Don't Monkey With Seniors' Medicare Savings

The innovative drug benefit, created by the Medicare Modernization Act of 2003, or MMA, combines generous public spending with real competition among private drug benefit providers. This system was designed to keep down drug prices while maximizing the choice of available drugs for seniors.

Unfortunately, before the program can even get out of the gate, politicians -- both Republican and Democrat -- are trying to undermine it. They're calling to strike the MMA's "non-interference" clause, a key provision that bars the government from intervening in price negotiations between private drug plans and drug companies.

Currently under MMA, the drug benefit will be provided by private plan sponsors, which receive subsidies from the federal government to provide prescription drug insurance. They compete fiercely against one another and negotiate aggressively with pharmaceutical companies to get the best bargains for their customers. The non-interference clause is crucial to fostering this competition among providers.

There are 10 national firms competing to provide Medicare drug plans, plus many more regional and state providers. With so much competition, each plan has a strong incentive to negotiate low prices, which it can pass on to customers in the form of low premiums, lower or no deductibles, and even covering drugs in the dreaded "doughnut hole" -- the gap in coverage between low and high drug expenses. This private-sector competition is what makes the Medicare drug benefit so different from traditional one-size-fits-all Medicare programs.

Happily, this competition-fostering system is already working well. Seniors who sign up will see substantial savings come January.

Those with medium and small drug bills are able to buy peace of mind for a reasonable price, and those with large drug bills will get substantial help with their drug expenses. Nationwide, premiums for the new plans average just $32 a month, which is lower than the $35 predicted by Congress when it passed the MMA, and seniors almost everywhere will be able to choose a plan that costs no more than $20 a month, and sometimes much less. Low income seniors will receive their drug coverage for little or no additional cost.

Competition to administer the new drug benefit has resulted in a high degree of choice and some very low prices. In Kansas, for example, Medicare beneficiaries have a choice of 40 prescription drug plans, with premiums that start at just $9.48 a month.

Those who subscribe to all-in-one health insurance through the Medicare Advantage program -- an option currently available to 62 percent of Medicare users -- are receiving a flurry of new offers from drug benefit providers. Prescription drug coverage is often bundled into overall medical coverage at no extra cost.

All of these extensive choices -- and low prices -- are the result of negotiations between private insurance providers and drug producers.

The lawmakers who would undermine the Medicare Modernization Act are doing so just as these gains are within tantalizing reach. If we reverse the non-interference clause and bar this private sector competition over prices, seniors would lose access to the money-saving plans now coming on the market.

We'll lose out in other ways, too. If the government steps in, it will become sole drug middleman for Medicare-eligible seniors, who consume nearly half of all prescription medicines sold in America. As the single buyer for this huge market, the federal government would put an end to the private-sector horse-trading and instead implement a system of price controls.

While price controls may seem great for consumers at first, their dangers are well-documented.

First, in single-buyer systems, the buyer controls costs by banning access to many newer drugs. That's why most cutting edge medicines aren't available in socialist countries like Canada.

Second, price controls drastically reduce research and development into new drugs. Ever wonder why most life-saving drugs are now developed in the United States, not Europe? It's because a free-market in medical research still exists in this country. If we allow politicians to outlaw competition by implementing price-controls, we could lose out on a cure for cancer.

The whole point of the new Medicare drug benefit is to allow private companies to compete as they negotiate the best possible benefits for the country's 40 million seniors. It's clearly working -- as will become abundantly clear on the first day of 2006. Instead of hamstringing Medicare reform just as it gets off the ground, lawmakers should be urging seniors to sign up.

Grace-Marie Turner is president of The Galen Institute, a non-profit organization devoted to health policy research and education.