Some of the largest cuts in President Obama’s proposed package of Medicare savings target areas where Medicare does, in fact, over-spend. Unfortunately, these are the reforms that Congress is least likely to adopt. In each case a powerful lobby representing those who profit from Medicare’s largesse will howl, and many legislators may well bow to their wishes. Nevertheless, it is useful for the President to call attention to areas where Medicare can save money—without cutting benefits.
- Prescription Drugs: The President’s plan would save $135 billion over ten years, starting in 2013, by requiring that drug companies provide additional discounts, or rebates, to Medicare for prescription drugs bought by low-income beneficiaries enrolled in the Part D Low-Income Subsidy program. In the past, I have written about the drug industry’s double-digit profit margins. In theory, the industry needs these margins in order to innovate. In fact, the number of new and effective drugs coming out of the pharmaceutical industry has slowed in recent years. Too often, they focus on creating “me too” drugs that they know will find a large market.