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The Current Medicare Debate Will Not Solve The Program’s Problems

February 12th, 2013

The mistake policymakers have long made in debating Medicare (and Medicaid, though that’s a topic for another day) is that they talk about Medicare the same way they talk about Social Security. It’s understandable at some level, since these two programs are the country’s largest entitlement programs and serve similar populations. However, the two programs could not be more different.

Social Security is a relatively simple program of transfer payments. The fundamental issue for Social Security is how to manage the inflow and outflow of funds.

Medicare is an entirely different animal.

Historically, legislative changes to the program have attempted to mimic the Social Security focus on budgetary inflows and outflows by adjustments to benefits and provider reimbursements. While expanding coverage has largely been an attempt to be more inclusive of vulnerable populations and allow access to needed services to improve overall health (while simultaneously lowering beneficiaries’ cost burden), it has always come at a price, literally. Similarly, while provider payment cuts — and in some cases increases — have often been critical to increasing access or controlling spending in the near-term, they have done nothing to address the structural reforms desperately needed to sustain the program over the long-term.

Unfortunately, while there remain budgetary questions to consider, the opportunities and demands inherent in future structural changes to Medicare are an order of magnitude more challenging.

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Critiquing The Medicare Part D Low-Income Drug Rebate Proposal: A Response To Richard Frank and Jack Hoadley

January 18th, 2013

In a recent posting Richard Frank and Jack Hoadley argue in support of a proposal that would introduce Medicaid-style rebates into Medicare’s Part D drug program for the low-income subsidy population. The evidence argues against such a policy.

At the outset, however, it is important to note that we agree on the basic goal: a Part D program that displays effective cost containment in a very tight federal budgetary environment. The good news is that the existing program is quite successful in this regard. Since 2007 per capita costs in Part D have grown at a compound annual rate of 1.8 percent, while costs in Part A and B have grown at 3.6 percent and 3.7 percent, respectively. The program’s negotiated rebates between large purchasers and drug manufacturers, and the ability for consumers to compare plan prices and benefits, have resulted in lower than expected Part D spending overall. (In contrast, note that from 1990 to 2005, average annual drug cost growth in the Medicaid program was about 13.1 percent per year.)

What would the proposed policy do to improve on this record? Impose a rebate of $137 billion over the next 10 years (according to the Congressional Budget Office). On its face, imposing a Medicaid-style rebate to the low-income subsidy Part D population may sound appealing. Of course, just like the Medicaid rebate program, the Part D rebate proposal isn’t a market-driven negotiation between businesses seeking to serve a common market — it’s a government fiat.

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The Fiscal Commission Co-Chairs’ Health Proposals: The Good, The Bad, and The Ugly

November 18th, 2010

The federal government’s unsustainable long-run fiscal picture has been outlined in successive versions of the Congressional Budget Office’s Long-Term Budget Outlook.  The policy problem is that spending rises above any reasonable level of taxation for the indefinite future.  As it currently stands, committed federal expenditures are expected to grow from 20 percent of gross domestic […]

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