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As we have reported previously, President Obama signed into law Pub.L.111-148, the Patient Protection and Affordability Care Act of 2010 (PPACA), on March 23, 2010, and Pub. L. 111-152, the Health Care and Education Reconciliation Act of 2010 (HCERA), on March 30, 2010.  These two laws will change both the availability of health insurance and how health care is delivered in America.  They include substantial changes for Medicare and Medicaid.


The Center for Medicare Advocacy (the Center) will publish a series of Alerts that describe key aspects of the new laws. This Alert, the first in that series, addresses changes affecting Medicare Advantage (MA) plans under Medicare Part C and prescription drug plans (PDPs) under Medicare Part D.  Issues pertaining to low-income individuals who enroll in these plans will be addressed separately.


Much of the discussion surrounding the implications of health care reform for older people and people with disabilities centered on changes in funding for MA plans and closing of the Part D donut hole.  Little attention was paid to other provisions in the legislation that provide needed protections for Medicare beneficiaries who enroll in private plans.  Some of the changes have been under consideration for many years.




HCERA 1102. Medicare Advantage Payments.  This provision phases in changes to the MA plan payment structure, starting with a freeze in payments to MA plans for 2011.  Payments will be based on national county benchmarks, with plans being paid a fixed percentage of traditional Medicare costs.  As a result of the payment scheme, plans in some lower-paid counties, generally rural and suburban areas, will continue to receive payments that exceed the traditional Medicare amount, while plans in higher paid counties, many of them large cities, may see substantial reductions.[1]   The new payment structure also provides for an increase in payments by up to 5% for plans that receive four or more stars on the Centers for Medicare & Medicaid Services (CMS) star rating system.  Rebates (an amount plans receive if they bid less than the county benchmark) will also be reduced.


HCERA 1103.  Savings from limits on MA plan administrative costs.  Starting in 2014, if the Secretary of Health and Human Services (the Secretary) determines that an  MA plan does not maintain a medical loss ratio (MLR) of 85% (meaning that 85% of their revenues does not go towards benefits), the plan must remit a specified sum to the Secretary.  If a plan fails to have an MLR of 85% for 3 consecutive years, the Secretary must preclude new enrollment in that plan.  The plan's contract must be terminated if the plan fails to have an MLR of 85% for 5 consecutive years.


PPACA 3203.  Benefit protections and simplifications.  Starting in January 2011, MA plans cannot impose cost-sharing for chemotherapy administration services, renal dialysis services, and skilled nursing care services that exceed the cost-sharing for those services under original Medicare.  The Secretary has discretion to require that cost-sharing for other services also not exceed original Medicare cost-sharing.  The provision, however, does allow plans, in certain circumstances, to charge cost-sharing for services for which there is no cost-sharing under traditional Medicare.  Starting in January 2012, plans that receive rebates and/or performance bonuses and that offer supplemental benefits must: 1) apply the most significant share to reductions in cost-sharing for benefits available under Parts A, B, and D; with reductions in out-of-pocket expenses applying to all benefits under Parts A and B; 2) apply the second most significant share to meaningful coverage of preventive and wellness benefits that are not benefits under traditional Medicare; 3) use the remaining share to meaningfully provide coverage for benefits that are not covered under traditional Medicare, such as eye examinations and dental coverage.  Note that HCERA 1102, discussed above, makes changes to the calculation of rebate amounts.


PPACA 3206.  Extension of reasonable cost contracts.  This provision extends the authority of the Secretary to enter into a contract with an HMO to operate as a cost plan until January 1, 2013.


PPACA 3208.  Making senior housing facility demonstration permanent.  This provision makes permanent a demonstration project in which an MA plan restricts enrollment to individuals who reside in a continuing care retirement community, provides primary care services on the site of the community, and provides transportation to specialty providers outside of the facility.  To be eligible, the MA plan must have participated in a demonstration for at least one year.




PPACA 3204.  Simplification of annual beneficiary election period.  The Open Enrollment Period, in which a beneficiary could enroll in or disenroll from an MA plan during the first three months of the year, is eliminated.  Starting in 2011, an individual who enrolls in an MA plan may return to original Medicare and a Part D plan during the first 45 days of the year. Starting in the fall of 2011, the annual coordinated election period for Part C and Part D plans will run from October 15 through December 7 of each year, rather than from November 15 to December 31.


PPACA 3209.  Authority to deny plan bids.  This section clarifies that the Secretary is not required to accept any or every bid submitted by an MA organization.  It gives the Secretary discretion to deny a bid that proposes significant increases in cost-sharing or decreases in benefits offered by the plan.  The provision applies in the same manner to bids submitted by a prescription drug plan (PDP) sponsor.  The provision applies to bids submitted for contract years beginning on or after January 1, 2011. 




PPACA 2502.  Elimination of exclusion of coverage of certain drugs.  Starting in 2014, Medicaid programs will no longer be able to exclude smoking cessation agents, barbiturates, and benzodiazepines from coverage under Medicaid. Because Part D covered drugs are defined generally as those drugs that are covered under Medicaid, this new provision will result in a small expansion of Part D coverage of barbiturates.  Note that Part D has covered smoking cessation drugs since its enactment. Starting in 2013, Part D will cover benzodiazepines and will cover barbiturates used in the treatment of epilepsy, cancer, or a chronic mental disorder.  


