Medicare Part D proves capitalism works, even in healthcare

Douglas Holtz-Eakin Former Director, CBO
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Remember that old assignment on the first day of school, the essay, “What I learned on my summer vacation?” As Congress returns from its most recent summer recess, members have undoubtedly heard plenty from their constituents about health care — what are the biggest changes under the Affordable Care Act? Will costs rise? Can I keep my coverage? What will be the options in my area? It goes on and on; it’s widespread, bipartisan confusion. For those struggling to enact, reform, repeal or even replace the President’s ACA, it has been a summer of frustration trying to find a way to enact real reforms that work.

Here is a simple summer lesson: competition and consumer freedom work — even in health care.

This summer the American Action Forum did a deep dive on the track record of the Medicare Part D program; the “prescription drug program” enacted in the Medicare Modernization Act. Now nearing its ten year anniversary, Part D was developed to respond to the growing role of prescription drugs as an alternative to treatments covered under traditional Medicare. Detractors at the time said the new entitlement was a purely political maneuver and a huge new cost the nation could ill-afford. Sound familiar?

But the program showed that competition and patient freedom can be successfully used in an entitlement setting to implement health-care protocols that will be accepted by an overwhelming majority of its users. Medicare Part D has proven that the benefits of market-driven health care are what Americans want.

Part D has cost about half of what was predicted when the program first began (mea culpa; I was the Director of the Congressional Budget Office responsible for some of those projections). These cost savings have been largely driven by competition amongst health-care companies to provide medication for the nearly 28 million enrolled. Is there any chance that Obamacare could achieve the same results? Not as long as it ignores the power of the marketplace to determine benefits, costs and old fashioned competition among providers for consumers.

Along with lower costs, Part D gives enrollees the freedom not associated with current regulations. Seniors are able to shop for a plan that best fits their budget and needs. This type of health care has proven so successful that many seniors have switched into Part D, causing the program to grow nearly 150 percent since its inception.

I argue in our latest report that “Part D should be used as a model for future reforms in Medicare.” Its bidding process, beneficiary choice, and robust private negotiations continue to help the program improve enrollee satisfaction and cut expenditures. The CBO has reduced its forward-looking 10-year projection for the Part D program by over $100 billion in each of the past three years while the premium costs for those in the program have remained steady, averaging only $30 a month.

Along with manageable prices a recent MedPAC analysis found that 94 percent of enrollees are satisfied with the Part D drug benefit and 95 percent were confident that their drug coverage meets their needs. These are not “flash in the pan” results, year-after-year Part D consistently tops expectations of those enrolled. How often do government programs receive passing grades, let alone grades that verge on perfection?

With the 10-year anniversary of the program nearing, shouldn’t we be pushing the government to use the practices of Part D to drive change throughout health care? Annually the program not only saves money for those enrolled but cuts medical costs around the country, saving taxpayers billions in the process. The Journal of the American Medical Association published a report on Part D which showed that seniors who previously lacked comprehensive health-care coverage each saved about $1,200 in one year on lower hospital, skilled nursing facility and other medical costs. These reduced costs generate nearly $12 billion annually in Medicare savings. How often do government programs not only come in below budget, but increase savings for other programs?

Many questions remain about the future of health care in the U.S. but one thing is certain: Capitol Hill continues to debate the actual cost and effectiveness of the president’s health-care law while largely ignoring a successful program that has saved the nation billions while helping millions receive much needed care every day. We have learned by example that competition and consumer freedom works. Will Congress learn it too?