Part D Structure
May 24, 2012 2 Comments
Avik Roy’s recollection of how the structure (donut hole) of Medicare’s prescription drug benefit (Part D) was devised doesn’t match mine (a 2005 Health Affairs paper on the topic). I located lecture notes from my Intro to the U.S. Health Care System class that I was teaching at Duke at the same time Congress was debating its passage to recall how I framed the benefit design question at the time. I described the choice as being between two competing policy goals:
- Address the problem of poor seniors being unable to afford prescription drugs. Such a policy motivation played out in the Part D discussion of the day would lead to a program that subsidized private coverage for low income Medicare beneficiaries.
- Address the problem of catastrophic costs. Such a policy motivation would target subsidy toward persons with high drug expenditures.
Then I framed the final structure decided upon for the class as a political calculation designed to provide all Medicare beneficiaries with access to Part D coverage, but with the odd “donut hole” benefit structure arising due to a desire to hold total federal costs of the plan to a set level (noted as $400 Billion over 10 years at the time; it actually ending up costing ~$1Trillion over 10 years).
Fast forward to the present, and my most most vivid experience with the program has been helping my mother in law pick a Part D plan when the firm that had been providing retiree benefits (from her deceased husband’s job) stopped doing so. When I tried to explain the donut hole concept (her prior coverage was much better) she said “that makes no sense” is it due to Obamacare? I said no, the donut hole notion comes from one of President Bush’s main policy achievements. I then explained that there were some reductions in the cost outlay for her in the donut hole, that are due to Obamacare.
She didn’t believe me on either account….
update: I edited the post for clarity; commenter was correct, it was not clearly written and I apologize for sloppiness.