“The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (generally referred to as the Medicare Modernization Act, or MMA) substantially expanded the federal Medicare program by creating the prescription drug benefit known as Part D. In fiscal year 2013, Medicare Part D covered 39 million people. The federal government spent $59 billion net of premiums on Part D in that year; after accounting for certain payments from states under the program, the net federal cost was $50 billion, which represented 10 percent of net federal spending for Medicare. A combination of broader trends in the prescription drug market and lower-than-expected enrollment in Part D has contributed to much lower spending for the program—about 50 percent lower in 2013—than CBO projected when the MMA became law in 2003. Most beneficiaries of Part D choose among private drug plans to receive their coverage; others have employment-based coverage subsidized by Medicare Part D. The competitive design of Part D enables it to adapt flexibly to changing conditions, because plan sponsors (private insurance firms, each of which may offer several different plans) have ongoing incentives to develop new ways to control drug spending so as to minimize their costs, keep premiums low, and attract enrollees. Using the first few years of data from the Part D program, CBO found that spending was lower in years when, and in areas of the country where, more plan sponsors competed for beneficiaries. CBO’s analysis suggests that competition between plan sponsors in Part D could be strengthened further, and costs lowered further, through certain changes in the rules of the program, although such changes could have disadvantages as well.”