COLUMBUS: Ohio Sen. Sherrod Brown recently outlined a three-point plan to reduce Medicare spending through lower prescription drug costs. As he explained, “there is no reason why we can’t make prescription drugs more affordable for every Ohioan and reduce federal spending at the same time.”
Brown is right that Medicare needs an overhaul. According to the latest Medicare trustees report, the program is underfunded by a mind-boggling $38.6 trillion.
But he has one important detail wrong: Prescription drug coverage isn’t the issue. In fact, it’s the only part of Medicare that is working well. His plan to dismantle the Medicare Part D drug benefit, although well-intentioned, would jeopardize a popular program and drive up drug prices.
The bill in question is the Prescription Drug and Health Improvement Act, a reform that would give the secretary of health and human services the ability to directly negotiate drug prices for Medicare recipients.
Medicare Part D is a rarity among government programs. Enacted in 2003, Part D has cost 45 percent less than expected in its first decade and is on track to save money well into the future. The nonpartisan Congressional Budget Office recently reduced Medicare spending estimates for the next decade by $137 billion — $104 billion of that is from Part D savings.
The drug benefit keeps costs down by encouraging market competition. In Part D, private insurance companies offer competing prescription drug plans to seniors. On average, premiums are an affordable $30 a month and haven’t risen in three years. It’s no wonder 96 percent of seniors say their coverage works well in surveys.
In order to protect this market from federal intervention, Part D includes a “non-interference” clause prohibiting the government from negotiating prices with drug companies. Sen. Brown’s bill would do away with this clause, allowing the Department of Health and Human Services to haggle with pharmaceutical firms in the hopes of securing lower drug prices.
The problem is, there’s no evidence that such direct negotiations will lower costs. In 2007, the CBO examined a proposal similar to Brown’s and concluded that eliminating the non-interference clause “would have a negligible effect on federal spending.” The CBO reached that same conclusion again in 2009.
Even more troubling, the CBO found that the only demonstrable way for the government to reduce a particular drug’s cost would be the “threat of not allowing that drug to be prescribed or putting limitations on its being prescribed within that drug plan.” Translation: If the government wants to lower drug prices below market rates, it’s going to have to tell Medicare recipients what medicines their doctor can prescribe.
Allowing Health and Human Services to negotiate drug prices isn’t the only way that the federal government might soon interfere in the pharmaceutical market. The White House and some in Congress are hoping to implement a system of rebates on pharmaceuticals sold to low-income seniors through Part D.
Their proposal would require pharmaceutical companies to sell a significant share of their products at below-market rates. To recoup these losses, companies will be forced to shift costs to other buyers. The result? Higher prescription drug premiums for seniors.
In fact, a recent study by former CBO director Douglas Holtz-Eakin found that bringing rebates into Medicare Part D would increase monthly premiums by 20 percent to 40 percent.
Seniors can’t afford to pay more for drugs — already 10 percent of Ohioans eligible for Part D are living in poverty and across Ohio’s rural regions, poverty rates are even higher.
Among other quality-of-life issues, the Ohio Grange advocates for the health of our state’s rural seniors and their access to quality care. Medicare Part D’s current low prices allow seniors to fill their prescriptions close to home and avoid costly trips to hospitals and nursing homes, often hundreds of miles away in the nearest city.
If seniors can no longer afford their Part D premiums, many are “more likely to cut back or stop taking medicine altogether,” according to a poll in USA Today last year. Higher premiums will compromise the health of our seniors, especially the thousands living in rural Ohio.
Ohioans should commend Sen. Brown for recognizing that Medicare is a key driver of government spending. But reforms cannot come at the expense of our seniors. Lawmakers must protect Medicare Part D.
Tharp is the legislative director of the Ohio Grange.