By David Silva

When it was introduced in 2003 as part of a sweeping overhaul of healthcare entitlements, Medicare Part D had all the makings of a soon-to-be-failed government program. The sticker price of the prescription drug benefit was enormously high: Initially estimated to cost taxpayers $400 billion over the first 10 years, the tab was soon revised upward to nearly half-a-trillion dollars for that period. It was designed to be funded largely by enrollees themselves through premiums and surcharges, raising concerns that Medicare beneficiaries would avoid it as just another insurance scam. And it was politically divisive: Congressional Democrats howled at the program’s subsidies to corporations and prohibition on negotiating costs with drug companies, while fiscally conservative Republicans condemned it as another attempt at socializing healthcare.

But five years after taking effect, Medicare Part D has, so far, proved to be a remarkably popular and effective federal entitlement program. Some 60 percent of Medicare enrollees have prescription drug coverage through Part D, driven into the program’s arms, in no small way, by steadily rising drug costs. Studies show the benefit has worked to reduce the percentage of enrollees foregoing other basic necessities to pay for their drugs.

“The program has been more successful than was imagined,” says Lou Enoff, a Medicare expert and principal of Enoff Associates Ltd in Westminster, Maryland. “It seems to be working to the point of bringing drug prices down and within reach of consumers.”

Enoff stressed that, while an expert on other parts of the Medicare program, his professional forte is not the prescription drug benefit. But his comments echo those of Juliette Cubanksi, the Kaiser Family Foundation’s associate director for program on Medicare police and an expert on Part D.

Whether Part D succeeds over the long term in keeping prescription drugs affordable for seniors remains to be seen. But in just half a decade, Cubanksi says, the benefit has become so popular among seniors that getting rid of it anytime soon has become, according to several Medicare experts, a political improbability. Enrollees have developed a sense of entitlement over the entitlement.

“Generally, the present benefit is important to people,” says Cubanski. “Now that it’s available, I think it would be difficult to retract it as a program altogether or restrict coverage as a benefit. People are definitely concerned about rising healthcare costs overall.”

Part D allows Medicare Part A and/or Part B beneficiaries to enroll in a prescription drug plan or a Medicare Advantage plan that also includes drugs. Beneficiaries pay a monthly premium for their plans, while Medicare covers a portion of the beneficiaries’ out-of-pocket expenses for drug purchases and provides premium subsidies to low-income enrollees.

THE CHANGES COMING IN 2012

Still, success can sometimes be its own punishment: With the increasing popularity of the benefit came increased calls for reforming its structural problems. losing the infamous Donut Hole – the gap between Medicare’s Initial Coverage Limit and the Catastrophic Coverage Limit, where beneficiaries pay 100 percent of their drug costs – was a major theme in President Obama’s 2008 election campaign. Efforts to narrow the gap have included providing enrollees within the gap a $250 rebate in 2010, followed a year later by a 50-percent discount on brand-name drugs and seven-percent discount on generics.

In 2012, the Initial Coverage Limit will increase from $2,700 to $2,930. Beneficiaries in the Donut Hole will also qualify for the half-price discount on brand names, and a 14-percent discount on generics.

How much of a savings these changes will mean to enrollees will depend on their prescription drug needs.

“Closing the gap is certainly a big improvement – it will help millions of people who generally reach the gap year after year,” Cubanski says. “The savings really depends on how many drugs they’re taking and how much the drugs actually cost. Some of the brand-name medicines people take nowadays are quite expensive, and having to pay 100 percent on them is quite a lot of money, particularly for Medicare beneficiaries who live on fixed incomes. How long people stay in the gap will also affect the kind of money they’ll save.”

Another upcoming development with the potential for real savings for Part D enrollees is the expiration in 2012 of the patents for several top-selling brand-name drugs, including the cholesterol drug Lipitor, the antipsychotic Zyprexa and the antibiotic Lavaquin. The availability of generic versions of these highly popular medicines (consumers spent more than $5.3 billion on Lipitor in 2010 alone) should provide enrollees with modest savings at the pharmacy counter. Moreover, says Cubanski, it could help improve the overall financial well being of the plans themselves.

“Part D is different from other Medicare plans in the sense that it doesn’t depend on payroll taxes – it’s partly financed by beneficiaries paying a certain percentage of the costs,” she says. “Obviously, people in this system have an interest in keeping costs under control.”

According to Medicare expert Joseph Antos, keeping costs under control will ultimately serve beneficiaries big time, but in a roundabout manner.

“For the average beneficiary, the result of drugs like Lipitor going off patent will be that instead of paying, say, a $50 co-payment for the drug, it will drop down to maybe $15,” says Antos, a Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute in Washington, D.C. “But that will be the extent of it. The big savings will be for the drug plans themselves and those savings will be passed on to beneficiaries in a somewhat indirect way – their premiums will grow less rapidly than otherwise.

“Like most things in life and health policy, there won’t be some simple, obvious thing where people will say, ‘Gee, that saved a lot of money,’” he continues. “Some beneficiaries are going to find that the drugs they get will be switched out for generics, and, generally, that will be okay. But it will save money for the plan itself more substantially, and that will get rolled into slower growth and premiums.

WHAT’S THE NEXT BIG THING FOR PART D?

Medicare Part D is a vast program designed by committee, with one eye on public opinion and the other on the healthcare and pharmaceutical industries. Politics and lobbying played a major role in shaping the plan, with the result being an imposingly complex prescription drug program with no official prescription drug formulary and a strict prohibition on negotiating costs with prescription drug companies.

There are presently hundreds of prescription drug plans on the market, each holding up for consideration coverage options as varied as the weather. Some offer “gap coverage,” defraying all or a portion of the true out-of-pocket expenses of enrollees whose annual drug purchases fall within the Donut Hole. Most plans have their own drug formularies – some cover particularly popular brand-name drugs or co-pay schemes that help lower premiums.

While Part D’s architects had hoped an abundance of prescription drug plans would both help enrollees pick and choose the right plan for their needs and drive down costs through competition, the Kaiser Foundation’s Cubanski and others cite the proliferation of options as a problem in need of fixing.

A 2009 study funded by the Robert Wood Johnson Foundation found that an increase in the number of available prescription drug plans correlated with a reduction in the likelihood beneficiaries would choose plans with the lowest annual costs, as well as a decrease in enrollees’ understanding of their chosen plans.

“People are every year confronted with a lot of choices of a lot of different plans, yet a majority of people enrolled in prescription drug plans don’t switch to a different plan,” Cubanski says. “The question is how well the degree of completion is working. Enrollees are encouraged by Medicare to evaluate their plans every year. I think this can be improved. Steps can be taken to make it easier for people to evaluate the different options and switch plans.”

David Silva is an award-winning freelance journalist and former editor for the Los Angeles Times Community News Division.