Can Medicare Save Money? How The Part D Program Can Be More Cost-Effective

Sunday, 16 Jun 2013, 9:11:00 AM

Ron Pollack

Ron Pollack, Families USA Executive Director
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Ron Pollack, Families USA Executive Director

Since Medicare Part D went into effect in 2006,

prescription drugs have been an integral part of the Medicare benefit package.

So, the question of how seniors can save additional money on medications often

comes up, but so does the question of how the entire Medicare Part D program

can be more cost-effective and save taxpayers money without jeopardizing

enrollee benefits.

Will closing the Part D “doughnut hole” really save

beneficiaries money?

Many seniors may not be aware that the infamous

“doughnut hole,” or gap in coverage, is closing thanks to the Affordable Care

Act. Before the health care law was passed, if beneficiaries reached the

initial limit on total drug expenses ($2,970 in 2013), they had no prescription

drug coverage until they spent an added $3,700 out of their own pockets. But in

2013, people in the doughnut hole are receiving discounts of 52.5 percent on

name-brand drugs and 21 percent on generics. These discounts will result in

significant savings for about 4 million Medicare beneficiaries in 2013. More

importantly, the discounts will continue every year until 2020, when the

doughnut hole will be completely eliminated.

Where can we find more value for Medicare dollars?

The best opportunity for finding smart savings in

Medicare is looking for better deals on what Medicare pays for prescription


Plans that offer coverage under Medicare Part D are run

by private insurers, and Medicare is prohibited from negotiating directly for

discounts. An independent 2011 study by the Department of Health and Human

Services’ Inspector General found that drug manufacturers provide an average 19

percent discount to Medicare Part D plans, while state Medicaid programs

receive a discount of 45 percent for the same drugs. This is a substantial

savings that could be passed on to beneficiaries if Medicare was allowed to

negotiate prices like Medicaid does. 

In what ways can Medicare get a better bargain on

prescription drugs?

Substantial savings could come from obtaining discounts

on drugs used by low-income beneficiaries. In fact, before Medicare Part D was

enacted in 2003, drug manufacturers were required to provide discounts to

low-income beneficiaries. Legislation that has been introduced both in the U.S.

Senate and the U.S. House of Representatives, and the President’s budget

proposal, all call for these discounts to be restored. Estimates show that

these discounts could save the Medicare program anywhere from $120 to $140

billion over the next 10 years.

The savings from these discounts could be used to

improve other aspects of Medicare, or to reduce the deficit.

Would higher discounts in Part D affect the

pharmaceutical industry’s research and development work?

Research and development actually thrived at the same

time many of these deeper discounts were in place in the 1990s and early 2000s.

Are there other ways for Medicare to save money on

prescription drugs?

Other options for lowering the cost of the Part D program

include allowing Medicare to negotiate directly with pharmaceutical

manufacturers (like the Department of Veterans Affairs does), and letting

Medicare operate its own Part D plan alongside private insurers. These

alternatives are more complicated than the discounts discussed above, but they

are worth considering in the future.

Why do we need to search for savings in Part D?

In today’s economy, leaders in Washington have tough

choices to make about health care spending. It is true that Part D costs less

than initially forecast, but that is because enrollment is about 25 percent

lower than originally projected, and because increased use of generics has

slowed drug spending overall. These developments should not prevent us from

looking for better value for taxpayer dollars.

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