The NYT reported that the Medicare drug plan has cost less than expected. This is true, however this is not necessarily due to the effective design of the program. The biggest reason that the program costs less than projected is that drug prices rose much less quickly in the years subsequent to the bills passage than was projected at the time. In 2004, CBO projected that per person drug costs would rise by 9.0 percent annually. In fact, they rose at slightly less than a 5.0 percent annual rate in the years from 2004-2008. As a results, drugs cost about 20 percent less on average now than they would have if prices had followed the path predicted by CBO at the time the plan was approved. It is unlikely that the drug plan had much to do with the slower increase in drug expenditures since the slowdown began in 2004, two years before the plan went into effect. The most obvious explanation for the slower increase in drug expenditures is the failure of the industry to develop new blockbuster drugs to replace the ones that have gone off patent. This failure is presumably not the result of Medicare prescription drug plan.
--Dean Baker