PPACA 3301, 3315 and HCERA 1101.  Closing the Medicare prescription drug "donut hole."  The new laws create a multi-part process for closing the Part D coverage gap, or donut hole. In 2010, certain beneficiaries who reach the donut hole will receive a $250 rebate. Payment of the $250 must be made not later than the 15th day of the third month following the end of the calendar quarter in which a beneficiary enters the coverage gap.  Starting in 2011, the coverage gap will decrease each year until 2020, when it will be eliminated and beneficiaries will pay 25% co-insurance for prescriptions.  Elimination of the donut hole will be accomplished by:

  • gradually phasing down the amount beneficiaries pay for generic drugs starting in 2011;

  • implementing a requirement in 2011 that drug manufacturers offer a 50% discount on brand-name drugs filled in the donut hole;

  • phasing down cost-sharing for brand name drugs starting in 2013; and

  • reducing the out-of-pocket amount needed to reach catastrophic coverage from 2014-2019.

When the donut hole is eliminated, the amount needed to obtain catastrophic coverage will revert to the level it would have been had the reductions not occurred.[2]  Note that for purposes of application of the discount for brand-name drugs, the discounted price is to be applied after any supplemental benefits that a beneficiary may have under his/her drug plan.  Additionally, beneficiaries who are eligible for the low-income subsidy or who are enrolled in a qualified retiree drug plan are not eligible for the $250 rebate or for the reduced cost-sharing.

PPACA 3307.  Improving formulary requirement for prescription drug plans and MA-PD plans with respect to certain categories or classes of drugs.   Starting in 2011, drug plan sponsors must include in their plans' formularies all covered Part D drugs in a category or class identified by the Secretary.  The Secretary has discretion to establish exceptions that allow a plan sponsor to exclude or attach utilization management requirements to a drug within a protected category or class.  The criteria for determining drugs to be included under this section, and the exceptions described above, are to be established through notice and comment rulemaking.  The current six protected classes of drugs remain protected until such time as the Secretary establishes the new criteria.


PPACA 3308.  Reducing Part D premium subsidy for high-income beneficiaries.  Starting in January 2011, beneficiaries with higher incomes who pay the Part B income-related premium will also be subject to a Part D income-related premium.  The increased premium amount will be based on a percentage of the base beneficiary premium for that year as determined by the Secretary.  The Secretary will inform the Commissioner of Social Security (the Commissioner) of the base beneficiary premium amount by September 15 of each year and inform the Commissioner of the income threshold by October 15.  The Commissioner will make determinations to carry out the income-–related premium and will collect the amount through withholding from Social Security checks.


PPACA 3310.  Reducing wasteful dispensing of outpatient prescription drugs in long-term care facilities under PDPs and MA-PD plans.    Starting in, 2012, plans must use specific, uniform dispensing techniques for  Part D-covered drugs provided to residents of long-term care facilities whose prescriptions are paid for under Part D.  They may include weekly, daily, or automated dose dispensing of Part D-covered drugs. The techniques are to be determined by the Secretary through consultation with relevant stakeholders, including both residents and their representatives.


PPACA 3311.  Improved Medicare prescription drug plan and MA-PD plan complaint system.  The Secretary is required to develop an easy-to use complaint system that will allow for the collection and maintenance of complaints received through any source and by any mechanism against PDPs and MA-PD plans.  The system must be able to report and initiate appropriate interventions and monitoring and to guide quality improvement.  A model electronic complaint form is to be developed and maintained on and the Office of Medicare Ombudsman's websites.  The Secretary is also required to report to Congress annually on the number and types of complaints, geographic variations in complaints, timeliness of responses to complaints, and resolution of complaints.


PPACA 3312.  Uniform exceptions and appeals process for PDPs and MA-PD plans.  For exceptions and appeals filed on or after January 1, 2012, prescription drug plan sponsors must use a single, uniform exceptions and appeals process and provide access to that process through a toll-free telephone number and an Internet website.  The section directs the Secretary, to the extent she determines feasible, to develop a single, uniform model form for use in the process.


PPACA 3314.  Including costs incurred by AIDS Drug Assistance Programs and Indian Health Service in providing prescription drugs toward the annual out-of-pocket threshold under Part D.  Starting in 2011, prescription drug costs reimbursed by AIDS Drug Assistance Programs (ADAPs) and the Indian Health Service will count towards true-out-of-pocket (TROOP) costs when calculating eligibility for catastrophic drug coverage under Part D.


PPACA 9012 and HCERA 1407.  Elimination of deduction for expenses allocable to Medicare Part D subsidy.  Employers that continue to provide creditable drug coverage for their retirees after Part D was enacted are entitled to a 28% rebate from Medicare towards the cost of that drug coverage. They pay no tax on the rebate amount, and they are able to deduct from their taxes the full amount of the cost of the retiree coverage as if they received no rebate.  This provision eliminates the ability of employers to deduct the 28% rebate from their taxes, effective 2012.




PPACA and HCERA provisions provide substantial changes to the Medicare Advantage and Part D programs.  With the exception of the new Part D income-related premiums, these changes will provide additional protections for Medicare beneficiaries, including protections to ensure that MA plans spend more of their money providing benefits to their enrollees. 


[1] For a discussion of the effects of the new payment structure on different communities, see, B.Biles, G. Arnold, Medicare Advantage Payment Provisions (G.W.U. March 2010), available at

[2] See, Kaiser Family Foundation, Explaining Health Care Reform:  Key Changes to the Medicare Part D Drug Benefit Coverage Gap (March 2010), available at


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