Medicare Part D Responsible For 60 Percent of Medicare’s Spending Slowdown

When Medicare added Part D, the prescription-drug benefit, via the Medicare Modernization Act (2003), its framers decided that every beneficiary would receive the benefit from a private plan, not from the government directly.

The benefits of this design continue to show themselves. In Health Affairs, Loren Adler and Alex Rosenberg conclude that the Part D benefit is responsible for 60 percent of the reduction in the rate of Medicare spending since 2011.


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, excluding sequestration savings. The $225 billion of that decline accounted for by Part D represents an astounding 24 percent of Part D spending. (By starting in 2011, this analysis excludes the direct impact of various spending reductions in the Affordable Care Act (ACA), although it could still reflect some ACA savings to the extent that the Medicare reforms have controlled costs better than originally anticipated.) Additionally, sequestration is responsible for $75 billion of reduced spending, and increased recoveries of improper payments amount to $85 billion, bringing the total ten-year Medicare savings to $530 billion.

I suppose the time will soon come when someone will demand that I explain why I support Medicare Part D – which is delivered by private plans; but not Obamacare – which is delivered by private plans.

It would be a long-winded answer. First, as recently as 2007, I was strongly opposed to Part D. However, Part D was Republican. That does not make it good, but it is not as if the Democrats were going to leave prescription drugs out of Medicare. They would have imposed price controls (and still might) which would have been far worse than Part D.

Second, I did not think it made sense to leave such an important part of health care out of Medicare. Prescription spending substitutes for far greater spending on hospitals and other health services, according to a pretty strong body of research conducted by Professor Frank Lichtenberg of Columbia University, and other scholars.

Earlier this year, Professor Robert Kaestner and colleagues confirmed that this had occurred as a result of Medicare Part D: “Obtaining prescription drug insurance through Medicare Part D was associated with an 8% decrease in the number of hospital admissions, a 7% decrease in Medicare expenditures, and a 12% decrease in total resource use.” So, adding Part D saved taxpayers money.

I’m pretty sure we are not going to be saying that a few years after Obamacare has been in force.

Comments (9)

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  1. Dennis Byron says:

    In my opinion it is almost impossible to find a clear explanation in the mainstream media concerning the history of Part D or its current status. More than on any other Medicare subject, the left is clearly out to propagandize citizens with untruths in order to kill a program it did not approve of. No one who started reading about Part D during the 2012 election would know that:
    — Democrats proposed an even more costly and “unfunded” drug program beginning in 1999 but the Democrats’ program had very restricted formularies
    — Part D is not “unfunded” but is in fact funded by government cost shifting, Part B premium surtaxes, then-anticipated (now realized) decreases in Part B spending due to people taking their meds, and other sources
    — The donut hole affects very few seniors relatively speaking and affects no low income seniors; only about 1% of the people on Medicare are fully affected by the donut hole and less that 5% are affected at all (not that I am defending the donut hole; it is probably the stupidest idea someone in government ever had)
    — Part D is characterized by extensive multi-party negotiating (it’s just that the people who brought you thousand-dollar toilet seats and simple web sites that cost a billion dollars and did not work are not involved in the negotiating)

    All that being said (and there are many other misstatements floating around the mainstream media on Part D), I think it is inaccurate to say that Part D is responsible for slowing down Medicare spending. The numbers reflected in the Health Affairs article are simply the result of the consistently bad forecasting of the Congressional Budget Office.

  2. allan says:

    You were correct in 2007. A market plan might have been needed, but Part D was not the answer.

  3. Devon Herrick says:

    Drugs are the most efficient way to treat most diseases and conditions — often substituting for hospitalizations and surgery. Over the past few years many blockbuster drugs have gone generic. Part D plans gave seniors an incentive to use them.

    • allan says:

      Sentence one and three may be true, but this is not a classical liberal/libertarian way to do such things. Would you like other things done in this fashion if you didn’t agree with the outcome?

      Sentence two tells you why Part D was unnecessary and perhaps has propped up the cost of medicines. Don’t you think we should have used an alternative method of helping with the purchase of medications rather than promoting a new entitlement program?

      • John R. Graham says:

        Thank you, but many readers accuse me of continuing to fantasize a libertarian health reform. I, on the other hand, try to balance my preferred health reform with the real world in which we life. Whether I strike the balance right, the future will tell.

        • allan says:

          Fair enough, but the real world didn’t require a new entitlement paid for by the taxpayer. Can you envision a libertarian/ classical liberal approving of Medicare in 1965?

          • John R. Graham says:

            No: But most Republican legislators voted for the Medicare/Medicaid amendments in 1965. If libertarians/classical liberals cannot get elected, I am not sure there is much use considering what policies they would approve.

            • allan says:

              It is one thing to vote for amendments that improve a system. It is another thing to vote for passage of a brand new entitlement.

  4. Sarah says:

    A 6’8” dude does not have to be armed to be dangerous. The store owner experienced that fully.