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Decline in Medicare costs tied to prescription drug plan

WASHINGTON – The cost of Medicare has been slowing dramatically in recent years, leading to much head-scratching by health economists and much credit-mongering by politicians. President Obama, for instance, claimed earlier this month that his Affordable Care Act is driving down both Medicare costs and the overall cost of health care.

Now comes evidence that an entirely different program may deserve more of the credit, at least as far as Medicare is concerned – the Medicare prescription drug program, enacted under President George W. Bush.

Loren Adler and Adam Rosenberg of the bipartisan Committee for a Responsible Federal Budget make this argument in a post on the web site of the prominent health policy journal, Health Affairs.

After examining Medicare cost projections through the years from the Congressional Budget Office, the pair determined that the prescription drug program, known as Medicare Part D, “has accounted for over 60 percent of the slowdown in Medicare benefits since 2011,” though the program accounts for barely 10 percent of overall Medicare spending.

“Through April of this year, the last time the Congressional Budget Office (CBO) released detailed estimates of Medicare spending, CBO has lowered its projections of total spending on Medicare benefits from 2012 through 2021 by $370 billion,” the pair write. “The $225 billion of that decline accounted for by Part D represents an astounding 24 percent of Part D spending.”

Meanwhile, spending on Parts A and B – the hospital and general medical insurance – is projected to decline by only $145 billion.

If projections for Parts A and B were declining, that might suggest that the slowdown in Medicare spending was part of some permanent, fundamental changes in the way hospitals and doctors provide health care.

But Part A is down only 8 percent while Part B is actually rising, largely due to lawmakers’ insistence on reversing scheduled cuts to provider reimbursements. The fact that Part D is responsible for the lion’s share of the savings, the pair write, “is reason to be cautious about its permanence.”

“Lower Part D spending primarily stems from the ‘patent cliff’ – a number of blockbuster brand-name drugs that have lost patent protection, paving the way for cheaper generic competitors – and a decrease in the rate of introduction of new brand-name drugs. It is unclear whether these trends in the prescription drug market will continue.”

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