Mending the Medicare Prescription Drug Benefit: Improving Consumer Choices and Restructuring Purchasing

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Released: April 2007 • Discussion Paper

Related Topics: Health Care, Effective Government

Authors:

Richard G. Frank • Margaret Morris Professor of Health Economics, Harvard Medical School
Joseph P. Newhouse • John D. MacArthur Professor of Health Policy & Management, Harvard School of Public Health, Harvard Medical School, and JFK School of Government

The Part D prescription drug benefit has brought affordable drug coverage to millions of elderly Americans and is a valuable addition to Medicare. But several reforms are needed. To reduce complexity while retaining adequate choice, a set of standardized plans should be created within Part D.

New participants should be automatically enrolled in a plan but allowed to opt out. To encourage price competition and discourage adverse selection, Medicare should allow competition for exclusive contracts to sell the standardized plans in each Part D region. To address the stresses on the federal budget, prices paid for drugs purchased on behalf of beneficiaries previously covered by Medicaid should be reduced to near their former Medicaid levels. To limit the ability of manufacturers to name their prices of therapeutically unique drugs, a standby mechanism for establishing temporary administered prices should be developed. Finally, the confusing distinction between Part B and Part D drugs should be ended and all prescription drugs covered under Part D.