The Center's work on 'Medicare' Issues


CBO Findings Refute the Medicare Part D Myth

August 6, 2014 at 2:37 pm

The Medicare drug benefit’s lower-than-expected costs do not reflect efficiencies produced by competition among private insurers, as we’ve repeatedly explained.  The main factors were the slowdown in per-capita drug spending throughout the U.S. health care system and lower-than-expected Medicare Part D enrollment — and the Congressional Budget Office (CBO) concurred with our analysis in a recent report, finding:

  • National drug spending growth fell unexpectedly because many drugs went off-patent, the use of lower-cost generic drugs increased substantially, and fewer new drugs, which tend to be more costly, came to market.  National drug spending in 2012 was therefore much lower than what the Centers for Medicare and Medicaid Services’ actuaries projected in 2003 when the Medicare drug benefit was enacted.  CBO states that “spending per beneficiary in Part D has been lower than CBO projected in part because of those developments affecting nationwide drug spending.”
  • Part D enrollment was also lower than CBO projected — by 12 percent, in 2012.  CBO originally assumed that participation in the drug benefit would be similar to enrollment rates in Medicare Part B.  But CBO now believes that Part D participation is lower than in Part B likely because Medicare beneficiaries must actively enroll in the drug benefit — which can reduce participation — while eligible individuals are automatically enrolled in Part B and must actively opt-out.
  • CBO thus concludes: “Taken together, the unexpected slowdown in national drug spending per person and smaller-than-expected enrollment in Part D can account for nearly all of the difference between CBO’s original estimate and actual Part D spending” (italics added).

That’s all consistent with our analysis as well as that of the Kaiser Family Foundation, which found that there “is compelling evidence that factors other than competition offer the best explanations for the lower-than-expected spending trend” in Part D.

Our Take on Today’s Trustees’ Reports

July 28, 2014 at 4:34 pm

We just issued statements on the trustees’ 2014 reports on Social Security and Medicare.  Here are the openings:

  • CBPP President Robert Greenstein on Social Security:

    “Social Security can pay full benefits for close to two decades, the new trustees’ report shows, but will then face a significant, though manageable, funding shortfall that the President and Congress should address in the near future.

    “Specifically, the trustees estimate that Social Security can pay full benefits until 2033, at which point its combined trust funds will be exhausted.  After 2033, even if policymakers failed to act, Social Security would pay about 75 percent of scheduled benefits, relying on Social Security taxes as they are collected.  The exhaustion date is unchanged from last year’s report and is within the range that the trustees have projected for some time.  In the late 1990s, they projected the exhaustion date as early as 2029; at one point in the last decade, they projected an exhaustion date as late as 2042.

    “The trustees caution that their projections are uncertain.  For example, they estimate an 80 percent probability that trust fund exhaustion would occur between 2029 and 2038 — and a 95 percent chance that it would happen between 2028 and 2041.  The Congressional Budget Office (CBO) recently estimated that exhaustion would occur in 2030, largely because CBO expects somewhat faster improvements in mortality.  Fluctuations of a year or two in either direction are no cause for either alarm or celebration.  The key point is that all reasonable estimates show a manageable long-run challenge that policymakers must address, the sooner the better, but not an immediate crisis. . . .”

  • Senior Fellow Paul Van de Water on Medicare:

    “Medicare has grown somewhat stronger financially in both the short and long term since last year but continues to face long-term financing challenges, today’s report from its trustees shows.  The projected date of insolvency for Medicare’s Hospital Insurance (HI) trust fund is 2030 — four years later than projected last year.

    “Health reform, along with other factors, has significantly improved Medicare’s financial outlook, boosting revenues and making the program more efficient.  The HI trust fund’s projected exhaustion date of 2030 is 13 years later than the trustees projected before the Affordable Care Act.  And the HI program’s projected 75-year shortfall of 0.87 percent of taxable payroll is down from last year’s estimate of 1.11 percent and much less than the 3.88 percent that the trustees estimated before health reform. . . .”

