Medicare beneficiaries who want prescription drug coverage under
Medicare Part D must purchase coverage through a private insurance
plan: either a stand-alone Prescription Drug Plan (PDP) that offers
only drug benefits, or a Medicare Advantage plan with prescription
drug coverage (MA-PD) that offers drug benefits as well as the
coverage included in Medicare Parts A and B. No drug benefit is
available through the traditional, public Medicare program. In the
parlance of the health care reform debate, there is no "public plan
option" for obtaining Medicare out-patient prescription drug
The experience of Medicare beneficiaries with the lowest incomes and
resources in this privatized system of drug coverage should serve as
a warning to policy makers about the difficulties high health care
consumers may face in a totally private health care system.
The Part D Low-Income Subsidy
Medicare beneficiaries with limited income and resources are
eligible for a low-income subsidy (LIS) to help defray the cost of
their Medicare Part D prescription drug coverage. Eligibility for
the LIS is automatic for beneficiaries with Medicare and Medicaid,
for those who receive Supplemental Security Income (SSI) benefits,
and for those who are enrolled in one of the three Medicare Savings
Programs (MSP). Other beneficiaries who meet the income and
resource eligibility criteria may file an application for LIS. 84%
of the people receiving LIS (7.9 out of 9.4 million) are
automatically eligible for the subsidy.
Only plans offering basic Part D benefits with a premium that is at
or below a benchmark amount for a given plan year qualify as LIS or
benchmark plans. The benchmark is calculated by averaging
prescription drug plan bids from PDPs and MA-PDs in each of the 34
prescription drug plan regions. As a result, benchmark amounts vary
by prescription drug region. LIS-eligible beneficiaries may be
automatically enrolled in benchmark plans, and those who are
eligible for the full low-income subsidy pay $0 premium for these
Problems with the Part D Low-Income Subsidy
Starting in the fall of 2006 for the 2007 plan year, prescription
drug plans that qualified as a benchmark plan in one year have
failed to qualify for a subsequent year. According to the Kaiser
Family Foundation, only 23% of the 409 plans that qualified as
benchmark plans in 2006 continued to qualify as benchmark plans in
The federal Centers for Medicare & Medicare Services (CMS)
instituted a policy in the fall of 2006 of re-assigning LIS-eligible
beneficiaries to new LIS plans if the plan in which they had been
automatically enrolled would not qualify as an LIS or benchmark plan
in the following year. Those who were in a benchmark plan of their
choosing (referred to as "choosers"), rather than in a plan to which
they had been assigned, were given notice that their plan would no
longer qualify for LIS; they had to choose a different $0 premium
plan on their own or pay the difference between the benchmark
premium and their plan's premium.
The need to change plans in order to avoid paying a Part D premium
creates hardship for beneficiaries who are automatically reassigned
to a new drug plan and for those who choose a new drug plan on their
own. They often cannot find a plan whose formulary covers all of
their existing drugs. As formularies change, beneficiaries have to
seek exceptions to get non-formulary drugs covered, or to go through
new prior authorization and other utilization management
requirements to obtain formulary drugs. The constant shuffling of
drug plans makes it difficult for beneficiaries taking many drugs to
receive the benefit of a plan's medication therapy management
program, if one is available.
Some beneficiaries choose to remain in their old plan and pay a
premium because the formulary covers more of their medicines. They
have encountered additional difficulties as the premiums for the
plans in which they remained increased during subsequent years. Many
of these so-called "choosers" did not understand that they would
have to pay a premium for their drug coverage in the following year
until they received a bill from their drug plan. Some LIS-eligible
individuals have been disenrolled from their drug plans for failure
to pay plan premiums.
Additional Federal CMS Protections Became Necessary
In addition to re-assigning LIS-eligible beneficiaries each year,
the Bush Administration's CMS took other steps to reduce the number
of beneficiaries who needed to be reassigned. For 2007 and 2008, CMS
instituted a "de minimus" demonstration. LIS-eligible beneficiaries
could remain in their drug plan if the plan's premium did not exceed
the benchmark by more than a "de minimus" amount. Even with this
policy, however, 1.1 million beneficiaries were reassigned to new
plans for 2007. For 2008, 2.1 million LIS-eligible individuals were
reassigned to a different benchmark plan; 443,000 additional
beneficiaries were notified that they would need to change plans
themselves to avoid having to pay a premium for their drug
In 2008, CMS published a final rule that changed the method for
calculating the benchmark premium in an attempt to mitigate the
disruption in coverage caused by reassignment. CMS acknowledged
in the preamble to the 2008 rule that, despite the new methodology,
beneficiaries would continue to be reassigned. For the plan year
that began on January 1, 2009, 1.6 million LIS-eligible
beneficiaries were automatically re-assigned to different PDPs, with
notice sent to an additional 620,000 beneficiaries who had chosen
their own plan. Additionally, the number of LIS-eligible plans in
each of the PDP regions changed dramatically. For example, in
Nevada, only one PDP was a benchmark plan in 2009. Beneficiaries
whose drugs were not covered by the plan had to either go through
the exception process or choose a non-LIS eligible plan and pay a
premium. Some were forced into MA-PDs and had to change the way they
received their health coverage under Medicare Parts A and B.
