In 2003, prodded by President George W. Bush, Congress created Medicare Part D, adding a drug benefit to Medicare. Liberals complained that it was far too stingy and would benefit mainly drug companies; conservatives complained that it was far too expensive and would lead to too much government intervention. What has really happened?
Liberal predictions that drug companies would use their power to suppress market access and drive up prices have been proven wrong. There are an abundance of competing plans available to seniors, at prices lower than anticipated. When Democrats took control of Congress after the 2006 election, and clamored for government to "negotiate" — that's a polite word for "set" — drug prices, an in-depth study of the issue found that prices were as low or even lower than they would have been if the government had taken control. The call for "negotiated" prices still comes up in campaign rhetoric, but the idea has been quietly dropped.
Conservative predictions that Part D would follow the historic pattern of other government benefit programs and incur costs well beyond official estimates have also been proven wrong. Even as it has achieved a high approval rating among seniors who use it — 85 percent — Part D has cost significantly less than initial projections. Nonetheless, it remains a political issue. Some liberals say we should raise taxes to pay for it while some conservatives say we should repeal it. Before doing either, let's look at some history.
In 1966, when Medicare was passed, drug therapies were few, which is why they were not included in it. In the intervening 40 years, breakthroughs in drug research have been massive in number and dramatic in impact. Part D was passed because it was absurd for Medicare to pay for expensive hospital admissions but not for cheaper drug therapies that could make those admissions unnecessary.
Fine, but it is still an added cost. In the long run, is Part D going to spiral out of control? Last month, a study by the Congressional Budget Office (CBO) addressed the question of whether or not prescription drug use should be credited as having an offsetting effect on Medicare's overall spending.
It's a question worth asking because, as they recognize in their summary, " … pharmaceuticals have the effect of improving or maintaining an individual's health. Taking an antibiotic may prevent a more severe infection and adhering to a drug regimen for a chronic condition such as diabetes or high blood pressure may prevent complications. In either of those circumstances, taking the medication may also avert hospital admissions and thus avoid the use of medical services."
The study makes a number of estimates and outlines several possible outcomes, all of which suggest that Part D is having a beneficial impact on overall Medicare costs. It concludes with this: "CBO will continue to assess the evidence on how changes in the use of prescription drugs affect spending for medical services and will incorporate new research findings as warranted."
The implications of using more effective methods of keeping our aging population healthy are enormous. New drug therapies, particularly those tied to genetic profiling, have great potential to change the future. Medicare Part D's future impact will be as much financial as medical. It is good news that CBO — along with others — has decided that both parts of the question are worth studying. Budgeteers need all the analysis they can get with respect to the financial impact of those changes as they forecast future costs.
It may well be that Part D will be part of the financial solution rather than the problem.
Robert Bennett, former U.S. Senator from Utah, is a part-time teacher, researcher and lecturer at the University of Utah's Hinckley Institute of Politics.