The Corner

How CMS Is Trying to Wreck the Virtues of Medicare Part D

A new Obama-administration regulation would eliminate popular, low-premium drug plans enjoyed by roughly 14 million American seniors in Medicare’s Part D prescription-drug benefit. During this October’s “open enrollment” period for the popular benefit (only weeks before the congressional midterm elections), millions of seniors will learn they need to switch to a more expensive plan.

Experienced observers of the Washington scene are used to seeing bad policy emerge in pursuit of a good political opportunity. But now they are being treated to the spectacle of bad policy in pursuit of bad politics. What’s going on?

In January the Centers for Medicare and Medicaid Services (CMS) quietly released a 700-page rule upending Medicare’s drug benefit, the program that has provided seniors with low-cost prescription-drug coverage since 2006. That’s perplexing, as more than 90 percent of Medicare beneficiaries are satisfied with their drug plans.

But the same bureaucrats who launched felt the need to turn their talents to the best-functioning federal entitlement program, one that actually provides the benefits promised at a low cost. 

For eight years, the Medicare drug benefit has seen low premiums and high satisfaction. Today nearly 40 million Medicare beneficiaries have drug benefits, at a cost to the federal budget that’s continually lower than projected. By a 2004 estimate, the program was estimated to cost $122.88 billion in 2012; in 2011, the 2012 costs were projected to be just over half that, at $65.1 billon.  Actual costs for 2012 came in even lower, at $55 billion.

From beneficiaries’ perspective, average monthly premiums have been lower than projected each year, remaining virtually flat over the past four years at $31 per month. Overwhelmingly, beneficiaries choose low-premium drug plans: Such plans account for around 70 percent of total Part D enrollment.

These budgetary and out-of-pocket cost outcomes are directly the result of a program design that relies on intense competition among plans, and applies these pressures to create tough negotiations between plans, pharmaceutical manufacturers, and pharmacies.

CMS officials have laid out a misguided approach for “improving” this rare successful federal entitlement. First, bureaucrats want to limit choice and, thus, competition. How? By restricting the number of plans that can be offered in each geographic region, which means seniors will have fewer options to choose from.

Next, CMS officials have decided to stop allowing Part D plans to negotiate contracts with pharmacies to fill prescriptions in exchange for lower prices. Instead, plans can go ahead and negotiate provider agreements, but CMS will guarantee that any other pharmacy can serve the beneficiary as well — on the same terms. In other words, no pharmacy will be guaranteed the volume necessary to make up for the lower prices. That means the end of the program’s rock-bottom prices, with seniors likely to see their drug costs go up by as much as 20 percent, according to a recent AAF study.

Higher costs for drug plans means higher costs for taxpayers, seniors, and the disabled.

Bad policies are strewn across the hundreds of pages of this massive rule, which is a virtual graveyard of previously discarded and ill-conceived policy initiatives. The provisions target the very aspects of the Medicare drug benefit that have made the program so successful: robust competition between private plan offerings, consumer choice, and the power of of plans to negotiate with pharmacies for the best possible prices.

The White House may not be responsible for these new regulations – it looks like the work of career bureaucrats run amok. Regardless, seniors will blame the president. It is such bad policy for seniors (and bad politics for Democrats) that the White House or Congress should move to rescind it before it even takes effect. For everyone’s sake, let’s hope they do.

— Douglas Holtz-Eakin is president of the American Action Forum. Christopher Holt is the health-care policy director of the American Action Forum.

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