MedPAC: Medicare Advantage Overpayments Not the Right Way to Aid Low-Income Beneficiaries

July 8, 2014 at 1:41 pm

Overpaying the insurance companies that serve some Medicare beneficiaries through the Medicare Advantage (MA) program is not a targeted, effective way to help low-income beneficiaries with their out-of-pocket costs, the Medicare Payment Advisory Commission’s (MedPAC) latest report to Congress explains.

Insurers have long defended the overpayments as helping low-income beneficiaries and have claimed that repealing or scaling back health reform’s MA savings is necessary to protect such beneficiaries from benefit cuts.  But as we’ve explained, recent research shows that before health reform, insurers didn’t pass on most of the overpayments to enrollees in the form of better benefits.  And MedPAC’s report reiterates its longstanding position that higher MA “payments are not a direct or efficient way to target assistance to low-income beneficiaries.”

That’s because, as MedPAC puts it, “higher MA payments and extra benefits financed by those payments do not go only to low-income beneficiaries.  Rather, all enrollees in a given MA plan receive the same extra benefits, low-income or not.”  Insurers’ own data show that 59 percent of MA enrollees had incomes over $20,000 in 2011.

The Government Accountability Office similarly concluded in 2008 that “if the policy objective is to subsidize health care costs of low-income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost-sharing for all [Medicare Advantage] beneficiaries, including those who are well off.”

A direct and efficient way to help Medicare beneficiaries with limited incomes, according to MedPAC, is to expand the Medicare Savings Programs, through which Medicaid helps low-income beneficiaries cover their premiums and/or cost-sharing charges.

Emerging Trade Agreement Would Make Drugs Less Affordable

May 6, 2014 at 10:19 am

The Trans-Pacific Partnership (TPP) — a trade agreement that the United States and 11 other Pacific-rim countries are negotiating — threatens to make prescription drugs less affordable for consumers and taxpayers.  CBPP recently joined with ten other organizations, including AARP and Consumers Union, to express our concerns to the Office of the U.S. Trade Representative.

Our concerns fall into three main areas.

First, the draft TPP would restrict Medicare’s ability to limit the prices it pays for drugs for Part B beneficiaries.  The recent release of Medicare physician payment data has vividly illustrated the large sums spent on Part B drugs, such as Lucentis, a macular degeneration treatment that costs $2,000 per monthly injection.  The TPP could allow drug companies to challenge existing Part B payment policies that hold down costs and foreclose some future cost-containment steps, such as discouraging the use of new drugs that are costlier but no more effective than existing alternatives.

Second, the draft TPP would raise health care costs further by expanding patent protections for drugs and medical devices.  Drug companies use various strategies — such as making small changes in their products — to extend their patents and fend off competition from generic drugs.  The TPP could limit efforts to combat these “evergreening” strategies.  It would also make it easier for companies to obtain patents for therapeutic and diagnostic techniques that now aren’t patentable.

Third, the draft TPP would give companies a new legal avenue to challenge U.S. pricing and patent policies for drugs and medical devices:  the ability to sue the U.S. government before an international arbitration panel that wouldn’t be subject to normal democratic checks and balances.  Under a similar provision of the North American Free Trade Agreement, for example, the drug company Eli Lilly is suing the Government of Canada for $500 million because Canadian courts invalidated patents for two drugs that didn’t meet Canada’s legal standards.

Click here for the full text of our letter.

Flawed Analysis Exaggerates How Health Reform’s Medicare Advantage Savings Will Affect Enrollees

April 24, 2014 at 10:56 am

Insurers and others who oppose the health reform provisions that scale back Medicare Advantage overpayments often imply that the payment reductions will mean a dollar-for-dollar benefit cut for Medicare Advantage enrollees.  That’s exactly what the American Action Forum (AAF) did last week when it issued a flawed analysis substantially overstating health reform’s impact on Medicare Advantage enrollees.

But as we have previously explained, recent research challenges this claim, finding that before health reform, most of the Medicare Advantage overpayments were not passed through to enrollees.  Insurers thus can still provide additional benefits to attract enrollees if they trim profits and become more efficient.

Moreover, by curbing overpayments to Medicare Advantage plans, the Affordable Care Act lowers premiums for all Medicare beneficiaries and extends the solvency of Medicare’s trust fund.