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A Tale of Two Health Care Programs

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While the General Assembly and Governor McAuliffe debated Medicaid expansion in Richmond earlier in the year, the federal government bureaucracy tried to change the Medicare Part D program into a Medicaid type program. Let me explain.

When Congress passed Medicare Part D in 2003 and added prescription drug coverage to the health insurance plan that serves most of America’s senior citizens, budget hawks feared that it was just another big government entitlement program that taxpayers could not afford. After all, Congress has a long history of underestimating the cost of entitlement programs – especially when they have to do with healthcare. For example, when Congress enacted Medicare in 1965 as part of President Johnson’s Great Society, Congress projected that the program would cost $12 billion per year in 1990, but it the real cost in 1990 was $110 billion and it costs more than $500 billion per year today.

Medicare Part D, however, was different. Unlike most government programs, Medicare Part D included a free market component that relied on competition and choice to keep costs down. Those on Medicare choose between many various alternatives. As a result, ten years later, 90% of Medicare beneficiaries have comprehensive prescription drug coverage and 94% of enrollees are satisfied with their coverage. Further, the program is 45% under budget and the Congressional Budget Office (CBO) reduced its ten-year projections for Part D by more than $100 billion in each of the last three years.

When was the last time anyone said that about a government program?

Nevertheless, despite the fact that per-person spending for Part D declined in recent years, President Obama tried to impose Medicaid-style price controls on prescription drugs. In essence, under the President’s proposal, government would set drug prices and Medicare plans would no longer compete for enrollees. Congress was smart to reject these proposals.

Meanwhile, in Virginia Medicaid expansion was killed and reforms are being researched that can create a better program for those who rely on it.

Medicaid, which is jointly financed by the states and the federal government, provides health insurance to low income Americans. Currently, Medicaid spending accounts for 22% of Virginia’s general fund budget and costs Virginia almost $9 billion per year. Unlike Medicare Part D, there is no free market component to Medicaid and the program is consistently over budget because there is no competition or choice to keep costs down.

Accordingly, it seems to be a justified action to have killed Medicaid expansion, which is already the fastest growing part of Virginia’s budget. Medicaid needs more market type reforms similar to Medicare’s Part D, not the other way around. Medicaid expansion would have likely become a real budget buster and then education, welfare, police and roads would have suffered the consequences.

Supporters of Medicaid expansion in Virginia would be smart to implement market-based reforms similar to Medicare Part D before trying to expand the program in the Commonwealth.

Congress killed the one-size-fits-all change in the Medicare Part D program that the federal government wanted. Now Congress should work with the Virginia lawmakers to provide market based reforms and alterations to the Medicaid program to create a better program than we have today.

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