Popular Medicare Drug Plans Are under Assault

February 20, 2014

A new Centers for Medicare and Medicaid Services (CMS) proposal would cause almost 14 million seniors to lose their Medicare Part D stand-alone plans, says Devon Herrick, a senior fellow at the National Center for Policy Analysis.

The Medicare drug program has been popular, and the number of seniors without drug coverage has fallen 60 percent since the Medicare Modernization Act (MMA) was passed in 2003. Seniors have a wide range of plans from which to choose, and drug spending has actually been much lower than projected. Costs per capita in 2013 were projected to be $3,047 but were actually only $1,846, a savings of 40 percent per enrollee.

Of the 39 million Americans enrolled in Medicare, 36 million of them have Medicare Part D drug plans.

  • Part D plans aim to keep costs down by using preferred-drug lists, tiered formularies and mail-order drug suppliers.
  • Drug plan operators negotiate with drug companies and distributors to get the lowest possible drug prices, entering into exclusive contracts with preferred pharmacy networks.

But last month, CMS proposed regulations that would restrict the ability of drug plans to offer lower drug prices. The proposed rules would weaken the ability of drug plans to bargain for lower prices by banning "preferred networks," keeping losing bidders who had offered higher prices from being excluded from drug plans. This would give pharmacy networks little reason to make price concessions, knowing that a losing bid will not keep them from losing out on potential business. The actuarial firm Milliman contends that the regulatory change would cost the Medicare program almost $1 billion annually.

The proposed rule is a bad idea, and if it goes through, seniors and taxpayers will pay higher prices for their medications.

Source: Devon M. Herrick, "Popular Medicare Drug Plans Are under Assault," National Center for Policy Analysis, February 20, 2014.

 

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