Over 1 million Washington residents currently depend on Medicare, the government health care program for seniors and the disabled. But Medicare faces a $40 trillion shortfall over the next several decades. That black hole of debt threatens to consume the entire U.S. economy.
Fortunately, the answer to Medicare’s fiscal problems lies within the program itself. Its prescription drug benefit is the lone portion of the program that has consistently cost less than projected – 40 percent less, according to the Congressional Budget Office.
Unfortunately, the Obama administration hasn’t noticed. The president and some in Congress want to overhaul the drug benefit as part of their push to rein in Medicare’s costs. In so doing, they’d not only scrap the elements of the program that have made it cost-effective – they’d also harm the economy and the job market.
The drug benefit – known as Medicare Part D – works because it’s simple. Beneficiaries choose among a variety of drug plans, just as they do in the traditional insurance market. Private insurers compete against one other for a piece of the large Medicare market; that competition drives prices down. Next year, Part D’s monthly premiums are expected to average just $30 – for the third consecutive year.
Part D also saves money for other parts of Medicare. By making drug coverage affordable, Part D makes it easier for seniors to stick with their treatment regimens and stay out of hospitals or nursing homes. The savings for taxpayers? Some $12 billion annually, according to a study published in the Journal of the American Medical Association.
Those savings aren’t enough for the Obama administration. It would like to claw additional money back from drug makers by requiring them to pay “rebates” on prescriptions for “dual eligibles” – seniors who qualify for both Medicare and Medicaid, the government health program for low-income Americans.
Drug makers already have to pay rebates to the government for those covered solely by Medicaid. These rebates are keyed to a percentage of a given drug’s average sales price.
Expanding it to Part D could cost drug makers billions of dollars – billions they don’t have.
When drug companies lose money, the consequences for the rest of the economy are devastating. Last year, Bloomberg reported that applying a Medicaid-style drug rebate to Medicare “may lead to 260,000 U.S. job losses,” and would cost drug manufacturers as much as $20 billion annually.
As of 2006 – the latest year for which data is available – the biopharmaceutical sector supports more than 67,000 jobs in Washington state and contributes an eye-popping $10.5 billion to its economy. From 1996 to 2006, biopharma jobs in Washington increased nearly 5 percent. The industry has thrived even through the recent economic downturn.
If drug companies take a huge revenue hit at the hands of a new rebate scheme for Part D, they’ll be forced to cut jobs.
The long-term effects will be even worse, as pharmaceutical companies will have fewer resources to devote to research and development.
Creating new medications is expensive – drug companies spend as much as $1 billion to develop a new drug. With less money for research, an entire generation of life-saving pharmaceutical products may never even be invented.
As the CEO of Hyprotek, a Spokane medical device company that works with drug companies in the development of innovative products that deliver medicines more safely and efficiently, I understand the burden on businesses created by new government regulation.
Obama administration proposals such as rebates in Part D, as well as new taxes on the sale of medical devices, keep businesses from expanding, creating jobs and producing new technologies.
And it’s not just biotech companies that will end up poorer. Former CBO head Douglas Holtz-Eakin recently estimates that extending rebates into Part D will cause premiums for seniors’ drug coverage to increase between 20 and 40 percent.
In other words, the rebates may generate a few pennies of savings for the government – right out of the wallets of ordinary seniors.
In short, extending Medicaid-style rebates into Medicare Part D will raise costs and limit access for seniors, severely limit job growth in one of the state’s most vital economic sectors and hinder the development of new life-saving drugs.
Washingtonians should stand up for their interests – and tell Congress to leave the drug benefit alone. Medicare’s financial future is under duress, but lawmakers won’t save the program by blowing up the one part that works – Part D.
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