Medicare Part D is Working - You Get That, Right?

Medicare Part D is the one part of the health care universe where premiums are going down. It came in 40% under budget in its first decade. And seniors love it.

And yet listening to the debate over prescription drugs on the left is like entering an alternate universe where none of this happened -- Part D never existed and think tanks continue to propose solutions to the problems it solved.

The reluctance of those who opposed Part D to acknowledge its successes is a testament to the resilience of ideology in the face of conflicting information. And with many still apparently invested in keeping anyone from noticing this remarkable story, it's worth detailing it anew.

Part D is different from almost every other government health care program because it successfully harnesses competition to improve care and lower costs at the same time.

Of course, for any other good there's little surprising about how markets work. The health care market, on the other hand, faces such persistent and substantial intervention that many previous attempts to harness competition have failed.

When initially scoring the proposal, the Congressional Budget Office (CBO) refused to account for how people change their behavior in the face of changed incentives, estimating the proposed program would cost far, far more than it turned out to.

(As an aside, has any other government program, anywhere, in any period of history, ever come in 40% under budget? I have yet to find another example -- but history is replete with programs that spent far, far more than estimated).

While costing the government less, Part D is also costing beneficiaries less, with premiums actually decreasing this year. Meanwhile, buying a plan on the Obamacare markets is like taking a time machine to the Weimar Republic -- pretty soon we'll be paying in $100,000,000,000,000 bills.

Perhaps this is why seniors overwhelmingly support Part D? In a recent Morning Consult survey of approximately 2,000 adults 65-and-older, just under 90% said they are satisfied with their coverage, 93% said their Part D plan is easy to use, and 84% thought it was a good value. The survey mirrors results over the past decade; Part D is highly popular among beneficiaries.

Nevertheless, the health care debate in Washington frequently entertains proposals to undermine or even kill Part D, with little regard paid to Part D's stellar track record.

One such proposal, for example, would convert Part D's competition-based system for the rationing-based system used by the Department of Veterans Affairs.

While policymakers generally agree that health care costs need to go down, there is a wide divergence of beliefs about how to accomplish this goal. The divide over Part D versus the VA's drug formulary highlights a fundamental philosophical dispute that arises frequently debates on the broader subject of cost control.

The idea behind how the VA formulary is the government should establish a list of cost and efficacy-based rules for what types of health care beneficiaries are permitted to use.

For example, according to research by Columbia University's Frank Lichtenberg, only 38% of the drugs approved in the 1990s and only 19% of the drugs approved since 2000 are available on the VA's formulary. In short, the VA is cutting costs by restricting access to new medicines.

Rather than an intricate and elaborate government assessment of what types of health care are "worth paying for," Part D instead relies on the providers competing for beneficiaries over time to weed out inefficiencies and drive down costs. More comprehensive plans are more expensive on Part D, but not everyone wants or needs that. Instead, providers shift the coverage and price balances constantly in search of the most customers and thus profit.

Critics of the top-down approach of the VA point out that the government does a fairly dismal job of identifying cost savings. It's not hard to deduce why. Even though many of the bureaucrats involved in deciding which drugs VA patients are permitted to use are well-meaning professionals, none of them has any significant financial incentive tied to the results of their work.

For similar reasons, Medicare price "negotiation", which has been scored by the CBO as saving zero dollars, is another worthless proposal for actually containing costs.  

Part D's success in harnessing competition to reduce costs and improve care at the same time is remarkable. It's about time our debates over health policy reflected that history, rather than hiding it.

Or, to paraphrase John Oliver's "Catheter Cowboy" ads, "Part D is working. You get that, right? Right?"