The White House wants to cure the “doughnut hole” problem in Medicare Part D by closing the gap between coverage limits and caps on out-of-pocket expenses. Expanding the coverage means hiking premiums on seniors enrolled in the program, though, a condition that the Obama administration and its allies in Congress have not yet revealed. CBO directer Douglas Elmendorf outlined the projected fee hikes in a letter to Rep. Dave Camp, the ranking Republican on the House Ways and Means Committee (via Yid With Lid):
Overall, CBO estimates that enacting the proposed changes would lead to an average increase in premiums for Part D beneficiaries, above those under current law, of about 5 percent in 2011. That effect would rise over time and reach about 20 percent in 2019. Beyond the 10-year budget window, the premiums would increase slightly more until the doughnut hole was eliminated in 2022; beyond that point, enrollees’ premiums would grow along with the cost for covered drugs. As already noted, the proposed changes would also reduce beneficiaries’ average cost sharing and their average total drug spending. The net effect on drug spending would differ among beneficiaries depending on the amount of their purchases in a year.
Spending would decrease on average as the doughnut hole closes — but that doesn’t happen until 2022. Until it does, the premiums would continue to increase past the 20% mark. Meanwhile, as the doughnut hole closes, people would spend less on drugs, but only those who ended up in the doughnut hole at all. One has to buy $2700 in prescription medication to fall into the hole, and spend an additional $1600 to crawl out of it. Not everyone spends $2700 in prescriptions — but everyone will pay the higher premiums.
What happens to drug prices? The current formulary will be price controlled, thanks to the deal that the pharmaceutical industry made with Obama, but new drugs will become more expensive (emphases mine):
Drug manufacturers would be constrained from increasing prices for existing drugs but could offset the rebates they would be required to pay for full-benefit dual eligible individuals by charging higher prices for new drugs—particularly for “breakthrough” drugs (the first drugs that use new mechanisms to treat illnesses). In addition, manufacturers would probably lower the rebates they pay to prescription drug plans. Although they would continue to have an incentive to provide rebates in exchange for having their products designated as “preferred” on the plans’ formularies—which leads to higher volumes of sales—the rebates would probably decline relative to their amounts under current law because the benefit to the manufacturers of those added sales would be reduced by the new discounts and rebates they would have to provide. Those responses would lead to an increase in beneficiaries’ premiums, CBO estimates, and they would also lead to an increase in beneficiaries’ payments for cost sharing.
Of course, many people in Medicare have opted to solve the doughnut hole by enrolling in Medicare Advantage plans, including my wife. The better plans cover the doughnut hole, as well as expanding the providers available to us while limiting the out-of-pocket expenses. Obama wants to dismantle Medicare Advantage in order to pay for his reforms — such as the doughnut-hole solution already provided by the private sector.
The more one looks at ObamaCare, the worse it looks.