April 25, 2008


A Bush Success (not that he gets credit): The Medicare drug benefit is working better than predicted (James C. Capretta, Peter Wehner, Friday, April 25, 2008, Weekly Standard)

The governmentalists were right about one thing: The new drug benefit is unquestionably designed to encourage market competition. But on everything else, they were mistaken.

The drug benefit's market-based tilt is not complicated. Medicare beneficiaries choose every year from among competing, privately run drug-coverage plans. The government's contribution toward this coverage is set at a fixed percentage of the average premium, and no more. If beneficiaries want to enroll in a plan that costs more than the average, they can do so--but they, not the government, must pay the additional premium.

This structure provides strong incentives for the drug coverage plans to secure discounts from manufacturers and encourage use of lower cost products over more expensive alternatives. Drug plans that fail to cut costs risk losing enrollment to cheaper competitors.

Still, the governmentalists found this design wanting and predicted failure. Their argument was that private insurers wouldn't offer coverage, so the price competition would be weak. Costs would soar without government-set price controls. Beneficiaries wouldn't sign up because the premiums would be too high. The program would collapse under the weight of a public yearning for government-run simplicity.

On all these points, the governmentalists were wrong.

Now in its third year, the drug benefit is working better than predicted. More than 1,800 private plans are competing for enrollment. More important, Medicare beneficiaries like the program. Recent independent surveys show 85 percent are satisfied with their coverage. And little wonder: In 2008, the average beneficiary premium is just $25 per month, well below the original estimate of $41.

The program's competitive design is holding down costs for the government as well. The Centers for Medicare and Medicaid Services announced earlier this year the new drug benefit's costs will be 40 percent--or $244 billion--less over ten years than originally projected. This is an unprecedented achievement in health care policy.

There are important lessons to draw from this experience. For liberals it is that the greatest threat to public support for their ideology is reality. It's been said that you can prove the possible by the actual--and in this case, the "actual" is that sensible public policy can liberate markets to work in health care just as they work in every other area. Governmentalists have a deep interest in grounding policy debates on issues like health care in abstractions and appeals to fear of the unknown. Pro-market reformers, on the other hand, need only to test their propositions against reality.

For conservatives, there is a need to accept the reality of measured steps in health and entitlement reform. The public will always be uneasy with abrupt changes to arrangements upon which many are dependent. The best approach is to gradually introduce markets and individual choice and ownership without threatening the security of the known. To his credit, President Bush recognized early on that adding a new drug benefit to Medicare presented a rare opportunity to introduce competition into the program, and he seized it.

...is the whining from the Right that he lost.

Posted by Orrin Judd at April 25, 2008 3:20 PM

the new drug benefit's costs will be 40 percent--or $244 billion--less over ten years than originally projected

Wow, a "low" cost projection for a new entitlement program! Only $610 billion! Of course anybody with any knowledge of history knows that one way or the other, it'll be much, much higher than that. But I guess OJ's OK with it, because after all, look how much political credit the Republican Congress and Bush got for their spending efforts....

Posted by: PapayaSF at April 25, 2008 4:13 PM

Which 80% in a democracy want they get. W not only got a Third Way prescription benefit but HSAs. A rightwinger would have lost in 2000 running against it and we'd have a bad program without the bonus.

Posted by: oj at April 25, 2008 6:18 PM

I thought Bush lost in 2000. Isn't that what you're always saying?

Posted by: Bryan at April 26, 2008 7:44 AM

You only have to stay close enough for Diebold & Antonin to do the rest.

Posted by: oj at April 26, 2008 8:41 AM