A model for reform

Democrats and Republicans are sharply divided over how best to improve Medicare, a program that covers nearly 50 million Americans and that will spend almost $600 billion this year.

President Barack Obama has highlighted the need to reform our nation's entitlement programs, saying that healthcare spending is the key driver of our ballooning federal debt and spending deficit. This year, he cited the need for “modest reforms” of Medicare and Social Security so they don't “crowd out the investments we need for our children and jeopardize the promise of a secure retirement for future generations.”

But when he released his budget in April, most of the savings he proposes come from tinkering with the byzantine payment regulations that dictate how Medicare pays hospitals, doctors and other providers of medical services—cuts that come on top of the $700 billion in Medicare cuts in the Patient Protection and Affordable Care Act.

Further cuts in what the government pays to providers will inevitably reduce quality and access to care for seniors. With the number of baby boomers turning 65 expected to grow from an average of 7,600 a day in 2011 to more than 11,000 a day in 2029, the urgency for reform grows daily. The Bowles-Simpson Commission on Fiscal Responsibility and Reform said “federal healthcare spending represents our single largest fiscal challenge over the long run.”

But it is crucial that the program continue to meet its commitment to seniors. The data show where our focus should be: From 1987 to 2006, 10 chronic diseases—including hypertension, diabetes and arthritis—accounted for about half the growth in Medicare spending. According to the Centers for Disease Control and Prevention, chronic disease accounts for nearly 75% of overall health spending in the U.S.

For a Congress divided over where and how best to reduce spending, tackling the issue of chronic diseases should be a national priority within the broader Medicare reform debate. The question is, how best to do it.

There is one program that offers a solution, a program that is both popular and under budget: the Medicare prescription drug benefit, Part D.

Just after Congress created Part D, the Medicare trustees estimated that Medicare beneficiaries would pay an average of $61 a month for their drug benefit by 2013. Instead, the average premium has remained consistent at about $30—about where it was when the program began.

During the same period of time, premiums for Medicare Part B, which covers doctors' visits and other outpatient care, have increased from an average of $89 in 2006 to $105 in 2013.

Part D works differently from traditional Medicare: Part D offers seniors a choice of plans that are competing with each other to offer the most comprehensive selection of drugs at the lowest price. Seniors have shown they are smart shoppers, and they are the ones who have driven down the cost of the program. Overall, the cost of the Part D benefit to the federal government is 43% under budget projections.

We need a new path forward for the rest of Medicare, and Part D is a model.

In a rare move, last November the nonpartisan Congressional Budget Office changed its methodology to take into account the effect that prescription medicines can have on spending in Medicare. The CBO estimates that for every 1% increase in the number of prescriptions filled by Medicare recipients, spending on Medicare and other federal programs that include drug utilization is anticipated to decrease by roughly 0.2%.

Part D shows that better access to the right medicines can help reduce the cost of healthcare. It's simple: If people take their medicines, they can control their diseases and avoid expensive hospital stays. Chronic diseases are less deadly when patients stick to their regular treatment program.

Republican leaders are offering Medicare modernization ideas based on the Part D model, giving seniors a choice of competing plans and a guarantee that the Medicare subsidy will cover the full cost of a basic plan, while giving seniors the option of staying in traditional Medicare.

Yet the president's 2014 budget would take the greatest chunk of health savings from drug spending, cutting about $164 billion over 10 years. That is 42% of the total proposed cuts to HHS spending, even though drug spending overall represents less than 15% of the Medicare budget. This is false economy.

Without question, Congress and the administration are headed for a showdown over how best to reform Medicare. Political leaders see two tracks for reform: competition and consumer choice versus more government price controls and restrictions on access.

In an era in which few solutions are readily apparent, policymakers should set politics aside and look at the data. Part D is working and should be a model for future Medicare reform to engage an army of seniors in getting better value for their healthcare dollars—just as they have already proven they can do with the Medicare prescription drug benefit. Medicare could be preserved, taxpayers can be protected and seniors can continue to have access to the treatments and medicines they need.

Grace-Marie Turner is president of the Galen Institute, a not-for-profit research organization