When President Obama pitched his health care plan, he promised that it would help reduce "the spiraling cost of health care in this country." His proposal, he said, was designed to address "the explosion in health care costs has put our federal budget on a disastrous path." What he neglected to mention was that one of the most touted benefits in ObamaCare actually ditched one of the country's few working health care cost control mechanisms: the coverage gap built into Medicare's prescription drug benefit.
To be sure, the Medicare prescription drug benefit signed into law by President Bush in 2003 was a bad idea. But it could have been worse. Much worse. Unlike just about every other major government health program, Medicare Part D has cost significantly less—about 45 percent—than originally estimated.
One of the reasons why it cost so much less than expected was that it included some smart cost control mechanisms, including something referred to as "the donut hole." The donut hole was a gap in the program's prescription drug coverage levels: For each year, seniors enrolled in the program were required to pay the full cost of drugs once their personal prescription drug spending reached a specified dollar amount. Once a given senior's yearly spending reached about $4,550, Medicare's coverage would kick back in, and at a higher level: Below the donut hole's lower bound, Medicare paid for about two-thirds of drug costs. Once a senior broke through the donut hole, coverage would increase to 95 percent. But anything purchased in inside the gap in yearly drug spending wasn't covered at all.
The idea was to encourage both seniors and providers to think twice about running up bloated prescription drug bills. On the low end, with ordinary drug purchases, seniors would get a subsidy. On the high end, for the seriously ill, they'd get an even larger subsidy. But moving from the low end up to the high end would require seniors to pay a few thousand dollars out of their own pocket, and thus discourage them from racking up drug expenses unecessarily.
It was a not-bad idea that helped tame a bad program, and it almost certainly contributed to the program's lower-than-expected price tag.
It was also politically unpopular. And that's why ObamaCare's authors decided to get rid of it. It's also why Obama's Health and Human Services Secretary, Kathleen Sebelius, is touting the closing of the donut hole in today's Politico. Sebelius argues that the existence of the donut hole forces seniors to engage in "a terrible choice" about whether to spend up to $3,600 of their own money or forego prescription drugs. I guess it's not a terrible choice when the federal government money decides, as a matter of policy, to automatically shell out taxpayer money for those drugs instead?
Sebelius suggests that this will pave the way to "big savings," but fails to note that the likely outcome is actually higher prices for many prescription drugs. From a Washington Post report with the clarifying headline, "higher drug prices feared in 'donut hole' plan":
"There is legitimate concern that some manufacturers will steeply increase the price of drugs in order to offset the cost of the discount to the manufacturers at the expense of both consumers and the Medicare program itself," the Center for Medicare Advocacy and the Medicare Rights Center said in a letter to the agency that oversees the federal health insurance program.
…Some of the most expensive drugs taken by people in the doughnut hole face minimal competition from generics or brand-name alternatives, making them particularly susceptible to price inflation, said Brit Pim, vice president of government programs development at benefits manager Express Scripts. Those include "specialty medications" for complex diseases, he said.
This is ObamaCare's so-called "cost-control": politically motivated handouts that make prescription drugs more expensive while gutting one of the few policy mechanisms that's proven somewhat successful at restraining the health care spending we're already stuck with.