NCPA - National Center for Policy Analysis

Proposed Medicare Drug Plan Rule Would Harm Seniors and Taxpayers Alike

February 14, 2014

A proposed change in the way Medicare drug plans are administered would stifle innovation, reduce access and boost premiums for both seniors and taxpayers, say Douglas Holtz-Eakin and Angela Boothe of the American Action Forum.

Medicare Part D was created by the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) to provide affordable prescription drug insurance coverage with a variety of benefit levels and premium costs. Over the past 10 years, Part D has developed a track record of competition among plans for seniors' business, controlled premium and budget costs, and excellent access and quality. Medicare Part D has matured into a financially successful and popular program.

However, regulations proposed by the Centers for Medicare and Medicaid Services (CMS) in January 2014 will drive up cost by interfering with plans' abilities to negotiate prices. The impact will be immense:

  • An estimated 14 million seniors could lose their current plan.
  • Beneficiaries could see premium increases of up to 21 percent.
  • The changes could cost the Part D program up to $10 billion over the next 10 years.

For the first time, CMS has interpreted statutory non-interference in the Part D program. Through this proposed regulation, CMS's interpretation allows for federal interference in negotiations between Part D plans and provider pharmacies. Interfering in plan negotiations places the issuers at decreased risk, reducing their incentive to control plan costs and limits plan innovation in cost sharing and benefit packages. The action will also limit the number of bids per Part D Plan Issuer. It also creates uncertainty for 2015.

Source: Douglas Holtz-Eakin and Angela Boothe, "CMS Rulemaking and Medicare Part D: Stifling Innovation, Limiting Access, and Decreasing Quality," American Action Forum, February 6, 2013.


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