Inaugural Inspiration: Strength in Part D

The Hill was alive with the sound of music this week as both parties came together, well, to party in honor of the Presidential inauguration. During President Obama’s first speech of his second term, a key phrase stuck with me, “Medicare and Medicaid strengthen us.” Millions of Americans rely on Medicare and Medicaid to provide them with vital health services. Yet, as lawmakers face difficult economic decisions, the cost and structure of these programs often make for a point of complex debate. One proposal would apply a rebate system to Medicare Part D, threatening the success of the Rx coverage program. In a recent blog for Health Affairs, Douglas Holtz-Eakin demonstrates how this proposal would ultimately hurt Medicare beneficiaries.

Medicare Part D’s competition-based approach and its careful balance of cost containment and access has allowed the program to provide quality, cost-effective coverage for seniors. Implementing a rebate system for Part D threatens to destabilize and undermine this balance. Holtz-Eakin outlines five ways applying a rebate model to Part D would negatively affect beneficiaries:

  • Higher Part D premiums
  • Higher-cost drug coverage outside of Part D
  • Lower quality/diversity of Part D plan formularies
  • Lower incentive to provide Part D plan “perks”
  • Lower investment in R&D for drugs that will be subject to the rebate

I’d like to add another point—the economy and job growth. Holtz-Eakin emphasizes, “If $137 billion in mandated costs are imposed, somebody will bear that burden.” By curtailing investment in research and development opportunities, price controls threaten thousands of high-paying, high-quality jobs in the dynamic life sciences sector.

Furthermore, an analysis by Battelle Memorial Institute found that every job in the biopharmaceutical sector supports six additional jobs in the economy. The study estimated that a $10 to $29 billion per year reduction in sector revenue would result in the loss of 130,000 to 260,000 U.S. jobs. In our recovering, but still fragile economy, these are job losses we simply can’t afford.

Medicare Part D strengthens us. Policymakers must work to protect the program from unsound policy proposals that would cause negative ripple effects throughout the industry, health care system, and U.S. economy.