On July 21, the American Action Forum (AAF) released a report, examining the effect of providing drug rebates similar to those employed in Medicaid to dual eligibles and beneficiaries of the Medicare Prescription Drug Benefit Program (Part D) Low-Income Subsidy (LIS). Legislation (S. 1206) to enact such a change is currently before the Senate Finance Committee, with supportive legislators arguing that it would save $112 billion over 10 years. However, the AAF report contends that the change would result in Part D premium increases of up to 40 percent and argues that drug manufacturers may shift drug costs to the private health coverage market in response to the rebates.

From the report:

The Medicare Part D prescription drug program marked a significant change to Medicare. Part D created a competitive market for prescription drug plans, and has proven to be a dramatic success in controlling prescription drug costs. Actual Part D benefit costs have been in the vicinity of 40 percent below the Congressional Budget Office’s initial ten-year estimate. As a result, America’s seniors have benefited from lower prescription drug premiums. The voluntary outpatient drug benefit is delivered through stand-alone prescription drug plans (PDPs) and drug plans sponsored by Medicare Advantage plans (MA-PDs) that compete head-to-head in each geographic region, without a government-prescribed benchmark or price-setting mechanism. Every Part D plan participates in the annual bidding process that determines the federal subsidy to enrollees, which averages 74.5 percent of the cost of a standard benefit.

Full report: Cost Shifting Debt Reduction to America’s Seniors: Medicare Part D Rebates Would Dramatically Increase Drug Premiums (PDF | 419 KB)

American Action Forum. (2011). Cost shifting debt reduction to america’s seniors: Medicare Part D rebates would dramatically increase drug premiums. Holtz-Eakin, Douglas and Ramlet, Michael.