Need A Roadmap For Healthcare Reform? Look At Medicare Part D

Paul Ryan and his House Republican colleagues just released their much-anticipated plan to reform America’s healthcare system.

Their 37-page proposal would, among other things, transform Medicare into a “premium support” program. Seniors would be able to use federal subsidies to buy their choice of health plans from private insurers, instead of being stuck with traditional, “one-size-fits-all” Medicare.

Ryan and his colleagues claim that their premium support model will produce better outcomes and lower costs for seniors.

They’re right. Need proof? Look to Medicare Part D, the program’s prescription drug benefit. For about a decade, Part D has leveraged the power of market competition and consumer choice to improve seniors’ health — at a cost that’s consistently lower than even the program’s proponents have projected.

Under Part D, insurers, rather than government bureaucrats, negotiate with drug manufacturers over what they’ll pay for their drugs. They then compete for seniors’ business by offering a variety of benefit structures and prices for their plans. Seniors pick the plan that best meets their needs and budget, with the assistance of federal subsidies.

In other words, Medicare Part D is a prototype for the premium support program that House Republicans envision for the rest of Medicare.

Part D’s model has proved stunningly successful. The program has cost 45 percent less than originally predicted. Beneficiaries’ premiums are about half of initial projections.

Not many government programs can boast that sort of record, coming in consistently under budget.

Seniors also approve of the program. Roughly 24 million are enrolled in Part D plans, and nearly 90 percent are happy with their coverage.

That high satisfaction rate partly stems from the wide range of plans beneficiaries can choose from. In 2016, insurers offered 886 plans nationwide. That’s far more choice than seniors have in traditional Medicare.

The premium support model isn’t just cost-effective and popular — it also delivers quality care. With affordable access to prescription drugs, millions of seniors are able to better manage their health conditions. One study from the National Bureau of Economic Research found that gaining coverage through Part D was associated with an 8 percent drop in hospital admissions.

The question isn’t whether market competition can deliver quality, affordable health care — Part D proves it can. It’s why some leaders, including prominent Republicans, haven’t gotten the message.

Many on the left and some on the right — most notably, presumptive GOP nominee Donald Trump — have endorsed proposals that would reject the very market principles that keep Part D costs down. They want to allow federal officials to dictate drug prices to pharmaceutical companies, so that each Part D plan would buy medicines at the same price.

Proponents of this idea claim that the government could use its bulk purchasing power to demand larger discounts than individual insurers can obtain on their own.

That’s not how government negotiations would pan out. Payers the size of the government don’t negotiate prices — they dictate them. Bureaucrats would inevitably refuse to cover certain drugs above an arbitrary price threshold. That could cause Part D plan enrollees to lose access to medicines they need.

The feds already dictate the price of drugs dispensed through the VA. It’s no coincidence that the program covers 16 percent fewer drugs than Medicare Part D.

Medicare’s prescription drug benefit has demonstrated that market competition can yield better health outcomes at lower cost. Republicans and Democrats alike would be wise to remember that — and use Part D as a model for future healthcare reform efforts.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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