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Medicare Private Plans and the Part D Low-Income Subsidy: A Cautionary Tale for Health Care Reform
 

Introduction

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 coverage.

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).[1] 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.[2]

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 plans.

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 subsequent years.[3]

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 coverage.[4]

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.[5] 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.[6] 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.[7] 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.[8] 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 into account.

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.

Beyond 2010

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 all.

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.

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1. The Medicare Saving Programs include the Qualified Medicare Beneficiary program (QMB), the Specified Low Income Medicare Beneficiary program (SLMB), and the Qualified Individual program (QI).
2. Low-Income Subsidy Plan Availability, Kaiser Family Foundation (November 2008); Low-Income Subsidy Plan Availability, Kaiser Family Foundation (November 2008); http://www.kff.org/medicare/upload/7836.pdf.  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), http://www.nsclc.org/areas/medicare-part-d/musical-chairs-an-analysis-of-the-part-d-annual-
reassignment-process/at_download/attachment.
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); http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/PartDandMABenchmark2010.pdf.  

 
 


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