Perverse Incentives in the Medicare Prescription Drug Benefit

McAdams, David; Schwarz, Michael
June 2007
Inquiry (00469580);Summer2007, Vol. 44 Issue 2, p157
Academic Journal
This paper analyzes some of the perverse incentives that may arise under the current Medicare prescription drug benefit design. In particular, risk adjustment for a stand- alone prescription drug benefit creates perverse incentives for prescription drug plans when making coverage decisions and/or for pharmaceutical companies when setting prices. This problem is new in that it does not arise with risk adjustment for other types of health care coverage. For this and other reasons, Medicare's drug benefit requires especially close regulatory oversight, now and in the future. We also consider a relatively minor change in financing the benefit that could lead to significant changes in how the benefit functions. In particular, if all plans were required to charge the same premium, there would be less diversity in quality, but also less need to regulate formulary composition, less budgetary uncertainty, and less upward pressure on drug prices.


Related Articles

  • Confused About Medicare Part D? Check Out These Web Sites. Braccia, Deborah // ONS News;Feb2006, Vol. 21 Issue 2, p9 

    A list of Web sites offering information on the U.S. Medicare Part D the new outpatient prescription drug benefit for Medicare beneficiaries is presented. The official Medicare Web site, www.medicare.gov provides access to information about Medicare, Medicare health and prescription plans. The...

  • Medicare "Part D" Drug Benefit, Starting January 2006.  // AIDS Treatment News;5/28/2004, Issue 401, p5 

    Reports on the new Medicare Part D drug benefit to replace the Medicare cards in January 2006. Advantages of the new drug benefit; Increase of the Medicaid income level for a free or nearly free drug coverage; Effect of the new Medicare drug law on the drug coverage of the poor.

  • Handling formulary exceptions and appeals. Bishop, Susan K. // Pharmacy Today;Mar2006, Vol. 12 Issue 3, p27 

    The article provides information regarding transition period for coverage of formulary drugs by Medicare Part D plans. When Medicare prescription drug benefit starts on January 1, 2006, Part D plans were asked to have a transition period for their enrollees during whom beneficiaries were...

  • Despite long shadow cast by Medicare, independents remain upbeat. Ukens, Carol // Drug Topics;12/12/2005, Vol. 149 Issue 23, p39 

    The article reports that even though the Medicare Part D drug benefit is within grasps, according to a survey in the U.S., the majority of independent pharmacy owners remain upbeat about their business prospects in the year 2006. Sixty-nine percent of the independent pharmacists think their...

  • Cost, administrative burdens prompting employers to look beyond drug subsidy. Wojcik, Joanne // Business Insurance;1/28/2008, Vol. 42 Issue 4, p20 

    The article discusses issues related to the Medicare Retiree Drug Subsidy (RDS) in the U.S. Many employers that initially took the RDS are exploring other options, either to reduce their administrative workload or because it may be more financially advantageous. Part of the reason employers...

  • Medicare choices need to be made before Jan. 1. Prida, Mayte // La Prensa San Diego;12/19/2008, Vol. 32 Issue 51, p4 

    The article reports on the planned changes on Medicare prescription drug that includes changes to premiums, cost sharing, and coverage that will be effective on January 1, 2009 in the U.S. If one is eligible for a Medicare prescription drug plan, it says that the Centers for Medicare and...

  • Medicare's Challenges in Paying Providers. Newhouse, Joseph P. // Health Care Financing Review;Winter2005, Vol. 27 Issue 2, p35 

    Medicare uses a variety of administered price systems to pay health care providers. In setting the amounts it pays, it faces significant challenges both to avoid distorting the care patients receive and not to overpay. This article describes issues in paying physicians, post-acute care...

  • Choosing a Medicare-Approved Prescription Drug Discount Card.  // AIDS Treatment News;5/28/2004, Issue 401, p4 

    Provides tips on how to choose a Medicare-approved prescription drug discount card in the U.S. Option for persons in Medicare who meet the low-income requirement; Availability of the prices for comparison at the official Medicare; Contact information for enrollment processes for eligible persons.

  • Comment: Why Is the Medicare Discount Card Designed As It Is?  // AIDS Treatment News;5/28/2004, Issue 401, p5 

    Comments on the design of the Medicare discount card system in the U.S. Creation of the entire Medicare prescription-drug program in haste by Republicans in the U.S. Congress; Complexity of the Medicare card system; Disadvantage of the program.


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics