A Model for Health Care Reform:Would You Guess Medicare Part D?

Every day, over 7,600 baby boomers turn 65. By 2029, this number will rise to over 11,000. As more and more Americans approach senior citizenship, health care for seniors through Medicare becomes increasingly relevant. The question is, how will this affect you?

We all have questions about how the current budget battle and resulting spending cuts are going to impact Medicare. It seems unavoidable that Medicare costs will have to be reduced in some manner. Both Democrats and Republicans have proposed fixes to counteract these budget cuts. President Obama, in his State of the Union address, recommended adjustments to Medicare Part D that would enforce mandatory rebates–in other words, price controls–on drug companies.

But we need to ask ourselves: why would we make changes to the most successful part of Medicare by far? Polls indicate that 90 percent of seniors are happy with their current Part D coverage. Not only is Part D popular; it is also cost effective. It has cost 30 percent less than originally estimated. Premiums are an average of half the price originally estimated. Meanwhile, price controls are estimated to increase drug costs by 40 percent. Clearly, they are not the answer to cutting Medicare costs.

Think for a moment. If Part D is so successful, why aren’t we using it as a model for the rest of Medicare? Unlike Part D prices, Medicare Part A and Part B prices are rising. Over the course of the last 7 years, the average doctor’s visit has gone from a price of $89 to $105. Obviously we are doing something right with Part D, and something very wrong with Parts A and B.

The difference between the way Parts A and B are run versus the way Part D is run is that with Part D, we are setting the prices. Part D is based on market competition, and when we choose what plan to invest in, we are in effect telling drug companies what we’re willing to pay. In effect, ordinary Americans are driving down Medicare costs, not the government.

Part D should serve as an example of how to effectively run a health care program for seniors. High rates of satisfaction, falling government costs and low premiums are exactly what we need. Reform is clearly necessary. We need to take Parts A and B of Medicare and make them more like Part D. In other words, we need to make them more cost-effective and more popular among seniors.

What has your experience been with Medicare, if any? Are you ready for change? How might we take what we’ve learned from Part D and apply it to Parts A and B?

Hank Pomeranz is the owner of Medicarebenefits.com and has been writing about Medicare since 1998. You can follow Hank on Twitter.

11 replies »

  1. Hi Hank,

    I think everyone is waiting with bated breath to see the long-term effects of the current budget situation on Medicare. One thing that affects our industry in particular is the new competitive bidding program, which consolidates providers but could also prove for more red tape and barriers to access as well.

  2. Let me explain why it appears you have an agenda. As I understand it, you are saying the following:

    1. It would be a good idea to model future Medicare reform after Part D Medicare drug plans

    2. But you did not mention that Part D — created 10 years ago — is itself modeled after Part C Medicare health plans which have been in existence for 15 years formally (and many years prior as demo projects)

    3. And in your follow up you totally ignored Part C because Part C involves “price fixing?”

    (I mean you totally ignored Part C. It’s not like you said there was another Medicare program similar to Part D called Part C but you were against it. You just totally tried to mislead readers.)

    Maybe you could explain where the price fixing is in Part C and — depending on what you call price fixing — how that differs from the price fixing in Part D, your “model.” You’ll have to ignore all the “competition and market forces” going on in Part C to accomplish that task but I look forward to seeing how you twist the facts.

  3. Hi Dennis,

    No agenda, I was just talking dollars and cents. I don’t know where you get the idea I’m a right winger, I try my best to stay politically neutral when writing posts since I know how charged up people are when dealing with political sacred cows and subjects like Medicare. As for Part C, I agree with you, we do need to have it working better. But as I explain in the post, competition and market forces, not price fixing, helps bring down costs for products and services. That’s usually something most people can agree on.

