Don’t impose drug rebates on Medicare Part D

Like a tree falling in the forest, Medicare Part D celebrated its 10th anniversary last week in virtual silence as Americans were fixated on the rocky rollout of the Affordable Care Act, or ObamaCare. Even those who supported the president’s plan now say it must be fixed.

Despite this admission, some lawmakers are still talking about bringing one troubling feature expanded by ObamaCare — Medicaid drug rebates — to the prescription drug program in Medicare. Seniors should rightfully be concerned, as doing so would be akin to grafting cancerous tissue onto an otherwise healthy patient. The effects would be higher premiums, fewer choices and a huge hit to the research and development that leads to new lifesaving medicines.

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Supporters of the move say it would reduce the national deficit, but the facts do not bear that out. Increased “rebates” in the Medicare Part D program are only a cost-shifting measure that doesn’t help deficit reduction but does hurt seniors and taxpayers. Under the plan, most seniors would see premiums and copayments go up, benefits go down and the national deficit stay about the same.

Research by the American Action Forum showed that imposing Medicare Part D prescription drug rebates would increase monthly premiums by up to about 40 percent for more than 17 million seniors. Enforcing these Medicaid-style price controls on Part D threatens to destabilize a successful program that beneficiaries like, while curtailing investment in research and development.

But the wreckage doesn’t stop there. In addition to causing higher premiums and copays, more rebates and price controls could increase prescription drug costs for other Medicare beneficiaries, as well as the general public. Fifty percent of the value of any rebates would be absorbed by Americans who purchase prescription drugs outside of Medicaid programs.

According to our analysis, “to the extent that deeper discounts are paid to the government, a share of manufacturers’ added costs for these discounts could ultimately be borne by consumers, either within Part D or in other markets.” In other words, Americans would get hit with a new hidden — and significant — tax on medicines to pay for this. That is not fair.

The Medicare Part D prescription drug program has achieved many positive changes to Medicare since its inception in 2003, and stands as an example of a successful, competition-based healthcare reform. Part D allows seniors to have access to prescription drugs at an affordable monthly premium and has proven to be a dramatic success in controlling prescription drug costs. As a result of this program, seniors have access to the life-saving drugs that, only a few years ago, were unavailable to them.

In addition to helping seniors stay healthy, Part D saves each beneficiary approximately $1,200 in healthcare costs annually, and program costs are 45 percent lower than originally projected. Moreover, an overwhelming majority of seniors report year after year that they are satisfied with their Part D plans. In fact, a MedPAC analysis of the program found that 94 percent of enrollees are satisfied with the Part D drug benefit, and 95 percent are confident that their drug coverage meets their needs.

This popularity is the essence of success, and it is the exact opposite of the problems plaguing the implementation of the Affordable Care Act. Irrespective of one’s views on the reform law, we should all agree that we should learn from its mistakes before repeating them in another area of the American healthcare system that is working very well.

Let’s shelve any plans to export Medicaid-style price controls to the Medicare Part D program. We have the kind of data and experience necessary to make the best policy decisions for our seniors and all Americans who benefit from lifesaving medicines.
 
Holtz-Eakin is president of American Action Forum, a center-right policy advocacy organization. He was director of the Congressional Budget Office from 2003 to 2005 and economic adviser to Sen. John McCain’s (R-Ariz.) 2008 presidential campaign.

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