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Free-market believers hold the concept as dearly as an article of faith: Competition brings down prices. So when U.S. Sen. Johnny Isakson, a Republican, declared that competition worked to bring down costs in Medicare’s prescription drug program, he was reciting chapter and verse from the free-market canon. Program premiums served as Isakson’s evidence. The premium has gone down almost every year since it was put in place, Isakson said in a speech before the Greater North Fulton Chamber of Commerce on Aug. 23. Almost every year? We wondered how this was possible. What about all of those complaints about the rising costs of prescription drugs? Medicare Part D, which started in 2006, is Medicare’s program to help seniors pay for prescription drugs. Policymakers designed it to make private companies compete against one another for customers. They hoped this would pressure plans to keep prices low. Isakson voted to create Medicare Part D in 2003, while he served in the U.S. House of Representatives. This item does not address whether competition caused changes in the program’s premiums. Instead, we’ll focus on whether premiums went down. Now, hold on to your hat. This gets complicated. We contacted Isakson’s office for proof that the premium has fallen almost every year. Isakson press secretary Lauren Culbertson replied with a March 2011 report from the Medicare Payment Advisory Commission, or MedPac. It advises the U.S. Congress on issues affecting the Medicare program. She also included information from the Centers for Medicare & Medicaid Services, or CMS, the federal agency that administers the Medicare program. These documents contain data for what’s called Medicare Part D’s base beneficiary premium. The base beneficiary premium is a complicated number. It’s not the actual monthly amount that seniors pay to get basic coverage under the prescription drug program. Those amounts vary widely and seldom equal this figure, the CMS report notes. Medicare calculates the base beneficiary premium using a formula that takes many factors into account. One of them is how much each insurance company bids to provide drug coverage. Another is how many people use each plan. The data Isakson’s own staff sent us show that the base beneficiary premium actually increased almost every year, with the exceptions of 2007 and projections for 2012. In 2006, it was $32.20. In 2007, $27.35; in 2008, $27.93; in 2009, $30.36; in 2010, $31.94; in 2011, $32.34. In 2012, it’s projected to be $31.08. Boston University health care economist Wesley Yin called Isakson’s claim that the premiums mostly fell patently wrong. Culbertson, in an email, told us why Isakson made this claim. She said that the senator’s comments were based on the fact that for every year except 2011, the base beneficiary premium was lower than it was in 2006. That’s not quite what we think Isakson said, but to give him the benefit of the doubt, we took a closer look. As it turns out, this claim is flawed as well. Since 2007, the federal government has adjusted the base beneficiary premium based on how many participants enroll in each plan. This means that a plan with a $20 premium that has 1,000 members would have much more influence on the average than, say, a $200 plan with one member. In 2006, the program was brand-new. That year’s figure could not be weighted by enrollment. The MedPac report given to us by Isakson’s office as well as a report from the Congressional Research Service confirmed that these plans were, for the most part, weighted equally. This pushed the 2006 figure artificially high, noted Jack Hoadley, a Georgetown University health policy analyst whose research on Medicare Part D is widely used by economists. Since few people picked the higher-price plans, the base beneficiary premium dropped in 2007. Now, as you’ll recall, the base beneficiary premium does not represent how much money seniors actually pay each month. Hoadley and a team from the nonpartisan Kaiser Family Foundation calculated this amount and found that premiums rose each year. In 2006, it was $25.93. In 2010, the latest year for which data is available, it was $36.90. That’s an increase of 42 percent. Why did prices creep upward? Hoadley, MedPac and others cite a couple of reasons. Seniors typically stay in their plans, even if they become more expensive. Switching is complicated and the plans are hard to understand, so there’s not as much pressure on health insurers to keep prices down. Also, some of the more popular plans have seen the largest jumps in premiums. However, CMS actually expects base beneficiary premiums to drop in 2012. That’s in part because extremely popular drugs will be available as less-expensive generics. Some have also suggested this is because of competition. This means that no matter how you cut it, Isakson’s claim that Medicare Part D’s premium has gone down almost every year since it was put in place is incorrect. The average cost of premiums that seniors actually pay has risen, as has the base beneficiary premium that Isakson’s staff provided. Furthermore, using the 2006 base beneficiary premium to assess other years’ figures amounts to comparing apples to oranges. That year, it was not possible to adjust the figure to account for which plans seniors actually chose. We presented our evidence to Isakson’s spokeswoman, who reiterated that he based his statement on federal government sources. That might be true, but the senator’s take on the numbers is not. Isakson earns a False.
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