August 13, 2018
Austin Frakt had an NYT Upshot piece complaining that the cost of the Medicare prescription drug plan to taxpayers has been soaring:
“But the stability in the premiums belies much larger growth in the cost for taxpayers. In 2007, Part D cost taxpayers $46 billion. By 2016, the figure reached $79 billion, a 72 percent increase.”
This is a peculiar complaint because the plan is actually costing the government far less than had been projected. The 2004 Medicare Trustees report projected that Part D would cost 1.01 percent of GDP in 2015 and rise to 1.31 percent of GDP in 2020 (Table II.C21). If we interpolate, that means the plan should have cost 1.13 percent of GDP in 2017. That would come to roughly $250 billion.
The 2018 report shows that Part D cost $100 billion in 2017 (Table III.D1), less than half of what had been projected in 2004. The main reason for the lower than projected expenditures is that drug costs have increased far less than had been expected, primarily due to a slowdown in the development and approval of new drugs.
In any case, if there are any surprises with the Medicare drug program it has been the slower the projected growth of costs, not the opposite.
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