Letter of Opposition to Medicare Part D Rebate Bills (S. 740, H.R.1588)

May 10, 2013

Dear Senator Rockefeller and Representative Waxman:

On behalf of more than two million Americans for Prosperity activists in all 50 states, I am strongly opposed to your legislation, the so-called Medicare Drug Savings Act of 2013 (S. 740, H.R.1588), which purports to require drug manufacturers to provide rebates for drugs dispensed under the Medicare prescription drug benefit program, Part D. This mandatory “rebate” is no such thing; it’s actually a tax on American seniors, leading to higher prices for prescription drugs.

In most ways, the U.S. health care system is the far from the free market necessary to control costs and provide quality care. Medicare Part D, however, is a surprising anomaly. It illustrates how the free market principles of choice and competition can improve health care. Under the program, insurance companies negotiate with drug companies over availability and cost. These negotiations produce mutually beneficial outcomes. Seniors may choose from a variety of coverage options and choose the plan that best fits their needs. Through this market-like mechanism, the government can keeps its costs down—remarkably, the cost of the Part D program is 40 percent below original estimates—and insurance companies can expand their consumer base.

Your legislation will coerce drug manufacturers and companies to rebate approximately 23 percent of the cost of drugs provided to low-income seniors back to the federal government, regardless of the deal negotiated by the insurer and manufacturer. This will erode the very mechanism that has made Medicare Part D so successful, and it will lead to giant distortions in the prescription drug market.

Although your legislation is intended to reduce prescription drug costs, it will do precisely the opposite: Part D rebates will increase prices and constitute a de-facto tax on American seniors. Your proposal is actually a price control and as such will result in the cost shifting that always occurs when government tries to control prices. Your proposal would force drug companies to deliver certain products below cost. In order to stay in business, these companies will respond by shifting these losses to other consumers and embedding the cost of tax in the price of the drugs they provide. According to recent research from the American Action Forum, these drug rebates would increase Part D premiums by as much as 40 percent. Increasing the price of insurance—due to direct government involvement—functions exactly as a tax increase for seniors.

AFP strongly opposes this attempt to limit competition and increase prescription drug prices, the Medicare Drug Savings Act of 2013 (S. 740, H.R.1588). I urge your colleagues to oppose its passage.

Sincerely,

James Valvo
Director of Policy
Americans for Prosperity

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