Medicare Part D shows market-based solutions work

Before President Obama and his team overhaul the American health care system, they should note what currently works.

Consider Medicare Part D. This prescription drug benefit for seniors has a huge price tag, but by allowing the market to set prices, Part D has actually reduced costs and improved services for seniors.

Under Part D, seniors select a prescription drug plan offered by a private insurer. The federal government subsidizes these plans, and insurers compete to offer seniors the best deal. Competition among insurers drives down costs to enrollees and provides them with multiple choices so that they can pick a plan that suits their medical needs and budget.

Medicare Part D stands out as a rare success among the scores of bloated, inefficient government programs we encounter on a daily basis. It has managed to deliver great service to its beneficiaries — at a fraction of the projected cost to taxpayers.

The Congressional Budget Office put the original 10-year price tag of the program at a whopping $634 billion. Premiums for a standard plan were projected to be $44 by 2009.

CBO recently revised its 10-year estimate of Part D’s cost down to $395 billion. And today, standard plan premiums are $28 — 37 percent less than anticipated.

Seniors have also been tremendously satisfied. Of the more than 25 million seniors enrolled in Medicare Part D in 2008, 87 percent expressed satisfaction with their plans, according to a Harris Interactive Poll. In fact, three-quarters of seniors said that their plan saves them money.

Part D is also lowering health care costs nationally.

Each day about 50 million Americans do not take medication that a doctor has prescribed for them, according to Dr. Cynthia Rand, Director of Johns Hopkins Center for Adherence Research. Sometimes patients forget to take their medication. Other times they choose not to for financial reasons. Such “non-adherence” costs the nation $300 billion in avoidable medical costs.

Because seniors are the largest consumers of prescription drugs, they’re also the most likely to avoid taking the drugs they’ve been prescribed. By making prescription drugs more affordable, Part D minimizes the health risks and costs associated with non-adherence. The program also provides programs that educate seniors on the dangers of not following their doctors’ orders.

Precious few programs in Washington deliver both savings to the taxpayer and results to beneficiaries. On both counts, Medicare Part D succeeds. There isn’t a better model to recommend market-driven approaches to health care.

What does need to be addressed, however, is that many seniors enrolled in Part D, who can afford to pay full price for their medications, are essentially being subsidized by taxes on younger people and low-income families who can’t.

Obama’s plans address this by raising premiums for high-income Medicare enrollees to enable greater drug discounts for Medicaid beneficiaries. In principle this is a good idea, but it’s a slippery slope.

As Part D shows, it would be more sensible to find market-based solutions to cutting costs. President Obama and the participants at the White House Summit on Health Care should take note.

Dr. Gary Applebaum is a senior fellow at the Center for Medicine in the Public Interest.