How Medicare Part D Prescription Plans Are Affecting Drug Prices

Two separate reports by AARP and Families USA (FUSA) supposedly have offered proof that the new Medicare Part D Drug Prescription plans were not working. Drug prices, according to these recent reports, continue to spiral and Medicare Part D is doing virtually nothing to protect seniors from these higher costs.

 

These studies had their intended effect. They were instantly picked up by the media and then shouted from mountain tops by activists to bash private-sector Part D plans and to pressure Congress to bring Part D back onto the reservation of traditional, government-run programs.

 

After all, Medicare Part A (in-hospital care) and Part B (doctor and out-patient hospital services) are working pretty well, aren?t they?

 

Well, no. What you don't find in government-does-it-better AARP/FUSA studies is how poorly bureaucratically-run Medicare programs are faring. By offering very little consumer choice and virtually no competition among providers, these programs not only have coverage and quality-of-care issues, they are rapidly becoming a major financial burden for seniors.

 

Consider Part B. Overall government spending on Part B has been shooting up in the range of 10% per year, year after year — well beyond the rate of inflation. And part of the runaway costs are, by law, passed on to Part B beneficiaries. In 2007 seniors will have no choice but to pay roughly $98.40 a month for their Part B coverage. The operational phrase is "no choice" as traditional Medicare health insurance premiums will then have climbed 68 percent since 2003.

 

If yearly premium increases are what you get from a government program and ham-handed intervention in the marketplace, why is the AARP/FUSA coalition demanding more of the same? Because the government will pay. But guess what? The government is you. Seniors and taxpayers will pay the bill.

 

Which brings us to the question: What's really happening with Medicare Part D Drug Prescription plans? Are they just more of the same?

 

The answer is a resounding "No." Medicare Part D drug plans are the first fundamental reform of the traditional Medicare model. Administered in large part by private sector providers, Part D brings in competition between providers as well as choice for consumers. The cost savings are significant.

 

Since Part D coverage began on January 1 of this year, unbiased research by both government and independent auditors is showing that Part D is succeeding beyond the hopes of its designers.

 

Drug plan premiums for seniors are nearly 35% lower than expected, down from the $37 a month that Congress had anticipated to an average of less than $24 a month. And 90 percent of seniors are now enrolled in Part D coverage.

 

In a study released in June, the government's Centers for Medicare and Medicaid Services (CMS) found seniors with Medicare prescription drug plans save up to 72% in a year compared to the average cash prices that they would have paid without coverage.

 

IMS Health, the world's leading provider of pharmaceutical data, reports that retail drug costs, including the effect of both increased use of medicines and price increases, grew by 5.4% in calendar year 2005 but only 4% for the 12 months ending March 2006.

 

Lower-than-expected drug costs and higher-than-expected price breaks negotiated by Medicare drug plans have resulted in reduced costs to government. Overall costs for the Part D program are expected to be $110 billion lower over the next five years and a whopping $302 billion lower over the next 10 years than the government projected just last year.

 

The AARP and FUSA studies focused solely on a selected group of brand name medicines, conveniently ignoring the mix of brands and generics that today's seniors actually use. About half of all prescriptions filled today in the U.S. are for generics, and consumers typically experience price drops with generics — as much as 80% — while continuing to use a drug with the same active ingredient.

 

Part D insurers are also passing on to beneficiaries the savings gained from rebates and negotiated discounts with manufacturers. These savings make premiums lower and deductibles possible, or, if seniors prefer, enhanced insurance coverage.

 

The AARP and FUSA "research" is resonating in the news. But policymakers, scholars and informed seniors know that, in fact, Part D is working. And working extraordinarily well.

 

Part D represents the first significant initiative to reign in runaway medical spending by restoring personal responsibility and savings incentives to Medicare.

 

The word of the program's success can and will get out.

