A Decade of Success: How Competition Drives Savings in Medicare Part D

On December 8, 2003, then-president George W. Bush signed into law the Medicare Modernization Act (MMA). Without a doubt, the law created the most significant overhaul of Medicare in the program’s history. As part of the MMA, a new, voluntary prescription drug program called “Medicare Part D” was enacted. Beginning in 2006, Medicare enrollees would also be able to sign up for outpatient prescription drug coverage through private insurance companies, with premiums subsidized by Medicare. To date, seniors have expressed high levels of satisfaction with the program, and Part D expenditures have been more than 40 percent lower than initial government estimates — a rarity for a government health care program, say Paul Howard, a senior fellow, and Yevgeniy Feyman, a fellow, at the Manhattan Institute.

However, the program was controversial at the time of its launch in 2006 (and at the time of its passage). The root cause of Part D’s success remains hotly disputed.

– Part D proponents attribute the law’s success to competition driven by the use of private plans, competition, and private-sector cost-saving innovations.

– Critics attribute Part D’s lower-than-expected costs to external factors unrelated to the program’s design, such as lower-than-predicted enrollment as well as a general slowdown in national drug spending.

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