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CBO Findings Refute the Medicare Part D Myth

August 6, 2014 at 2:37 PM

The Medicare drug benefit’s lower-than-expected costs do not reflect efficiencies produced by competition among private insurers, as we’ve repeatedly explained.  The main factors were the slowdown in per-capita drug spending throughout the U.S. health care system and lower-than-expected Medicare Part D enrollment — and the Congressional Budget Office (CBO) concurred with our analysis in a recent report, finding:

  • National drug spending growth fell unexpectedly because many drugs went off-patent, the use of lower-cost generic drugs increased substantially, and fewer new drugs, which tend to be more costly, came to market.  National drug spending in 2012 was therefore much lower than what the Centers for Medicare and Medicaid Services’ actuaries projected in 2003 when the Medicare drug benefit was enacted.  CBO states that “spending per beneficiary in Part D has been lower than CBO projected in part because of those developments affecting nationwide drug spending.”
  • Part D enrollment was also lower than CBO projected — by 12 percent, in 2012.  CBO originally assumed that participation in the drug benefit would be similar to enrollment rates in Medicare Part B.  But CBO now believes that Part D participation is lower than in Part B likely because Medicare beneficiaries must actively enroll in the drug benefit — which can reduce participation — while eligible individuals are automatically enrolled in Part B and must actively opt-out.
  • CBO thus concludes: “Taken together, the unexpected slowdown in national drug spending per person and smaller-than-expected enrollment in Part D can account for nearly all of the difference between CBO’s original estimate and actual Part D spending” (italics added).

That’s all consistent with our analysis as well as that of the Kaiser Family Foundation, which found that there “is compelling evidence that factors other than competition offer the best explanations for the lower-than-expected spending trend” in Part D.

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