Scott Morton on Medicare Part D

When Medicare Part D took effect on January 1, 2006, proponents argued that the new prescription drug benefit for the program would greatly increase access to and lower the costs of vital drugs for seniors. In addition to the new benefit, the plan made a major change in the way Medicare does business. Medicare D would be delivered not through the federal government but the private sector. The idea was that businesses would be more efficient and therefore cheaper than the public sector.

Fiona Scott Morton, professor of economics, has studied how well the plan is working. What she found was Medicare Part D has allowed consumers to get prescription drugs for lower prices than if uninsured, but only for drugs with therapeutic substitutes, such as the many drugs meant to lower cholesterol. For drugs without competition, they cost just as much as for those without insurance. While cost can be greatly affected by which drugs are deemed to have therapeutic substitutes, Scott Morton’s paper found it’s not the only reason most participants pay less. She said that just placing individuals into a group drives down that price, something that those reforming the healthcare system would be smart to keep in mind.

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