NCPA - National Center for Policy Analysis


January 12, 2007

The success of the Medicare prescription drug benefit provides strong evidence that competition among private drug plans is favorable to introducing government intervention to negotiate prescription drug prices, says Mike Leavitt, secretary of health and human services.


  • The average monthly premium has dropped by 42 percent, from an estimated $38 to $22 -- and there is a plan available for less than $20 a month in every state.
  • The net cost of the Medicare drug program has fallen by close to $200 billion since its passage in 2003.

Despite the achievement, some believe government can do a better job.  Often cited are the successes of the Department of Veterans Affairs (VA) prescription drug benefit program -- which negotiates prices -- and the government's massive buying power, as reasons for intervention.  But the reasoning may not hold up in the larger Medicare market, says Leavitt.

The VA formulary excludes a number of new drugs covered by the Medicare prescription benefit.  Even Lipitor, the world's best-selling drug, isn't on the VA formulary -- that may be one reason more than a million veterans are also getting drug coverage through Medicare.

Also, the federal government has nowhere near the market power of the private sector, says Leavitt:

  • Private-sector insurance plans and pharmacy benefit managers, who negotiate prices between drug companies and pharmacies, cover about 241 million people, or 80 percent of the population.
  • At most, Medicare could cover 43 million.

If the federal government begins picking drugs and setting prices for all Medicare beneficiaries, administrative costs would add a new burden to taxpayers, says Leavitt.

There is a proper role for government in health care, but it should not be in the business of setting drug prices or controlling access to drugs.

Source: Mike Leavitt, "Medicare And The Market," Washington Post, January 11, 2007.

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