Come the end of February we will inevitably be facing another hostage crisis with the debt ceiling and demands for austerity. Austerity as we have seen it implemented in Europe has been a disaster for them. Just ask the Greek, Spanish, Portuguese, Irish and British public. The reason why it has failed is because the things that were cut were the exact things that stimulate economic growth and impoverish their middle classes.
However, I think we do need to make one big fundamental change to Medicare which will be the biggest driver of our long-term debt. I would like to reintroduce an idea that can cut hundreds of billions of dollars from Medicare spending without touching the benefits that seniors receive. It is a free-market idea that has been proven to work in both the public and private sectors. It should be a central part of any demands that Obama has concerning the sequester cliff. If conservatives truly believe in the free market and cutting out waste in government, this should be something every Republican should support.
What I'm talking about reforming is Medicare Part D. Passed into law in 2003 and fully implemented in 2006, it was designed as a way for Medicare to cover prescription drugs. In reality, it turned out not to be a very good deal for taxpayers for one very important reason, Medicare can't legally negotiate volume discounts in drug prices.
This more than anything else is why Medicare Part D was a huge giveaway to the private healthcare industry. Medicare can't legally use their enormous pool of enrollees as a way to bargain for volume discounts on prescription drugs. This is something that happens all the time in the private sector. For example, using their leverage as America's largest retailer and employer, Wal Mart is able to offer one of the cheapest perscription drug plans in the country. There is absolutely no reason why Medicare shouldn't be able to do the same thing and save hundreds of billions of dollars in the process.
One may say, "That's something that can only work in the private sector." Wrong. In fact, the government's other single payer healthcare plan does exactly that and gets the same drugs at significantly cheaper prices. Unlike Medicare, the Department of Veterans Affairs is allowed to directly negotiate prescription drug prices for veterans. The result? In some instances the VA can get cheaper prices on brand-name drugs than Medicare can get for the equivalent generics. For example:
Although generic versions of [frequently prescribed to the elderly] drugs are now available, plans offered by three of the five [exemplar Medicare Part D] insurers currently exclude some or all of these drugs from their formularies.…Further, prices for the generic versions are not substantially lower than their brand-name equivalents. The lowest price for simvastatin (generic Zocor) 20 mg is 706 percent more expensive than the VA price for brand-name Zocor. The lowest price for sertraline HCl (generic Zoloft) is 47 percent more expensive than the VA price for brand-name Zoloft.Here's an apples to apples comparison on specific drugs from that same study:
So what does all this mean in budgetary terms? Economist Dean Baker estimated that Medicare could have saved between $332 billion to $563 billion between 2006 and 2013. Keep in mind this is government waste that a Republican Congress and a Republican president enacted into law. If all Congress did was replace the sequester next month with this change to Medicare, we would slash the debt by about a little more than a trillion dollars (factoring in the tax increases just passed) and we would extend the long-term solvency of Medicare without cutting anyone's benefits. I don't know about you but that is entitlement reform I can get behind.
Whether or not a member of Congress supports this idea should be the true test of whether they are serious about wanting to extend the solvency of Medicare as we know it. Will enough of Congress stand up to PhRMA and AHIP and tell them that they are a huge factor behind the deficit. Will enough Republicans notice that the VA is doing something far more efficiently than Medicare is and be willing to apply that best practice to Medicare? Any proposal about reforming Medicare that does not include this very basic reform should not be taken seriously. We can cut costs in Medicare without screwing over present and future seniors and overhauling Part D is how you do it.
4:19 PM PT: Oh my! This made Community Spotlight? I wasn't expecting that. Thank you.
If mcjoan's most recent front page piece comes to pass, that will be very good news indeed.
5:52 PM PT: Whoa! I never thought this would be my first diary to make the rec list! Thank you all so much!
7:02 PM PT: From the comments (h/t Boundegar):
The Humana-WalMart plan isn't news. I was selling it last year, and it sold like hotcakes. But very few people understand how it works.
Medicare is forbidden by law to negotiate volume discounts - but WalMart isn't. Looking at the drugs on the list in the OP, WalMart is able to buy drugs in bulk at prices well below the VA price. Then they fill prescriptions and are reimbursed at the Part D price. Profit margins can be over 500%.
The good news is our seniors aren't getting robbed. The bad news is, the taxpayer is. When a prescription gets filled, the patient pays a (usually) very small copay. Humana bills Medicare at full retail price, and splits the profit with Walmart.
We would call this insurance fraud, except that the law is written to require these obscene profits.