NCPA - National Center for Policy Analysis


January 10, 2007

Price negotiation by competing private plans offering Medicare drug coverage is producing high satisfaction rates among seniors at a much lower cost than if the government had provided a traditional plan, says the American Enterprise Institute (AEI).

According to the Centers for Medicare & Medicaid Services (CMS):

  • Premiums for the drug basic benefit have fallen to an average of $22 a month for seniors this year, which is over 40 percent less than the $37 a month that the coverage originally was projected to cost. 
  • On average, beneficiaries also are saving nearly $1,200 annually on their drug costs.
  • The Medicare drug benefit cost nearly $13 billion less than expected in its first year, 30 percent below the $43 billion that had been budgeted.
  • Long term savings are even greater; some estimate a reduction of the cost of the benefit over the next decade by another 10 percent, with almost all of new savings resulting from competition. 
  • New estimates show that total net Medicare costs are 30 percent lower, or $189 billion less, for the same budget window (2004-2013) than originally anticipated before the Medicare drug benefit was implemented.

Although disagreements remain over whether a universal drug benefit in Medicare was prudent, the drug benefit was created on a new model that brings private competition into play to offer seniors lower prices and greater choice.  That is far better than a government-controlled system, says AEI. 

Medicare Part D is succeeding beyond expectations in terms of beneficiary satisfaction and costs.  Congress should build on this success and use it as a model to reshape other public programs around competition and choice, says AEI.

Source: Mark B. McClellan, et al., "Medicare Part D and Prescription Drug Prices," American Enterprise Institute, January 9, 2007.

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