Chapter 10: Medicare

Simon Fields
Michael Duchak
Erin McCarthy
John Castellano
 History of Part D
•Big part of George W. Bush’s 2000 campaign
•Pushed for compassionate conservative plan with a big
role from free markets and private sector
•Entitlement program with variety of prescription drug
plans made by private health care companies
•Let seniors decide to join and which plan to pick
•In 2003 it passed in Congress and included a half-
trillion dollar federal subsidy
•The success of the plan depended upon Bush’s faith in
seniors to choose their own plans
 Positive Impacts on Part D
•Included 6 key features
•Although there was initial controversy over the plan,
some parts did work reasonably well
•On the right track
•Plan is good in theory/Econs will always choose the best
plan to fit their needs
•Offers many options that allows seniors to pick a plan
that best fits their needs
•Potential to work well but has flaws
 Problems with Part D
4 major defects
1. Gives little guidance
2. Default option for most seniors is nonenrollment
3. Chose default at random
4. Failed to serve most vulnerable (poor and poorly
educated)
 Possible Improvements to Part D
•Better choice architecture is needed to nudge people in
the right direction
•Intelligent Assignment
•RECAP
 The Supply-Side
• Free Market vs. Single Plan
• Bush: “We felt it was necessary to provide
choices because we want to meet the needs
of the consumer”
• Part D: government approval and minimum
coverage requirements.
 The Negotiation Debate I
• The government is unable to negotiate with
suppliers on drug costs.
• Costs 30% higher for Medicare than Medicaid.
• Congressmen --> Lobbyists
• “Generally the people who understand these
programs the best are the ones who have
been working on them.” – Thomas Scully
 The Negotiation Debate II
• “Government price negotiation could leave
people without drugs that manufacturers
decide aren’t sufficiently profitable under the
plan.”
• Formulary Issue
• Of the 300 most prescribed drugs, VA covers
65%, popular Part D plans cover 94%
 The Providers
• 80 companies offering 1400 plans.
• However, three companies account for 52% of
enrollment.
• Conglomeration
Many Plans, Few Winners
 The Short List
• Pros/Cons of Limited Choice
• Who decides?
• Competition and confusion vs. Monopolization
and simplicity.
• Common theme: can we ensure architect has
‘correct’ motive, and who benefits from his
choices?
• Is confusion bad? Possibility of a broker?
How has Medicare Part D been
Accepted?
Daniel McFadden, winner of the Nobel Prize in
Economics says that Part D has worked
reasonably well.
 He also added that caution is advised when
dealing with a program of this magnitude.
 Forbes, a very successful business website,
came out with an article by Mary Grealy, which
was titled, “Medicare Part D: A Health Care
Success Story.”
 McFadden on Part D
• Part D was created to give the individual the
right, and responsibility to make health
decisions that are in his/her self interest.
• The only problem that Part D faced was
confusion.
• Confused consumers often times failed to
enroll in Part D (1.2 million seniors failed to
enroll).
 McFadden on Part D Cont.
• A small consequence is easily made up for by numerous
successes.
• Part D has done just that. Only 7.4% of the age 65-plus
eligible population were not enrolled in Part D.
• Monthly premiums turned out to be much lower than
the predicted $37.
• 68% of the population was automatically enrolled.
• Overall, consumers were able to overcome the
complexity of Part D to make reasonable and affective
choices that improved their physical well-being.
 Forbes on Part D
• Apoll, commissioned by Medicare Today coalition,
surveyed seniors who participate in Medicare Part D.
• The results of the survey showed overwhelming
approval.
• The same survey revealed that in 2009, 88% of seniors
with a prescription drug plan report being satisfied
with their coverage.
• Lastly, over 80% of the surveyed group say that their
premiums and co-pays are affordable and that their
plans represent a good value.
 Nudges

• Instead of random assignment, intelligent

assignment.

• Simplify decision making with a RECAP

program.
 Intelligent Assignment

• Set defaults based on past prescription use.

• Problems:
– Dealing with changing drug needs
– Limits of setting defaults
 RECAP Program
• Provide Medicare Recipients with itemized list
of all prescriptions and have insurance
companies list prescription prices

• Goals:
– Transparency
– Promote Free Market Choices
– Simplify Process
 RECAP Issues
• Potential Problems In this Scenario:
– Supply Side incentive issues
– Ever increasing amounts of supplied information

• RECAP in concept versus reality:

– How much could more information improve any
situation?