Reforming the Medicare Part D Benefit Design: Financial Implications for Beneficiaries, Private Plans, Drug Manufacturers, and the Federal Government

Reforming the Medicare Part D program—which provides prescription drug coverage to 49 million beneficiaries—has emerged as a key policy priority. The authors evaluate prescription drug claims from a 100% sample of Medicare Part D beneficiaries to evaluate the current spending distribution across different payers for different types of beneficiaries across different benefit phases. They then model how these estimates would change under a proposal to redesign the Medicare Part D standard benefit. Spending patterns differ for beneficiaries who do and do not qualify for low-income subsidies. Part D plans face limited liability for total spending under the current standard benefit design, amounting to 36% of total spending for beneficiaries who do not receive low-income subsidies and 28% of total spending for those who do. Proposed reforms would increase plan liability and significantly change the distribution of liability across plans, drug manufacturers, and the federal government. Though the original goal of the Part D program was to create a market of competing private plans that provide prescription drug coverage to Medicare beneficiaries, the standard benefit design that was included in the original legislation reflected significant political compromises. Reforming the standard benefit design to give plans more skin in the game could significantly affect competition in the market, with differential impact across drug classes and types of beneficiaries.