Medicare’s Drug Benefit: A Remedy That Really Works

By William M. Matz, Jr., Major General, US Army Retired

Matz Five years in, Medicare’s prescription drug benefit is a striking success. The program, known as Medicare Part D, gives tens of millions of seniors access to life-enhancing medicines and dramatically lowers out-of-pocket spending.  Better yet, Part D’s greatest flaw – the gap in coverage known as the "donut hole" – is about to start closing. Under the new healthcare reform law, America’s biopharmaceutical companies will start providing eligible seniors who reach the donut hole a 50 percent discount on their brand-name drug purchases.

These improvements in Part D are particularly beneficial to veterans and their families. With the major exception of the Army, the American military generally does not provide veterans’ spouses with health coverage. Many of the wives and husbands of former military personnel rely on Medicare to pay their medical bills.  What’s more, there are over 9.5 million veterans who quality for both VA healthcare and Medicare. Patients often use Medicare coverage to supplement their existing VA benefits. For instance, veterans do use the program to offset some of the co-payments charged by VA health plans.

Before the creation of Part D in 2003, seniors were struggling to pay for prescription drugs. Half of seniors lacked drug coverage at least part of the time. Many had to resort to splitting pills, skipping doses, or foregoing needed drugs altogether. As a result, their conditions worsened, and Medicare ended up paying more to treat them. But then Part D kicked in. By the end of the program’s first enrollment period, more than 90 percent of all Medicare beneficiaries were enjoying drug coverage. Today, nearly 28 million Medicare beneficiaries are enrolled in Part D.


"The Medicare drug benefit has helped seniors by expanding access to prescription drug coverage and lowering out-of-pocket costs, particularly helping those who previously lacked drug coverage," says Tricia Neuman, director of the Medicare Policy Project at the Henry J. Kaiser Family Foundation. Her comprehensive analysis of Part D was published last year in the New England Journal of Medicine.

There were predictions that the program would trigger out-of-control costs. But competition among plans has actually saved seniors and taxpayers money.  Unlike other components of Medicare, Part D is administered by private insurers. The federal agency overseeing Medicare recently announced that seniors will pay an average premium next year of just $30 per month for drug coverage. That’s only $1 more than the average premium this year. And 99 percent of seniors in Part D will have access to a plan in 2011 with a premium that is the same or lower than what they are paying now.

It’s difficult to overstate how important these savings are for veterans in the Part D program. The annual median income for our country’s former military personnel across all ages is just $37,000 – and that figure tends to drop once people shift into retirement.  Part D is also costing taxpayers far less than expected, thanks to competition, a drop in the national growth rate of prescription drug costs and the shift from brand-name to generic drugs. Compared to the initial 10-year federal estimate, total Medicare Part D costs have declined by 41 percent, saving the government $261 billion.


But money isn’t the most important issue here. When seniors don’t have to skimp on prescribed drugs, they take better care of themselves and their long-term health outcomes improve dramatically. By taking their prescribed blood pressure medication, for example, seniors ward off heart attack and stroke.  Researchers at the University of Pittsburg recently found that any additional costs for drug benefits under Part D were offset by savings for other medical costs. 

The donut hole was a big problem. This gap in Part D coverage will affect 4 million seniors this year. Before reform, beneficiaries with annual drug expenses exceeding $2,830 had to pay all of their drug costs up to $4,550, at which point catastrophic coverage went into effect. Seniors in the donut hole often skip needed medications, which in turn makes their condition worse.  Experts had been warning that Part D wouldn’t achieve its goals unless the donut hole was eliminated. Fixing this "glaring defect," said Stephen Soumerai, health professor at Harvard Medical School, would "improve health and might actually reduce overall expenses by lowering hospitalization costs."

The new healthcare law completely phases out the donut hole. This year, the government sent $250 rebate checks to Medicare recipients in the gap. Next year, those recipients will automatically be eligible for discounts on brand name prescriptions that will cut their costs in half. The donut hole will disappear entirely within this decade.  Medicare Part D provides crucial drug coverage to our nation’s veterans. The program’s continued improvement will mean lower bills and more medical options for many of our former military folks – and for millions of other Americans seniors, as well.

William M. Matz, Jr., Major General, US Army Retired, is President of the National Association for Uniformed Services.