The new Medicare drug benefit has been criticized as too expensive, too risky, and too complicated. But that hasn’t kept Delaware’s seniors from signing up. The state leads the nation in voluntary enrollments. As of last month, 42 percent of the state’s eligible seniors have signed up for coverage. The national average is just 24 percent.
What have Delaware’s seniors figured out that so many naysayers in the rest of the country haven’t?
Critics like to say that the Medicare “Part D” program is an expansion of an already bloated Medicare system. The reality is that Part D marks an important departure from traditional Medicare. It takes a different, free-market approach toward providing benefits — an approach that so far appears to be resulting in lower prices and more choices. Delaware’s seniors have taken notice.
There’s a stark contrast between the original Medicare “Part B” (which covers doctor’s visits) and the new Part D (which covers drugs). The Centers for Medicare and Medicaid Services announced that the premium for Medicare Part B rocketed up 13 percent this year. At almost the same time, the Centers revealed that the drug program is turning out to be cheaper — and allowing greater choice — than anyone expected.
Premiums for Part D average just $25 a month. And 93 percent of beneficiaries have access to a plan with a premium of less than $15. Meanwhile, every state offers at least one plan that has no deductible.
In Delaware, for example, Medicare beneficiaries have a choice of about 47 prescription drug plans, with premiums that start at just $6.44 a month. That’s a lot lower than the $37 predicted by Congress.
Not only are Part D premiums cheaper than expected. Seniors will save even more money when they actually use the benefit to buy their drugs.
Take, for example, someone who is spending $2,400 annually on prescription medicines. Under the new drug benefit, he will pay approximately $885 in premiums, deductibles, and co-payments. His drug plan will pick up the remaining $1,515.
Meanwhile, a person with high drug costs of $12,000 per year will pay only about $4,000, or one-third the total price. In other words, he will save a dramatic $8,000.
By introducing free-market incentives, Part D marks a radical departure in the way Medicare is run.
With the traditional Medicare Part B program, there is no competition or choice. Seniors receive services, and doctors are paid on a “fee for service” basis. But as usage goes up — along with costs — seniors have no alternative but to fork over more money. The drug program is different.
Private companies compete to offer the best plans to seniors, who can pick and choose what’s right for them.
The result isn’t just lower prices. The increased competition also has created more choice for seniors.
Already, 10 private companies offer the new drug benefit nationwide, and many more insurers sell coverage in specific states and regions. Each company can offer customers several options, with different combinations of benefits and co-payments.
The drug plans must provide access to drugs in every therapeutic category defined by CMS. And they must keep prices low to compete. Importantly, though, they have full authority to negotiate drug prices with pharmaceutical companies — generally winning discounts for buying in bulk.
The drug plans also have substantial freedom in structuring benefits. A plan can, for instance, waive the $250 annual deductible and offer coverage in the dreaded doughnut hole.
As a result, the drug plans are competing vigorously to offer the best deal to potential customers. Seniors are free to shop around for the best price and a set of benefits that suits their needs.
While elderly citizens enjoy an average $25-a-month premium under Part D, they are forced to pay $88.50 a month for their Medicare Part B benefit this year. Medicare health insurance premiums have gone up 51 percent since 2003.
This steady increase, which seniors have no choice but to swallow, is typical of government-run systems that shun the free market.
Medicare Part D points us in a new direction. And it offers a simple lesson for all government programs: Competition brings about more choices and lower prices, while a lack of competition does just the opposite. Delaware’s seniors are smart to take advantage.
Grace-Marie Turner is president of The Galen Institute, a non-profit organization devoted to health policy research and education.