Medicare Part D Spending Trends: Understanding Key Drivers and the Role of Competition

This brief commissioned by the Foundation examines factors that contributed to Medicare’s lower-than-expected spending on prescription drugs under the Medicare Part D drug benefit that started in 2006.

Since its launch, Medicare has spent about 30 percent less on Part D benefits than the Congressional Budget Office originally projected. Some cite the program’s design, with private plans competing for enrollment, as the driving factor in lower spending; others point to factors in the overall market for prescription drugs as more influential.

Author Jack Hoadley of Georgetown University examines the evidence on both sides of this debate. In addition to a discussion of the role of plan competition, the brief cites a number of other factors that contributed to lower spending, including the growth in generic alternatives for popular-but-expensive brand-name drugs and a reduction in new brand-name drugs entering the market – trends that dampened prescription drug spending outside of Medicare as well.

Issue Brief (.pdf)