Hillary Clinton just released her plan to restructure Medicare “Part D,” a program that provides affordable prescription drug insurance to 37 million Americans. Clinton’s proposal comes hot on the heels of Bernie Sanders’ bill, S. 2023, which would likewise radically alter Medicare Part D by allowing federal officials to negotiate drug prices for medicines purchased through the program.
If these two presidential candidates get their way and increase government involvement in a program that owes its success to private-sector competition, seniors will suffer from reduced access to medications and taxpayers will shoulder the burden of higher overall health spending.
Medicare Part D, implemented in 2006, leverages the power of competition to achieve impressive savings. Unlike Medicare Parts A and B, which directly insure beneficiaries, Part D helps seniors and the disabled pay for private, third-party prescription drug coverage. Beneficiaries in every state can choose the plan that best fits their needs from at least two dozen options, each with varying premiums, co-pays, deductibles, and benefits.
Insurers compete fiercely to win seniors’ business. As a result, insurers have kept premiums virtually unchanged over the past several years. Next year’s monthly premiums will average an affordable $32.50 — roughly half of what analysts projected when Part D started.
Unsurprisingly, seniors are thrilled with the low rates. The program enjoys a 90 percent satisfaction rating from beneficiaries.
Part D isn’t just popular — it’s also cost effective. Part D saves the rest of Medicare $12 billion annually. That’s because better access to prescription drugs helps seniors manage chronic conditions without expensive in-patient treatments.
That access is literally lifesaving. Without Part D, over half of beneficiaries say that they’re “likely to cut back or stop taking medicine altogether.”
Clinton’s and Sanders’ proposals would turn Part D into a shell of its former self by lifting the program’s “non-interference clause,” which ensures that the government doesn’t butt into price negotiations between drug companies and insurers.
The non-interference clause works because private insurers, like all companies, are self-interested. Insurers bargain hard to obtain big discounts from drug companies, but they also have to cover a wide range of drugs to satisfy their beneficiaries and prevent them from deserting to rival plans.
Merely lifting the non-interference clause likely wouldn’t save the government any money. In 2007, the CBO examined the clause and concluded that if even it were scrapped, the government would be “unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs [prescription drug plans] under current law.”
To realize the savings that Clinton and Sanders promise, Medicare Part D would have to resort to the tactics used by Medicaid and the Department of Veterans Affairs (VA), which simply refuse to pay for many newer, pricier drugs. Of the 300 drugs most commonly prescribed to seniors, the VA refuses to cover 106 of them.
Declining to pay for the drugs seniors most need is a terrible way to save money, since more effective medicines can avert healthcare spending by keeping patients out of the hospital.
Dictating prices will also set back research efforts targeted at our toughest diseases. By expanding drug coverage to tens of millions of seniors, Part D enlarged the market for treatments targeted at common senior diseases.
Boosting the economic viability of research and development efforts has yielded more potential treatments. For example, there were less than 30 drugs in development that treated certain serious forms of arthritis before Part D’s implementation. Now there are over 90.
If federal regulators exclude new treatments from Part D plans, drug companies won’t have an incentive to invest in research and development. We’ll forgo future treatments and cures that could ultimately save untold billions in health-care expenditures.
Clinton and Sanders aren’t wrong to want to reduce drug prices. But free-market competition is the best way to do so. Setting prices by scrapping Medicare Part D’s non-interference clause will merely result in fewer drugs for seniors, both now and in the future.