New means to rein in Medicare

Congress is moving to let the government use its mass purchasing power to buy drugs for Medicare recipients and negotiate for lower prices. But a better way to reduce costs in this expensive healthcare plan would be a "means test" for users.

Newly empowered Democrats, eager to make a good first impression, say the previous Republican Congress erred in banning the government from seeking price concessions from drugmakers. They cite a study showing that the Department of Veterans Affairs, which can negotiate for its drug prices, pays an average of 58 percent less than Medicare for identical drugs. Medicare Part D, which began last year, leaves that bargaining role to the private insurers that administer the plan.

But the Congressional Budget Office has said that taking over negotiations is unlikely to save Medicare much money. The proposed change contains no provision for establishing a formulary (a list of approved drugs), meaning that Medicare negotiators would be deprived of a key negotiating ploy – the ability to remove a drug from its approved list if the price were too high. And others point out that the VA simply buys fewer types of drugs if drugmakers' prices are too high. The VA's plan has other differences that make a comparison unfair.

Given that Democrats also would like to close, or at least shrink, the "doughnut hole" in Medicare drug coverage – expenses between $2,250 and $3,600 per beneficiary that aren't covered for most participants – savings from any negotiating power easily could be eaten up trying to fill that gap.

Meanwhile, Medicare costs are expected to skyrocket in coming years, as 77 million baby boomers become eligible. The ratio of younger workers paying taxes for retirees drawing on Medicare will skew in a new direction. And perhaps more important, continuing development of ever more complex medical technologies is likely to dramatically increase the cost of treatment. Patients will continue to have more treatment options, including very expensive new ones.

What to do? One small cost-saving measure took effect Jan. 1, part of the last Medicare reform. Recipients who chose to buy Plan B – insurance for doctors' care and other out-of-hospital medical services – now will be "means tested" to set the amount they pay for premiums.

Individuals earning more than $80,000 per year ($160,000 per couple) will pay a higher rate that will be phased in during the next three years.

A recent article in the Financial Times quotes a senior White House official as saying that a much broader use of means testing for Medicare benefits will be put forward by the White House in its budget Feb. 5.

Traditionally, liberals have worried that forcing the wealthy to pay more for the same Medicare benefit would erode support for the program, perhaps even make the wealthy flee to private plans. Medicare might then be seen more as a welfare scheme for the less well-off than as a broad-based benefit. Conservatives have argued that means testing is nothing more than a hidden new "success tax."

But with Medicare costs about to skyrocket, it's time to abandon old prejudices and take a fresh look at means testing. It may be one way to help save Medicare for everyone.

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