    This post was more of a small suggestion amongst the vast national conversation that’s going on concerning Medicare and medical costs in general. Is it the end all solution? Of course not. It’s just something else to take into consideration when trying to find a solution to the larger problem, while giving the seniors of this country the medical care that they need and want. But I appreciate your feedback and look forward to your future posts 😉

  4. Right on Melissa. Part D isn’t perfect but it’s success should be carefully examined by those in Washington.

  5. More good posts, Dennis, thanks.

    Still, the danger of funding Part B and Part D of Medicare is this:

    If tax receipts do not go up and Medicare does go up, then health care for the elderly would seem to crowd out education spending, infrastructure spending, science and technology spending, etc.

    Both parties use taxes ideologicallly, instead of saying, “This is what we have voted for, now we must start paying for it.”

    Congress is like a bunch of diners who order a very expensive meal, but when the bill comes they beg out of it, saying that paying this much will affect their future growth.

    Dennis, could you send me yr email address to bob.hertz@frontiernet.net?


  6. Bob

    As for why Part D wasn’t funded directly in 2003, remember that was a conscious decision that was made back in 1965… in 2003, they decided to make D like B, which they decided not to directly fund back in 1965. In fact I think the B and D money both come out of the same pot. I’m not saying either was a good decision but unlike most things these days, it was an out in the open conscious deliberate transparent decision.

    Also, Bob, most of the unfunded Part D money goes to giving totally free Part D premiums and basically free drugs to the poor. That was nothing new; they always got free drugs. When you talk about that $5o billion (I think it’s over $60 actually), all that mostly happened was that the politicians moved the costs of these free drugs for the poor from Medicaid to Medicare. The “free subsidies” to us middle class seniors are a small part of the cost. Again, I’m not saying that’s right but I personally don’t feel bad about getting some payback for my 45 years of paying income taxes that went into the Part B pool.


  7. Mr. Pomeranz

    Wow, who let a right winger like you on this left-wing blog?

    The fact is — and you seemed to have purposely left this out — we already have a form of Medicare like Part D. It’s called Part C and it came first, years before Part D. We don’t need a new “model for Medicare” based on Part D. Part D is modeled after Part C. We just need to get Part C working even better.

    Already in 2013, according to MedPAC’s March 2013 Annual Report to Congress, Medicare is paying Part C plans basically on parity with Original FFS Medicare (not counting bonuses Obama illegally paid the plans according to GAO and not counting some special kickers for the poor left in PPACA by the Democrats from the 2003 law). So the lefties should stop complaining about alleged overpayments to us Part C beneficiaries. (But they won’t because they are lefties…)

    So now — at basic parity — we find that even costing the government the same as Orignal FFS Medicare, Part C plans can deliver much better insurance than Original FFS Medicare, particularly because all Part C Plans provide catastrophic coverage and annual OOP limits. Most Part C plans also provide much lower co-pays than Original FFS Medicare and additional healthcare services such as annual physicals and vision/dental care not included in Original FFS Medicare. (Those Part C plans that don’t provide more services typically give seniors back the money paid the government for Part B premiums but still have to provide catastrophic coverage and annual OOP limits.) Sounds like a model for all of Medicare to me.

    So what’s your agenda? Why did you purposely ignore Part C? Hmm? What is medicarebenefits.com? Oh, now I see why you didn’t mention Part C.

  8. I believe that Medicare Part D still costs over $50 billion a year in federal subsidies.

    As we all know, not a single penny of this is covered by new taxes. Neither the payroll tax nor the income tax was increased in 2003 or since.

    This is surely part of the popularity of Part D. Seniors get free subsidies, and the taxpayers as a whole pay nothing. Part D is “going on the card” of public debt.

    Hank’s points on plan design may still be valid, I am not an expert there.

    But a free lunch is always kind of popular.

  9. The drop in expenses has everything to do with the slaughter of brand name cash cows on the generic alter and nothing to do with plan management.

  10. That seems to be the motto of politicians – change something that works and mess it up. Health care costs are going to go up, quality of healthcare is going down. Sometimes it seems to me that the laws and regulations are less and less concerned with people and more with bureaucrats wanting to have their name on some bill.