Drug Rebates
Under the president’s proposal, Medicare would receive the same rebates as Medicaid’s discount for brand name and generic drugs given to beneficiaries under the Medicare Low-Income Subsidy. This proposal alone is estimated to net some $135 billion in savings over 10 years, an inclusion that Judith Stein, executive director of the Center for Medicare Advocacy, says her organization was “delighted” to see. “We think that’s extremely reasonable, fair, good public policy, and good economic policy,” she says. Left-leaning groups are particularly vehement on this issue, given Medicare’s prohibition against negotiating with pharmaceutical companies on drug prices, a restriction that other bulk buyers, such as the Veterans Administration, don’t face.
Dr. Antos expects some form of the president’s proposal to be taken seriously. “This is something that is easy to do, and I think politically, it’s easier to go after a supplier of products—and drugs are the biggest one—than it is to go after doctors or hospitals,” he says. “And it’s hardest to go after beneficiaries.”
Premium Surcharges
Another element of President Obama’s proposal would save $20 billion by increasing wealthier beneficiaries’ insurance premiums on prescription drugs and doctors’ services. Beginning in 2017, income-based premiums for Medicare Part B and Part D both would rise by 15% for beneficiaries earning more than $85,000 annually.
AARP opposes the idea, and Stein says she’s concerned about the overall notion of basing Medicare premiums on income. “The problem is that we want to keep higher-income people satisfied with the Medicare program, because they’re the ones that get listened to,” Stein says.
Austin Frakt, PhD, a healthcare economist at Boston University, makes a similar point in a recent Health Affairs blog post: “The wealthy are a potential source of revenue for Medicare but also possess the means to finance the most strident challenge to it,” he writes. Even so, Stein says, “it’s easier to swallow than some other things,” especially if drug companies and others are required to share in the sacrifices.
Medicare Eligibility
President Obama’s proposal excludes any discussion about raising the age of Medicare eligibility, signaling a harder line on a change that Republicans and groups like the American Hospital Association have favored and that Obama himself floated as a trial balloon earlier this year. The Democratic base and AARP, however, rebelled against the notion, and Dr. Antos says the idea has “zero” chance of being included in the super-committee’s proposal. “This is the sort of thing that you don’t really want to bring up when you’re running for president, which is why the president backed off, and which is why the Republicans won’t be eager to see it, either,” he says.
Dr. Antos expects the eligible-age proposal to re-emerge in 2013, though he cautions against taking any “extravagant claims for savings” at face value. To be publicly acceptable, Medicare’s minimum age would need to rise slowly, he says, perhaps phased in over 20 years, and in a way that likely wouldn’t save a huge sum of money.
If Medicare raised its minimum age to 67 in 2014, the federal government would save roughly $5.7 billion, according to the nonprofit Center on Budget and Policy Priorities. In an “Incidental Economist” blog post, however, Dr. Frakt points out that the savings would simply shift the cost to beneficiaries, employers, private insurers, and others, a point echoed by Stein.
“All told, the cost to the system of raising the Medicare age to 67 would be $11.4 billion in 2014,” Dr. Frakt writes, “which is a high price to pay for $5.7 billion in federal savings.”