Medicare Drug Benefit is Weakened by Congressional Budget Deal

Medicare Drug Benefit is Weakened by Congressional Budget Deal

Congress has undermined the Medicare drug benefit that millions of older Americans depend on – one of the few federal health care programs that’s working well.

The two-year federal budget deal passed recently shifts more of the program’s costs onto drug manufacturers starting in 2020. In the process, the change eliminates one of the key features that has made the program – known as Part D – successful for over a decade.

If the change stays in place, Part D could soon become just another budget-busting entitlement with little hope of long-term sustainability.

Medicare Part D provides private, federally subsidized prescription drug coverage to 42 million senior citizens. And since being implemented in 2006, the program has served beneficiaries extraordinarily well. In one recent survey, 87 percent of enrollees reported being satisfied with their Part D coverage.

Such positive attitudes are largely the result of Part D’s market-based structure, which provides patients with a wide array of coverage options. This year, the average enrollee had 23 stand-alone plans to pick from. This setup forces insurers to compete with one another for seniors’ business by offering the highest-quality, lowest-cost plans possible.

The program has also proven surprisingly affordable for taxpayers. A recent analysis from the American Action Forum found that the program’s 2016 costs were less than half what was projected when the law was first implemented.

That’s an unheard of feat for a federal program. One of the main reasons costs have remained so low? Plan providers are encouraged to keep patient drug expenses under control.

Under the standard benefit model, enrollees pay for the full price of their drugs until they reach a deductible of $405. After that, they’re responsible for only a quarter of drug costs up to a certain limit – $3,750 this year.

It’s at this point that beneficiaries enter a gap in coverage known as the “donut hole” in which they will pay 35 percent of a brand name medicine’s cost in 2018. Once drug spending reaches about $5,000, patients are in the catastrophic phase of coverage, and cost-sharing drops off once again.

ObamaCare established a plan to phase out this donut hole by 2020 so that seniors would only have to pay 25 percent of brand-name drug costs after meeting their deductible. The remaining 75 percent of the cost would be split between pharmaceutical companies – which would discount drugs by 50 percent – and insurers that would cover the other 25 percent.

By making plan providers responsible for such a significant share of donut hole spending, the reform gives these companies a powerful incentive to keep as many patients as possible out of the donut hole. After all, once patients reach the donut hole, insurers see their costs soar. It’s for this reason that three in four Part D enrollees never enter the coverage gap.

The budget deal effectively obliterates that incentive – and thus threatens the program’s long-term sustainability. It does this by shifting the vast majority of donut hole spending onto drug companies and letting insurers almost entirely off the hook. As of 2020, plan providers will only be responsible for 5 percent of a brand-name drug’s cost in the coverage gap, while pharmaceutical makers will have to pay for 70 percent.

The consequences for Part D could be catastrophic. Insurers will actually have an incentive to drive patient drug spending over the donut-hole threshold as quickly as possible by, for instance, encouraging patients to rely on costly brand-name drugs instead of more affordable generics. Once patients enter the coverage gap, insurer costs would plummet.

What’s remarkable about this change is that it’s a far better deal for insurance companies than for patients or taxpayers. A recent analysis by the consulting firm Avalere estimates that the government will save $7 billion over the next decade thanks to these changes. The average Part D beneficiary will save $20 a year. Insurers, meanwhile, will save a whopping $40 billion.

Insurance companies don’t deserve another government handout. And Americans don’t deserve another unsustainable entitlement program. Lawmakers need to roll back these misguided changes and rescue Part D from its impending fiscal ruin.

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