The 2010 Approach
On Thursday, August 13, 2009 CMS released the benchmark premium
amounts for 2010. The agency indicated that it is again using its
demonstration authority to institute a new methodology for
calculating the benchmark amount. The change in calculation is based
on recommendations made by beneficiary advocates to CMS in the
proposed rules on calculating the LIS benchmark amount and on other
occasions; CMS did not accept the recommendations in the final rules
issued in 2008.
Specifically, the methodology used in the 2010 demonstration changes
how MA-PD drug premiums are averaged in the benchmark calculation.
Many MA-PDs use the overpayments they receive (called rebates) to
reduce their prescription drug premium to $0. When the MA-PD $0
premiums are averaged in with the premiums of PDPs, the MA -PD $0
premiums artificially reduce the benchmark amount. As advocates had
suggested, CMS for 2010 included in the benchmark calculation the
actual MA prescription drug premium amount without taking the rebate
The change in calculation in the benchmark amount will reduce from
about 1.8 million to 800,000 the number of Medicare beneficiaries
who will need to be reassigned. Additionally, Jonathan Blum, Acting
Director of the CMS Center for Health Plan Choices, stated on a
conference call with advocacy organizations that the change will
result in more PDPs being available to LIS-eligible individuals.
Without the change in methodology, several PDP regions would have
had only one LIS-eligible PDP. CMS now anticipates that there will
be four or five benchmark plans in each of the 34 PDP regions.
Advocates had previously commented to CMS that using this method
calculation would more accurately reflect the market cost of
offering drug coverage, and would result in greater plan stability.
The health care reform legislation under consideration by the House
of Representatives includes a provision to make the 2010
demonstration permanent. Under Section 1207 of HR 3200, America's
Affordable Health Choices Act of 2009, CMS would be required to
apply MA-PD drug premiums before the rebate when calculating the
LIS. Advocates are hopeful that a similar provision will be included
in the legislation being drafted by the Senate Finance Committee.
Jonathan Blum of CMS acknowledged in a recent conference call with
beneficiary advocates that even the re-assignment of 800,000
beneficiaries is too high, and the agency is interested in ways to
reduce the number of beneficiaries affected.
Implications for Health Care Reform
The totally private Medicare Part D program has caused instability
for the most vulnerable Medicare beneficiaries, those who are
eligible for the low-income subsidy. The plans in which they can
enroll and receive the full benefit of the subsidy change every
year. The changes in eligible plans bring changes in formularies and
drug plan procedures and reduce the quality of drug coverage
available to LIS enrollees. In a system based on consumer choice,
the percentage of people making choices is small, and diminishing,
and the choices available to LIS-eligible Medicare beneficiaries
keep declining - until in some situations there are no choices at
Opponents of a public plan option in health care reform cite the
value of marketplace competition, and allege that problems will
occur in the market place if private plans must compete with a
public plan. The experience of LIS beneficiaries with Part D shows
just the opposite. The private market place is not equipped to serve
the needs of this population. Private health insurance and drug plan
business models are not attuned to covering low-income beneficiaries
who are disproportionately in need of health care and medications.
Even with government intervention, millions of individuals have had
their drug coverage disrupted, and they can expect disruptions to
occur every year.
Policy makers should consider the implications for health care
reform of the private Medicare and low income subsidy experience.
There is no indication that the same insurance companies that offer
private Medicare and Part D plans will be any more willing to
accommodate the needs of the most vulnerable health care consumers
in a new health insurance environment.
If Medicare's history is a guide, consumers in a system that offers
only private options can anticipate disruption, increased costs, and
reduced quality - not the health care reform that policy makers have
promised, or that people need.
1. The Medicare Saving Programs include the Qualified
Medicare Beneficiary program (QMB), the Specified Low Income
Medicare Beneficiary program (SLMB), and the Qualified Individual
2. Low-Income Subsidy Plan Availability, Kaiser Family Foundation
(November 2008); Low-Income Subsidy Plan Availability, Kaiser Family
Foundation (November 2008);
Kaiser also indicates that approximately 3.1 million
people who are eligible are not yet enrolled.
3. Kaiser Family Foundation, supra.
4. Kaiser Family Foundation, supra.
5. 73 Federal Register 18176 (April 3, 2008).
6. Kaiser Family Foundation, supra.
7. National Senior Citizens Law Center, Musical Chairs: An Analysis
of the Part D Annual Reassignment Process, (November 2008),
8. Release of the 2010 Part D National Average Monthly Bid Amount,
the Medicare Part D Base Beneficiary Premium, the Part D Regional
Low-Income Premium Subsidy Amounts, and the Medicare Advantage
Regional PPO Benchmarks (CMS August 13, 2009);