Editor's Note: This column was authored by Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office
Just recently, President Obama's much-heralded "jobs" plan was derailed by the U.S. Senate, thereby adding to the evidence that it was designed with only one job in mind: the President's. At its core, the "President's Plan for Economic Growth and Deficit Reduction," includes such well-worn ideas as more infrastructure spending, state and local government bailouts, and new taxes. However, buried among these old standbys is a pernicious policy that seeks to undo one of the few aspects of federal health policy that actually works.
The President seemingly benignly proposes to "align Medicare drug payment policies with Medicaid policies for low-income beneficiaries." Sounds harmless. But looking closer reveals a $135 billion windfall to the federal government over the next ten years. This is not tweaking around the edges. Instead, it is a plan that would fundamentally alter "Medicare Part D" - the prescription drug program - to the detriment of our nation's seniors.
Presently, private drug plans negotiate with pharmaceutical manufacturers to secure rebates for certain drugs in exchange for enhanced coverage for those medications. Private drug plans then must compete for seniors' business on the strength of their drug coverage and cost, which in turn rewards those that negotiate effectively for rebates with manufacturers. This framework creates a natural incentive for rewarding value in drug coverage plans.
It also serves to keep down the cost of federal subsidies to the program. In its relatively short history, the power of this system has already been borne out. The initial estimates of the program cost by the Medicare Trustees undervalued the effect that a functioning marketplace can have on lowering costs. While other entitlement programs are getting more expensive, Medicare Part D costs have come in 40 percent lower than projected.
It is bizarre, then, that the President's plan would take aim at exactly these incentives. Or maybe not, as his health reform law gutted the popular Medicare Advantage program to pay for the creation of new entitlements, with the result that seniors have fewer choices. This latest proposal is simply déjà vu all over again: a new spending program financed in part by the elimination of a well-functioning health program.