With the budget battles moving to center stage, entitlements must be part of the debate.
In his State of the Union address, President Obama highlighted the need to reform our nation’s entitlement programs, specifically citing the need for “modest reforms” of Medicare and Social Security so they don’t “crowd out the investments we need for our children and jeopardize the promise of a secure retirement for future generations.”
House Budget Chairman Paul Ryan (R-Wis.) has proposed a plan to convert Medicare into a market-driven program with more competition and choices for seniors while putting it on a path to long-term sustainability.
Senate Budget Committee Chairman Patty Murray (D-Wash.) did not include entitlement reform in her budget, but it will be impossible to ignore Medicare, a program that covers nearly 50 million Americans and which will spend $508 billion this year, in the budget fights. With the number of baby boomers turning 65 expected to grow from an average of 7,600 per day in 2011 to more than 11,000 per day in 2029, the urgency for reform grows daily.
The data show where the focus should be: From 1987 to 2006, 10 chronic diseases – including hypertension, diabetes, and arthritis -– accounted for about half the growth in Medicare spending. According to the Centers for Disease Control and Prevention, chronic disease accounts for nearly 75 percent of overall health care spending in the United States. But the real cost is even higher since the CDC doesn’t take into account secondary factors such as lost productivity and impact on families.
For a Congress divided over where and how best to reduce spending, tackling the issue of chronic diseases should be a national priority within 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).
In 2004, the Medicare Trustees estimated that Medicare beneficiaries would pay an average of $61 a month for their Part D benefit by 2013. Instead, the average premium has remained consistent at about $30 – about where it was when the program began. Over the same period of time, premiums for Medicare Part B, which covers doctors’ visits and other outpatient care, have increased from an average of $89 in 2006 to $105 in 2013.
Part D works differently from traditional Medicare: It offers seniors a choice of plans which are competing with each other to offer the most comprehensive selection of drugs at the lowest price. Seniors have shown they are smart shoppers, and they are the ones that have driven down the cost of the program. Overall, the cost of the Part D benefit to the federal government is 43 percent under budget projections!
In a rare move, last November the non-partisan Congressional Budget Office changed its methodology to take into account the effect that prescription medicines can have on spending in Medicare. For every one percent increase in the number of prescriptions filled by Medicare recipients, spending on Medicare and other federal programs that include drug utilization is anticipated to decrease by roughly .2 percent.
While Part D has been a point of ongoing debate within the Medicare program, the CBO’s decision shows that we need a new path forward for the rest of Medicare, and Part D is a model. Part D shows that better access to the right medicines can help reduce the cost of health care. It’s simple: If people take their medicines, they can control their diseases and avoid expensive hospital stays. Chronic diseases are less deadly when patients stick to their regular treatment program.
If Medicare is going to be preserved for future generations -– and even for current retirees -– spending must be controlled.
Without question, Congress and the administration are headed for a showdown over how best to reform Medicare. Political leaders see two tracks for reform: competition and consumer choice, or more government price controls and restrictions on access. In an era in which few solutions are readily apparent, policymakers should set politics aside and look at the data. Part D is working and should be a model for future Medicare reform to engage an army of seniors in getting better value for their health care dollars – just as they have already proven they can do with the Medicare prescription drug benefit.
Medicare could be preserved, taxpayers can be protected, and seniors can continue to have access to the treatments and medicines they need.
Turner is president of the Galen Institute, a non-profit research organization that focuses on patient-centered solutions for health reform.