Medicare Reform

 VII. Key Issues: Regulation & Reform >> C. Health Reform >> Components of Health Reform >> Public Sector Programs >> Medicare Reform (last updated 10.24.16)

Comprehensive Medicare Reform Proposals

Legislative Proposals

  • S. 2196. Congressional Health Care for Seniors Act. Introduced 3.15.12 by Senator Rand Paul, M.D. (R-KY). In addition to letting Medicare seniors join the same health care plan enjoyed by Members of Congress and federal employees, this plan would raise the Medicare retirement age from 65 to 70, very gradually, over a generation.

Premium Support Proposals

Proposals to Change Medicare Eligibility

Medicare Opt-Out

Expanding Medicare to Near-Elderly


Means-Testing Medicare Benefits

Proposals to Change Medicare Benefits

Medicare Health Savings Accounts

Proposals to Change Medicare Payments

Medicare Physician Payment Reform


Sustainable Growth Rate (SGR) Formula

Prescription Drug Price Negotiation

  • Current Policy. Medicare Part D currently uses a competitive bidding process for determining the amount that the federal government pays towards prescription drugs for those on Medicare. Insurers negotiate with drug makers, then offer bids for how much drug plans will cost, and then Medicare pays 75 percent of the average plan on behalf of the beneficiaries.
  • Direct Negotiation. Many have argued in favor of direct negotiations  by the federal government, mirroring what is done in other countries such as Canada. There are widely varying estimates of the potential savings from such an approach (listed in increasing order of the size of such savings):
    • CBO. The CBO has concluded (4.10.07): “By itself, giving the Secretary broad authority to negotiate drug prices would not provide the leverage necessary to generate lower prices than those obtained by PDPs and thus would have a negligible effect on Medicare drug spending.” CBO concedes it is possible to use the “bully pulpit” to obtain deep discounts on a few high-profile drugs, but this would have limited effect on drug spending overall (and extending this approach to a wider swath of drugs would limit the effectiveness of the strategy since not all drugs can be in the spotlight). As one critic noted “One problem is that unlike insurers, the Department of Health and Human Services would be under political pressure to include certain drugs – from AARP and other pressure groups — and that would reduce their leverage.”
    • Thorpe, Kenneth. Emory professor Ken Thorpe (who did the cost estimates for the Clinton health reform plan) has estimated that under a single payer health plan, it is possible to reduce prescription drug costs by 20%.
    • Public Citizen/Carleton University. A joint paper by this liberal advocacy group and Carleton University has concluded that “the federal government could save between $15.2 billion and $16 billion annually if it negotiated with drug makers for Medicare Part D medicines and obtained the same prices that are paid by Medicaid or the Veterans Health Administration.” Medicare Part D spent $69.3 billion on drugs in 2013, so the savings would represent 23% of spending.
    • Friedman, Gerald. University of Massachusetts economist Gerald Friedman has estimated a single-payer health system could reduce prescription drug costs by 37.5%. He also did a similar analysis of the single-payer health plan proposed by Senator Bernie Sanders. The analysis itself did not explain the amount of prescription drug savings or any assumptions about such savings, but Vox reported that the analysis assumed average annual prescription drug savings from 2016-2025 of $324 billion. When the Sanders campaign was confronted by deep skepticism from Ken Thorpe over whether such savings were possible, it adjusted the projected savings down by one fourth (from $324 billion to $241 billion). Assuming the original Sanders plan savings was based on the earlier-estimated 37.5%, a one fourth reduction implies net savings of 27.9%.

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