Appeared in the Houston Chronicle on January 5, 2007
Late last month, the nation received some rare news: A federal program came in significantly under budget, costing about 30 percent less than expected.
The government announced that Medicare's prescription drug benefit has saved the nation $13 billion.
Despite this news, the newly-elected Congress has put making changes to the Medicare drug benefit high on its 2007 agenda. Incoming Speaker Nancy Pelosi (D-CA) has pledged to "fix" the Medicare Part D benefit within her first 100 hours by directing the federal government to "negotiate" drug prices.
Several of Pelosi's colleagues have already pledged their support in bringing Part D back onto the reservation of traditional, government-run programs where the government sets prices. They argue their plan would drive down drug costs even further.
After all, these traditional programs are working pretty well, aren't they?
Let's look at Medicare Part B, which covers doctor and out-patient hospital services, for example. Unlike Part D (the new drug benefit), traditional Part B offers coverage for a government-prescribed list of services at government-set prices. But, like most programs built on this model, costs are going up and access to care is declining.
Overall government spending on Part B has been shooting up in the range of 10% annually, year after year — well beyond the rate of inflation. By law, part of the runaway costs must be passed on to seniors. And to make matters worse, fewer and fewer physicians will accept Medicaid patients.
Nonetheless, in 2007, seniors enrolled in Medicare will have no choice but to pay roughly $98.40 a month for their Part B coverage. They already have seen their Medicare health insurance premiums climb by 68 percent since 2003.
If yearly premium increases are what you get from the traditional Medicare model, then Part D offers something completely different.
The new Part D drug benefit is a radical departure. Administered in large part by private-sector companies, Part D fosters competition between drug plans, which strive to offer consumers the best choices for the lowest price.
Since Part D coverage kicked in at the beginning of this year, the program has succeeded beyond the hopes of its designers.
Private plans offering the new drug benefit are aggressively negotiating lower drug prices with pharmaceutical companies, and their success is a big reason that the overall cost of the program is lower than expected.
When it comes to saving seniors money, premiums that seniors pay for drug coverage are nearly 35% lower than expected. The average cost is now less than $24 a month, a significant reduction from the average of $37 that Congress originally anticipated.
Thanks to the many options these plans provide, the drug benefit is also offering more and better choices than anyone imagined.
Some plans, for example, cost as little as $5 a month. Others eliminate the $250 deductible before coverage kicks in. And some plans provide partial or full coverage in the infamous "donut hole" so that seniors don't experience a big gap in coverage between moderate and high drug expenses.
Further, by leveraging the power of private-sector competition, Part D provides more drugs than the frequently-vaunted drug program run by the Department of Veterans Affairs. The VA benefit is what Part D would look like if Mrs. Pelosi gets her way.
Whereas Medicare covers nearly 90 percent of all prescription medications on the market, the Veterans' benefit uses a restrictive formulary determining which drugs can be prescribed. To save money, the VA offers only 38 percent of the drugs approved by the Food and Drug Administration in the 1990s, and only 19 percent of the drugs approved since 2000.
The broader choices in Medicare Part D plans are a big reason that most seniors are pleased with their coverage. Earlier this year, the Kaiser Family Foundation reported that more than eight in 10 seniors enrolled are satisfied with the plan they picked. Their experiences have been positive, and three out of four would pick the same plan again.
That's the power of competition.
The Medicare drug benefit is breaking new ground. Part D represents the first significant initiative to reign in runaway medical spending by restoring personal responsibility and savings incentives to Medicare. In doing so, it shows that government can leverage free-market forces to cut costs while giving seniors more choices.
Part D is a rare government programs that?s both successful and under-budget. Instead of trying to revamp it, Congress should apply the Part D model to other government programs. Perhaps there's a way to reduce federal spending even further.
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 320010, Alexandria, VA 22320, or at email@example.com.