February 12, 2009

It's Time for a Real Medicare Prescription Drug Plan

The Problem

Medicare beneficiaries, their families, and their advocates can attest that the current market-based system for providing Medicare prescription drug coverage through private insurance companies does not work.  Since 2006, when the Medicare Part D program began, the private insurance companies that offer Medicare drug plans have continued to shift more of the costs of coverage onto Medicare beneficiaries.  They have also taken steps to rid themselves of the most costly plan enrollees, those who are eligible for the Part D low-income subsidy (LIS) that helps defray premiums and cost-sharing for people with limited incomes and resources.

Problems include:

• Part D premiums for most beneficiaries continue to rise on a yearly basis.  According to the Kaiser Family Foundation, more than 90% of beneficiaries would experience an increase in premiums between 2008 and 2009 if they did not change drug plans.  For example, one of the drug plan sponsors with the largest enrollment of Medicare beneficiaries, Humana, increased premiums 329% between 2006 and 2009.[1]

• While there are dozens of plans to choose from, the vast majority of beneficiaries do not switch plans from year to year.  Thus, plans like Humana that captured a large portion of the Part D enrollee market share in 2006, when CT premiums, for example, were $7.32 a month, keep most of that market share in 2009 when those same premiums have risen to $41.40 a month.[2]

• Coverage of drugs in the coverage gap or "donut hole" continues to decline.  The number of prescription drug plans (PDPs) offering some kind of gap coverage in 2009 remains about the same as in 2008, but no PDP offers gap coverage of brand name drugs in 2009.  Coverage of generic drugs is also more limited, as most PDPs with gap coverage no longer offer coverage of all generic drugs on their formulary.  Additionally, such coverage is costly; premiums for plans with gap coverage are almost twice those of other PDPs.[3]

• Drug plans use benefit structures that pass additional costs to beneficiaries with the greatest health care needs.  Avalere Health, a leading advisory company focused on health care business strategy and public policy, reported in 2008 that drug plans were moving to a four- or five-tier system, with more costly drugs placed on specialty tiers.  In 2008, 86% of all Part D plans had a four- or five-tier structure, as compared to 10% of commercial plans.  Medicare beneficiaries paid between 25-35% of the cost of specialty-tier drugs, while individuals in commercial plans paid, on average, $71.[4] Additionally, although Medicare beneficiaries pay substantially more for specialty-tier drugs than for drugs on other tiers, Part D regulations preclude them from requesting an exception to reduce cost-sharing for specialty drugs. 

• Drug plans have other mechanisms to pass costs on to unsuspecting beneficiaries. Under a reference-based pricing system, the beneficiary pays a higher-tiered cost sharing amount for certain brand-name drugs plus an additional amount that supplements the cost-sharing for those drugs. The additional amount may be the difference between the full price of the brand name drug and the full price of its generic equivalent.  The actual cost of the drug is not made transparent through information provided by either the drug plan or by Medicare.[5] 

• Drug plans that qualify as low-income subsidy plans, i.e., plans with premiums below a regional "Benchmark" amount, change from year to year.  As a result, beneficiaries who are eligible for the low-income subsidy must be reassigned to new Benchmark plans or change their plans on a yearly basis in order to receive the full benefit of the low-income subsidy.  This churning of LIS beneficiaries among different plans each year disrupts medical care for millions of the most vulnerable Medicare beneficiaries each year. The number of LIS plans also has declined continuously, resulting in fewer choices for LIS-eligible beneficiaries, and making it more difficult for these beneficiaries to find plans with formularies that cover all of their drugs.[6]

Beneficiaries, their families, and their advocates report other problems with the current Part D drug program.  For example:

• Enrollment problems continue.  A Connecticut beneficiary who changed plans for 2009 during the annual enrollment period found herself disenrolled from her old plan in December 2008 and charged for premiums for two plans in December. In January when she went to the pharmacy, she was told that the card she had for the new plan had expired.

• Plans increased cost-sharing in 2009, even for lower-cost drugs. A Maryland beneficiary discovered in January 2009 that the cost of his generic drugs had increased from $2 per prescription to $15 per prescription.

• Beneficiaries have difficulty getting access to accurate information about their plan. A Maine beneficiary was charged more for his prescription in January than the formulary information provided by his plan during the annual enrollment period indicated.  The plan claimed that it was charging him the price that was reported on the plan's web site.

• Marketing problems continue, despite changes in the law placing greater restrictions on marketing activities. Advocates nationwide report illegal cold calls and door-to-door sales.

Proponents of a privatized Medicare prescription drug benefit argue that market forces will induce beneficiaries to change to less costly drug plans during each annual enrollment period.  Evidence indicates that beneficiaries do not, in fact, change their drug plans.[7]  Further, beneficiaries continue to deal with the costs of Part D by foregoing necessary medication.  A recent study found that beneficiaries who have no coverage in the coverage gap reduce their drug usage by 14% once they reach the donut hole.[8]

The Proposed Solution

The Center for Medicare Advocacy has long recommended that Part D be repealed and replaced with a drug benefit that is part of traditional Medicare or, alternatively, that a drug plan option be offered through the traditional Medicare program.  A drug benefit offered through traditional Medicare would add the stability of the traditional program to Part D, would provide for a uniform benefit across the United States, and would reduce costs to people with Medicare and to taxpayers.  Additionally, a Medicare-operated drug plan could serve as the default plan for all LIS-eligible individuals, thereby reducing their yearly re-assignment to new plans.

Several members of Congress have come to a similar conclusion. On January 26, 2009, Congressman Berry (D. Ark.) and Congresswoman Schakowsky (D. Ill.) introduced H.R. 684, the Medicare Prescription Drug Savings and Choice Act of 2009, in the House of Representatives.  The companion bill, S. 330, was introduced in the Senate by Senator Durbin (D. Ill) on January 27, 2009.  These bills would make a number of important changes to improve prescription drug coverage and access to medically necessary prescriptions.

The Medicare Prescription Drug Savings and Choice Act of 2009 would:

• Authorize the creation of one or more prescription drug plans operated by the Medicare program.

• Require that the Medicare-operated drug plan(s) be available nationwide with a uniform monthly premium.

• Authorize the Secretary of the Department of Health and Human Services to negotiate with drug companies on the prices of drugs provided through the Medicare-operated drug plan(s).

• Provide a more open process for formulary development by utilizing the Agency for health care Research and Quality to assess the clinical effectiveness and safety of drugs and to recommend drugs that should be included on the formulary. 

• Prohibit the removal of drugs listed on the formulary during the year except in the case of safety concerns. Drugs with clinical benefits could be added to the formulary through a petition process to an Advisory Committee.

• Establish a more efficient appeals process with minimal administrative burdens to ensure timely access to non-formulary drugs or non-preferred drugs when medically necessary.

Conclusion

Discussions about including a drug benefit in traditional Medicare are just beginning.  Some of the conversations involve how this benefit could provide protection for beneficiaries who are eligible for the low-income subsidy.  Some conversations draw parallels with health care reform discussions that focus on private and public health insurance plan options with similar benefit structures.  A drug benefit operated by traditional Medicare would bring the Medicare program in line with that delivery model.  All of these deliberations should consider the effect that reliance on private insurance to provide drug coverage has had on Medicare beneficiaries, in terms of increased out-of-pocket costs and reduced coverage, and on taxpayers, who are paying more than they would for drug coverage in traditional Medicare.

For more information, contact attorney Vicki Gottlich (vgottlich @ medicareadvocacy.org) in the Center for Medicare Advocacy's Washington, DC office at (202) 293-5760.

Copyright © 2010 Center for Medicare Advocacy, Inc.