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Reviving Discredited Ideas

April 19, 2011
4:08 pm

Washington’s newly-intense interest in deficit reduction is, by and large, a good and necessary thing.  There is no question that our nation’s economic health and the security of future generations are endangered by rising oceans of red ink.  There’s an unfortunate side effect, however, to this budget cutting debate.  It’s opening the door to those who want to revive bad ideas that have already been defeated and discredited.

We’re seeing that right now with the renewed energy behind the idea of giving the federal government the power to “negotiate” (the quotation marks used because “negotiation,” in this case, is a euphemism for price controls) prescription drug prices for the Medicare Part D program. 

Of course, the only reasons for giving CPR to this idea are ideological ones.  It’s well known that the cost of the Medicare Part D program has been substantially below the original projections for the program.  It’s also known that the Congressional Budget Office has said more than once that giving the HHS Secretary “negotiating” powers would have a “negligible” (legitimate quote this time, from the CBO report) impact on federal spending.

But those facts apparently aren’t going to deter efforts to give this idea the Weekend At Bernie’s treatment.  We got an indication of the campaign to come from Paul Krugman’s blog post in the New York Times last week, in which we ridiculed Congressman Paul Ryan (R-WI) for suggesting that Medicare Part D is an example of cost savings that can be achieved through consumer choice.

Mr. Krugman cavalierly dismissed Part D’s lower-than-expected spending totals by ascribing them to the fact that relatively few new drugs have been introduced and a greater use of generics.  I’m not sure what Mr. Krugman sees as the reason for this increased generic drug usage.  In fact, it is the competition between competing private sector prescription drug plans that is guiding Medicare beneficiaries to lower-cost generic alternatives where appropriate.

Then, Mr. Krugman makes the point that Medicare Part D should shift to the Veterans’ Administration government-pricing model in which prices would be less “at the cost of somewhat restricted choices.”  Well, “somewhat” is a bit of an understatement.  Even in the study cited in the Krugman blog post, the authors write that the VA covers 59 percent of the top 200 most popular drugs while Medicare prescription drug plans average about 85 percent of those drugs in their formularies.  That’s a pretty significant difference. 

That study’s authors, by the way, say that beneficiaries still come out ahead in this tradeoff because, according to their estimates, the costs saved through government pricing would outweigh the value lost from having fewer drug choices.  I would argue that you can’t so easily attach a dollar value to lack of insurance coverage for a preferred medication.

We’re certainly getting indications that the campaign for government pricing power in Medicare Part D is back on again.  Based on the arguments in favor it, though, neither logic nor better healthcare for beneficiaries have anything to do with it.

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