The BBA, Medicare Part D, and a Cautionary Tale | Citizens Against Government Waste

The BBA, Medicare Part D, and a Cautionary Tale

The WasteWatcher

When President Trump signed the Bipartisan Budget Act (BBA) for fiscal years 2018 and 2019 on February 9, 2018, Citizens Against Government Waste (CAGW) objected because of its prolific and irresponsible spending, calling the $300 billion (14 percent) increase over current levels “outrageous and unnecessary, as well as a complete abdication of fiscal discipline and accountability.”

On top of the dramatic increase in spending, the BBA included a substantial change to Medicare Part D, the prescription drug program for Medicare beneficiaries that has been one of the few programs to cost less than originally projected and provide better benefits than anticipated.  The BBA closed the coverage gap, or “donut hole,” under which beneficiaries will pay 25 percent of a drug’s cost in 2019, a year earlier than required.

While that’s good for beneficiaries, it also significantly shifted the cost to pharmaceutical manufacturers for drugs covered in the donut hole, from a 50 percent discount to a 70 percent discount, while the beneficiary’s insurance drug plan’s responsibility was reduced to 5 percent.  This significant change, discussed behind closed congressional doors without hearings or public input, is likely to cost pharmaceutical companies $40 billion, and will either force them to raise drug prices, lay off employees, cut back on research, or a combination of all three.

Under Medicare Part D, beneficiaries pay a premium and have a deductible.  Once the deductible is reached; the beneficiary goes through three phases.  When Part D was first implemented, in the initial phase, beneficiaries and their insurance drug plans covered a portion of the drug’s cost; in the coverage gap, beneficiaries paid 100 percent of the drug’s cost; and, in the catastrophic phase, beneficiaries paid 5 percent, insurance drug plans paid 15 percent, and Medicare (taxpayers) paid for 80 percent of the drug’s cost.

Due to a provision in the Patient Protection and Affordable Care Act (Obamacare), starting in 2011 a beneficiary’s portion of the cost for a drug was reduced in the coverage gap, starting at 50 percent in 2011 and slowly reduced to 25 percent in 2020, with the beneficiary’s insurance drug plan paying a corresponding increase to equal 50 percent of the cost of the drug starting in 2013.  Brand name pharmaceutical companies have consistently provided a 50 percent discount for the drug’s cost in the coverage gap since 2011.  But, this all changed under the BBA.

American Action Forum President and former Congressional Budget Office Director Douglas Holtz-Eakin said at a February 16, 2018, Brookings Institution event that the whole BBA concept seemed odd because the insurers were not on the hook for much in the donut hole at 5 percent, or in the catastrophic phase, where taxpayers pick up 80 percent of the cost of the drugs, the insurer picks up 15 percent, and beneficiaries pay 5 percent.  He said the new BBA policy is not much of an insurance plan when the beneficiary pays the premium and the insurer pays little of the liability.

Thus, the cautionary tale.  Medicare Part D, because of its success, has often been cited as a model for reforming Medicare fee-for-service (Parts A and B) as well as other government programs.  CAGW endorsed Speaker’s Ryan reform plan for Medicare in its 2017 report, “Critical Waste Issues for the 115 Congress.”  But, at a moment’s notice, Part D was changed dramatically, based on a political whim.

The change in policy teaches an important lesson about looking to the federal government to provide funding and creating a bigger footprint on the nation’s healthcare system.  Congress and the bureaucracy is dysfunctional when it comes to overseeing government health programs, such funding the Children’s Health Insurance Program, paying physicians in Medicare, incompetence at the Veterans Health Administration, and the enumerable problems with Obamacare. 

Far too many politicians continue to call for more government involvement in healthcare, such as expanding Medicaid, even though President Obama offered to shift $100 billion in Medicaid funds to the states during the 2011 “Super Committee” budget debates.  Still others call for the federal government to be the ultimate arbitrator in healthcare with a single-payer system, leaving politicians and bureaucrats in charge of what everyone gets, or does not get.

The coverage gap provisions of the BBA demonstrate that the federal government cannot be trusted with healthcare decisions and policy.  While we need to continue to push healthcare decision-making back to the individual and the states, where the government is closer to the citizenry, strict guardrails must be erected to prevent major changes to a government program without hearings or a notice and comment period.