Competition Works in Health Care: Seniors Drive Down Prices Under Medicare Drug Benefit

The new Medicare drug program has brought competition to the table, allowing private companies to deliver the new drug benefit and negotiate prices with drug companies, resulting in lower average monthly premiums for seniors. Originally estimated to cost $37 a month, the average premium is now $24 a month, and seniors have driven prices down by 40 percent. With consumer power, prices are also being reduced at the retail level. Some retail chains are offering generic medicines for just $4 each, and competitors are following suit. Congressional leaders' proposal to allow Medicare to negotiate lower prices could actually harm innovation and research by dictating prices and forcing companies to cut resources.

Key Takeaways:

• Seniors have driven the average monthly premium for the Medicare drug benefit down by 40 percent, from $37 to $24 a month, by choosing lower-cost plans.
• The new Medicare drug program allows private companies to deliver the benefit and negotiate prices with drug companies, resulting in lower prices.
• Consumer power is working to bring prices down at the retail level, with some retail chains offering generic medicines for just $4 each.
• Congressional leaders' proposal to allow Medicare to negotiate lower prices could harm innovation and research by dictating prices and cutting resources.
• The Medicare drug benefit was originally expected to cost seniors $37 a month, but because of competition, the average premium is now $24 a month.
• Seniors who have completed the sign-up process are happy with their coverage and are saving an average of $1,200 a year.
• One retail chain's decision to offer generic medicines for $4 each has led to competitors matching the price, and other pharmacies are likely to follow.
• The new Medicare drug program allows seniors to switch plans if they find themselves hitting the doughnut hole in coverage.

Statistics:

• Seniors have driven down the average monthly premium for Medicare drug benefit by 40 percent, from $37 to $24.
• Seniors are saving an average of $1,200 a year.
• One retail chain is offering generic medicines for $4 each.
• Competitors are matching the price of the $4 generic medicines.
• The new Medicare drug program allows private companies to deliver the benefit and negotiate prices with drug companies.

Sources:

• John Boehner, "Competition Works in Health Care: Seniors Drive Down Prices Under Medicare Drug Benefit," Insurance Commentator, November 15, [American Enterprise Institute, no date]