 

*************

Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on free-market solutions to health reform. She can be reached at P.O. Box 19080, Alexandria, VA, or at galen@galen.org

 

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Two separate reports by AARP and Families USA (FUSA) supposedly have offered proof that the new Medicare Part D Drug Prescription plans were not working. Drug prices, according to these recent reports, continue to spiral and Medicare Part D is doing virtually nothing to protect seniors from these higher costs.

 

These studies had their intended effect. They were instantly picked up by the media and then shouted from mountain tops by activists to bash private-sector Part D plans and to pressure Congress to bring Part D back onto the reservation of traditional, government-run programs.

 

After all, Medicare Part A (in-hospital care) and Part B (doctor and out-patient hospital services) are working pretty well, aren?t they?

 

Well, no. What you don't find in government-does-it-better AARP/FUSA studies is how poorly bureaucratically-run Medicare programs are faring. By offering very little consumer choice and virtually no competition among providers, these programs not only have coverage and quality-of-care issues, they are rapidly becoming a major financial burden for seniors.

 

Consider Part B. Overall government spending on Part B has been shooting up in the range of 10% per year, year after year — well beyond the rate of inflation. And part of the runaway costs are, by law, passed on to Part B beneficiaries. In 2007 seniors will have no choice but to pay roughly $98.40 a month for their Part B coverage. The operational phrase is "no choice" as traditional Medicare health insurance premiums will then have climbed 68 percent since 2003.

 

If yearly premium increases are what you get from a government program and ham-handed intervention in the marketplace, why is the AARP/FUSA coalition demanding more of the same? Because the government will pay. But guess what? The government is you. Seniors and taxpayers will pay the bill.

 

Which brings us to the question: What's really happening with Medicare Part D Drug Prescription plans? Are they just more of the same?

 

The answer is a resounding "No." Medicare Part D drug plans are the first fundamental reform of the traditional Medicare model. Administered in large part by private sector providers, Part D brings in competition between providers as well as choice for consumers. The cost savings are significant.

 

Since Part D coverage began on January 1 of this year, unbiased research by both government and independent auditors is showing that Part D is succeeding beyond the hopes of its designers.

 

Drug plan premiums for seniors are nearly 35% lower than expected, down from the $37 a month that Congress had anticipated to an average of less than $24 a month. And 90 percent of seniors are now enrolled in Part D coverage.

 

In a study released in June, the government's Centers for Medicare and Medicaid Services (CMS) found seniors with Medicare prescription drug plans save up to 72% in a year compared to the average cash prices that they would have paid without coverage.

 

IMS Health, the world's leading provider of pharmaceutical data, reports that retail drug costs, including the effect of both increased use of medicines and price increases, grew by 5.4% in calendar year 2005 but only 4% for the 12 months ending March 2006.

 

Lower-than-expected drug costs and higher-than-expected price breaks negotiated by Medicare drug plans have resulted in reduced costs to government. Overall costs for the Part D program are expected to be $110 billion lower over the next five years and a whopping $302 billion lower over the next 10 years than the government projected just last year.

 

The AARP and FUSA studies focused solely on a selected group of brand name medicines, conveniently ignoring the mix of brands and generics that today's seniors actually use. About half of all prescriptions filled today in the U.S. are for generics, and consumers typically experience price drops with generics — as much as 80% — while continuing to use a drug with the same active ingredient.

 

Part D insurers are also passing on to beneficiaries the savings gained from rebates and negotiated discounts with manufacturers. These savings make premiums lower and deductibles possible, or, if seniors prefer, enhanced insurance coverage.

 

The AARP and FUSA "research" is resonating in the news. But policymakers, scholars and informed seniors know that, in fact, Part D is working. And working extraordinarily well.

 

Part D represents the first significant initiative to reign in runaway medical spending by restoring personal responsibility and savings incentives to Medicare.

 

The word of the program's success can and will get out.

 

*************

Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on free-market solutions to health reform. She can be reached at P.O. Box 19080, Alexandria, VA, or at galen@galen.org

 

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