Medicare has immeasurably improved the lives of older Americans, most of whom lacked health insurance when it was signed into law 50 years ago today. Though the Obama administration has made strides at containing costs, Medicare must continue to seek efficiencies so it can absorb aging baby boomers without burdening future generations and continue to be a success story for another 50 years. Congress should start by unleashing Medicare's power to negotiate lower prices for prescription medicine.
About 55 million older and disabled Americans, including nearly 4 million Floridians, rely on Medicare for their health care. With baby boomers expected to swell the rolls to 80 million over the next 15 years, the Congressional Budget Office estimates that spending will rise from 3 percent of gross domestic product to 4.2 percent. This pressure on the nation's pocketbook would be worse if not for Medicare's proven efficiency. It consistently keeps administrative costs below those of private health insurance plans, and its outlays rise more slowly. New payment structures have helped keep Medicare costs nearly flat since the Affordable Care Act became law five years ago.
These recent trends undercut doomsday predictions by those who would gut Medicare or privatize it with a voucher system, but fiscal prudence remains paramount over Medicare's next 50 years. One obvious reform is reducing the prices Medicare pays for prescription drugs. Medicaid, the VA and other government health systems use their buying power to negotiate discounts or rebates — as do national health systems around the world. But when Congress created Medicare's drug benefit, it foolishly yielded to Big Pharma's lobbying power and banned the government from directly negotiating discounts. Last year, the CBO estimated that Medicare paid 39 percent to 59 percent more than Medicaid did in 2010 for the same set of common drugs. That is a that is a terrible waste of money.
In a particularly costly move, Congress shifted drug coverage for low-income people who receive both Medicaid and Medicare and who often face complex medical issues. Instead of continuing their drug coverage through the less expensive Medicaid system, Congress granted the drug industry a windfall by shifting that coverage to Medicare, where these "dual eligible" beneficiaries now account for more than half of Part D spending. Simply reinstating Medicaid-style rebates for this population would save Medicare $123 billion over 10 years, the CBO estimates. Congress should adopt this portion of President Barack Obama's latest budget proposal and reinstate the rebates.
Medicare also should mandate direct discounts for new cancer, hepatitis C and other specialty treatments that can cost more than $100,000 a year. Because these powerful drugs often have no competitor, the private plans that administer Part D have little leverage to negotiate lower prices. But just as other federal agencies extract lower prices for these wonder drugs, Congress should grant Medicare the same power.
The drug industry argues that powerful drugs save Medicare money by reducing hospitalization and other costly services. High profits from Medicare also help fund research that leads to new drug discoveries. That may be true, but U.S. taxpayers should not solely underwrite research that the entire world benefits from — including Japan, Germany, Canada and France, who negotiate discounts. If the industry needs money for research, it could cut back on its relentless advertising.
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Explore all your optionsBaby boomers who were teenagers when Medicare became law now have clogged arteries and gimpy knees. Sensible changes to drug policy would help America care for them without breaking the treasury and put Medicare on even sounder financial footing.