A limited defense of Medicare Part D

Politics,Beltway Confidential,Conn Carroll

Phil Klein rightly slams President Bush for "drastically" expanding the welfare state by passing Medicare Part D. Bush definitely erred by growing government without trying to fundamentally reform it in exchange. And Klein does not even mention the fact that Medicare Part D helped pave the way for Obamacare. Without the billions for prescription drug spending already on the books, there is no way Obama keeps the price tag for Obamacare below $1 trillion.

All that said, Medicare Part D often gets too bad a rap in conservative circles and Phil's post leaves out a significant fact about the programs past and future costs that will be relevant in future entitlement debates. Phil writes:

The law was signed in December 2003, there were relatively modest transition costs in 2004 and 2005, and it began to go into effect in 2006. As you can see, the cost keeps growing over time, and it is expected to reach $117 billion by 2021.

All this is true. But if you look at Phil's graph you'll notice that Medicare Part D costs stopped growing around 2010, started falling in 2011, but then spiked up in 2012. Medicare Part D was expensive, but it was actually coming in UNDER cost projections until recently. In fact, Medicare Part D spending was 40 percent less in 2012 than what was originaly projected. The competitive bidding and cost control premium support model was working.

But as The Washington Post's Ezra Klein has pointed out, Medicare Part D's costs are now projected to skyrocket. Why? What Ezra and Phil both fail to mention is that when Democrats passed Obamacare they also weakened one of Medicare Part D's most effective cost control mechanism's: the donut hole. Seniors are now more insulated from the cost of their drugs. The less seniors pay for their own drugs, the more the government has to spend.

All of this matters because House Budget Committee Paul Ryan, R-Wis., is basing his Medicare reform plan on the cost control success of pre-Obamacare Medicare Part D. Ryan told The Washington Post last year:

Experience and economics support the view that the best way to control costs without sacrificing quality is to give consumers more power to act as a check on erratic pricing, deteriorating quality and excess care. Competition and consumer choice are the most powerful cost-control mechanisms ever devised. Our plan includes both, and that’s why we are confident that our targets are achievable.

We have evidence that this works. Our premium-support plan is modeled after the Medicare Part D prescription-drug program, in which providers compete against each other for seniors’ business. Medicare Part D came in 40 percent below cost projections done at the time of enactment – that’s almost unheard of for a government program.

Rather than shifting costs, as some have suggested, our reforms will actually bring costs down by directing financial rewards toward high-quality, low-cost providers of care and away from inefficient providers. This is a task government bureaucrats have proven time and again they cannot achieve – not because of any personal failings on their part, but simply because government isn’t suited for this task. Politics always intervenes. Part D has come in under budget every year, while fee-for-service Medicare is on pace to go bankrupt within the next ten to 13 years. One is driven by price, competition, and choice; the other by bureaucracy and politics.

Ryan's project is fundamentally different than Bush's. Bush's Medicare Part D expanded the welfare state while Ryan is trying to bring market signals and accountability to an existing welfare program. That said, they are fundamentally the same model. And conservatives should remember that when they criticize Part D. 

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