While I opposed the creation of a Medicare drug benefit (I wanted Medicare to become a risk-adjusted premium support plan) at least we can take some solace in how it was designed.

The plan is a premium support plan with private insurers vigorously competing to enroll beneficiaries. It looks like this competition is having the desired effect. From the CPI the rate of inflation in 2007 was just 1.4%. There are other factors in play as well but if we are going to create new entitlement plans the model of premium support, competition and consumer choice beats price controls and regulations any day of the week. Hopefully, this will be the stake in the heart for allowing Medicare to “negotiate” drug prices.

This graph , by the way, shows the decline of inflation in prescription drugs and medical supplies.