A new study finds that the Medicare Part D drug program lowered non-drug medical spending by $1,224 lower for enrollees who previously did not have insurance for drugs. The savings was mainly due to reductions in hospitalization and skilled nursing presumably because drugs were substituting for more expensive inpatient therapies.
Since the federal subsidy for Medicare part D drug plans was about $1,067 per enrollee (data for 2008). This implies Medicare makes money on those seniors who had a problem and needed help obtaining drug coverage. However, this savings is offset by money wasted on seniors who already had drug coverage and didn’t need additional subsidies. Indeed, more than four-out-of-every-five dollars in Medicare drug spending is replacing spending that would have occurred without Medicare drug plans.