prescription Drug Benefit premiums would drop from $30.76 in 2011 to $30 in 2012. This will be the first drop in premiums in the program’s six-year history.
The Medicare Prescription Drug Benefit, or Part D, is the only Medicare program delivered entirely by private insurers. The slight dip in premiums has set off a new round of debate about how private insurance fits into Medicare. Mother Jones’ Kevin Drum has gone as far as to declare Part D’s success a “ neoliberal dilemma .”
Run the slight premium decrease by health policy experts on both sides of the Part D debate, and you get a much more measured response: while Medicare Part D has served its target population well - much better than Democrats initially projected - it does not necessarily lay the groundwork for private insurance in the rest of Medicare.
Part D has, by most measures we’d judge an insurance program, been successful. It increased seniors’ prescription coverage: from 66 percent in 2004, before Part D launched, to 90 percent by 2009 . The program is “welfare generating:” in a 2008 study, Boston University’s Austin Frakt found that every dollar of benefit that seniors got from the program only cost the government 71 cents. Public polls show that seniors generally like it.
Many liberal health policy experts will contend that a different design - namely, one allowing the government to negotiate lower prices - would have produced a better and less expensive plan. But there’s little disagreement that what we have now is an improvement from the baseline we started with in 2006: no Medicare prescription drug coverage option at all.
“The Part D program is by no means perfect, but it does do a lot of good things,” says Frakt. “One thing that it does have is a sound design in terms of competition. There is something to that but that’s only part of the story.”
Like Frakt, most will point to the competition between plans, whose bids set the baseline for how much premiums cost each year, as having played a positive role. Right now, over two-dozen plans compete for more than 2 million seniors’ business. “It’s a competitive market and we’re seeing effects of good competition among Part D plans,” CMS administrator Don Berwick told reporters on a call last week.
Understanding just how much of Part D’s success can be attributed to that competition, however, is tricky.
The overall cost of Part D has come in lower than original CBO projections --but so has enrollment. Plan D premiums, too, are 44 percent lower for next year than originally projected. But that’s after prescription drug prices have also trended downwards.
One big factor in this year’s premium drop, many say, is that the price of four of Medicare’s most prescribed drugs - Lipitor, Zyprexa, Seroquel and Plavix - are set to go generic later this year.
“Those drugs alone represented $7 billion in Part D costs in a program that’s about $74 billion,” says Jack Hoadley, director of the Georgetown Health Policy Institute’s Medicare Part D Research Project. “Even if we have a conservative guess...and say we cut that $7 billion in costs, that’s 5 percent of the program’s budget.”
With the unique factors at play in the prescription drug market, it’s hard to say whether the model would work in Medicare programs that cover hospital stays and doctor visits.What’s important about Part D, says Mark Hayes, who served as Sen.Chuck Grassley’s (R-Iowa) top staffer on Part D, is it was “essentially a proof of concept,” and one that had not been tried before. "What Part D has shown for the first time in Medicare is that a completely private plan delivery system works,” he says.
But that does not, in his view, create a clear path forward for private insurance in the rest of the entitlement program.
“There certainly are some differences,” says Hayes. “Part D was beginning at a time when there was no other comprehensive drug benefit in Medicare. There wasn't a traditional drug benefit that Part D would have to compete with. Drug pricing is generally also more uniform throughout the country, although there are utilization differences.”