Introduction

The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule, published in the Federal Register on January 8, 2008,[1] that would allow prescription drug plan (PDP) sponsors to opt to offer lower premiums to their current enrollees who are eligible for the full Low-Income Subsidy (LIS), when their bids are submitted for the following year.  The LIS pays the premiums, and most Part D cost-sharing, for beneficiaries with limited incomes and resources.

The purpose of the proposed rule is to address the problem of reassignment of LIS-eligible beneficiaries if the plan in which they are enrolled no longer qualifies for LIS.  Over 2 million beneficiaries were reassigned to new plans for 2008 because of this problem.  For information on reassignment, see our Weekly Alert entitled "Low Income Subsidy Update" at http://www.medicareadvocacy.org/PartD_07_09.13.LISUpdate.htm.

CMS sets forth a number of justifications for the proposed rule.  In so doing, CMS demonstrates why offering Medicare benefits through a market-based private insurance model is not good for beneficiaries, for Medicare, or for taxpayers.

Continuity and Stability

The Part D bidding process, by its very structure, interferes with stability of plan choice for LIS-eligible individuals.  The premium subsidy amount for LIS-eligible individuals is calculated each year after Part D plan sponsors submit their bids to continue in the Part D program for the following year.  The LIS calculation occurs after plans submit their bids because it is based on the plan bids themselves. As CMS says, "A PDP sponsor whose premium for LIS-eligible enrollees is currently zero does not know at the time its bid is submitted whether the premium that would result from its bid will be higher or lower than the premium subsidy amount."[2]  Thus, the plan submits its bid not knowing whether the bid it submitted will be low enough so that its current LIS-eligible enrollees will not have to pay a premium in the following year. 

As a result of the design of the bidding process, LIS-eligible beneficiaries face the possibility that the plan they are enrolled in for one year will not be LIS-eligible for the next year.  If the plan is no longer LIS eligible, most LIS-eligible individuals will change to a plan where they do not have to pay a premium. There is no guarantee that the beneficiary will be able to remain in the same plan, without having to pay a premium, for the entire time the beneficiary is enrolled in Part D.  The beneficiary may have to change plans on a yearly basis.

CMS' current reassignment process protects against some beneficiaries having to pay premiums if the plan they are in no longer qualifies as an LIS-plan.  CMS admits, however, that reassignment "disrupts continuity and stability in coverage."[3]  CMS also acknowledges "the advantages of the continuity of care and stability that result from" its de minimis demonstration, which allows LIS-eligible enrollees to remain in their PDP without paying a premium if the amount of their previous plan's premium exceeds the LIS amount for the following year by a de minimis amount.[4]

CMS additionally notes that stability is also good for PDPs.  It prevents an increase in costs and risks, presumably from disenrolling beneficiaries, enrolling them in new plans, offering transition assistance, and generally acclimating new enrollees to the plan.[5]

Of course, CMS states that its proposed rule will not provide stability to all LIS-eligible individuals.  In fact, CMS estimates that it would continue to need to reassign some beneficiaries to new plans each year.  The proposed rule might in fact cause an additional half-million reassignments compared to the current de minimis demonstration.[6] 

Overpayment to Private Plans

Those PDP sponsors[7] that have premiums for the following year that are above the benchmark amount to qualify for the subsidy, and that elect to reduce their premiums for current enrollees who receive the full Low-Income Subsidy, would, in essence, be establishing a separate premium for current LIS eligible- enrollees.[8]  While plans would still get a subsidy for their LIS enrollees, the amount of the subsidy would not be increased to "account for the difference between the low-income premium subsidy and the premium produced by the plan's bid."[9]

The approach taken by CMS can be seen as an acknowledgement that many private insurance plan sponsors are more than adequately compensated for Part D. The only way plans would be able to choose the proposed option is if they reduced their profits to offset the amount that will not be reimbursed.  "A small number of Part D sponsors would forego revenue associated with the reduction in their beneficiary premium for low-income beneficiaries."[10]

CMS further acknowledges the likelihood of plan overpayment in its discussion of the methods to address reassignment it considered when drafting the proposed rule. An option to allow all PDP sponsors to make a "business judgment" to offer a reduced premium to LIS-eligible enrollees after CMS announced the LIS-premium was rejected.  CMS was concerned that such an option would reduce incentives to submit the lowest bid possible.  In other words, plans could build in additional profit to their initial bid, reduce premiums for LIS-eligible beneficiaries, but collect the higher premiums from their other enrollees.  The higher premiums would more than offset the reduced LIS premium.

Cost

A market-based bidding process that causes LIS-eligible beneficiaries to change their prescription drug plan every year is costly not only to beneficiaries but to Medicare.  CMS estimates that its proposal to allow plan sponsors to offer a separate LIS-premium "would lead to Federal savings of approximately $20 million per year."[11]

The Marketplace and Choice

Medicare Part D is premised on giving beneficiaries choice of different private drug plans and drug plan options.  Beneficiary advocates disagree with this approach and believe that Medicare beneficiaries would be better served by a uniform drug benefit that is part of the traditional Medicare program. They also believe, however, that if the drug benefit is based on choice, then choices should be available to all beneficiaries, including those eligible for LIS. 

Ironically, the market approach of Part D could result in fewer choices for LIS eligible individuals as fewer plans qualify for the subsidy each year.[12]  CMS admits that, "Absent the [proposed] rule, there may be a 'winner take all' outcome in certain regions with one organization acquiring all of the LIS beneficiaries in the region."  In other words, in some regions, LIS-eligible individuals eventually would have no choice of plans if CMS had not proposed this rule.[13]

It is further ironic that, though CMS says it wants to prevent the "winner take all" outcome, "winner take all" is, in fact, what could happen to new LIS-eligible individuals.  The proposed rules allow plan sponsors who choose this option to offer a lower premium only to their existing LIS-eligible enrollees.  CMS will not auto-enroll new LIS-eligible individuals into plans that take this option.[14] Thus, if the market approach results in only one or two plans being LIS-eligible in a region, then new LIS-eligible individuals would be limited to premium-free enrollment only in those plans – even if they do not cover the drugs the individuals need or if their consumer services are not of the highest quality.

Conclusion

Two of the biggest advantages of the traditional Medicare program over Part C (a.k.a. "Medicare Advantage") and Part D are its cost-effective continuity and stability.  Medicare has been in existence sine 1965; it does not leave regions because of business decisions by its administrators.  The basic cost-sharing structure has been the same since the inception of the program, with adjustments to premiums and deductibles to reflect the increased cost of living.

CMS should be commended for trying to add continuity and stability in Part D for full-subsidy eligible individuals.  Its efforts to do so, however, will not alleviate the need to reassign all LIS-eligible individuals to new plans.  The proposed rule does not address the broader problem of changes in benefit structure and drug formularies, or the inevitable departure of private plans, causing beneficiaries to have to change their drug plan.

The best way to provide continuity and stability in Part D and to reduce the cost of the program is to incorporate a drug benefit into the traditional Medicare program.

_____________________