Understanding Medicare Part D Drug Plans
In an attempt to keep up with all the recent changes, we wanted to share some information we found that was posted by the Henry J. Kaiser Foundation a couple of months ago. We know all the numbers and figures can be confusing, so feel free to call or stop by and ask if we can help in your understanding of Medicare and Part D programs.
The Medicare Prescription Drug Benefit Fact Sheet
The Medicare Modernization Act of 2003 (MMA) established a voluntary outpatient prescription drug benefit for people on Medicare, known as Part D, that went into effect in 2006. All 52 million elderly and disabled beneficiaries have access to the Medicare drug benefit through private plans approved by the federal government. Beneficiaries with low incomes and modest assets are eligible for assistance with Part D plan premiums and cost sharing. The Affordable Care Act (ACA) of 2010 made some important changes to Part D—in particular, phasing out the coverage gap by 2020.
Medicare Prescription Drug Plans
The Medicare drug benefit is offered through stand-alone prescription drug plans (PDPs) and Medicare Advantage prescription drug (MA-PD) plans (mainly HMOs and PPOs) that cover all Medicare benefits including drugs. In 2014, 1,169 PDPs will be offered across the 34 PDP regions nationwide (excluding the territories). Beneficiaries in each state will have a choice of more than two dozen stand-alone PDPs and multiple MA-PD plans (Figure 1).
Figure 1. Number of Medicare Part D Stand-Alone Prescription Drug Plans, by Region, 2014
Part D Plan Benefits And Premiums
Part D sponsors offer plans with either a defined standard benefit or an alternative equal in value (“actuarially equivalent”), and can also offer plans with enhanced benefits. The standard benefit in 2014 has a $310 deductible and 25% coinsurance up to an initial coverage limit of $2,850 in total drug costs, followed by a coverage gap. During the gap, enrollees are responsible for a larger share of their total drug costs than in the initial coverage period, until their total out-of-pocket spending reaches $4,550 (Figure 2). Thereafter, enrollees pay either 5% of total drug costs or $2.55/$6.35 for each generic and brand-name drug, respectively. The standard benefit amounts increase annually by the Part D per capita spending growth rate.
Figure 2. Number of Medicare Part D Stand-Alone Prescription Drug Plans, by Region, 2014
Only a small share of PDPs nationwide will offer the standard drug benefit in 2014, as in previous years. The majority of PDPs (53%) charge a deductible, with 49% charging the full amount ($310). Most plans charge tiered copayments for covered drugs rather than 25% coinsurance and a substantial majority of PDPs use specialty tiers for high-cost medications. And most PDPs (76%) will not offer additional gap coverage in 2013 beyond what is required under the standard benefit. Additional gap coverage, when offered, is generally limited to generic drugs only (not brands).
The ACA gradually lowers out-of-pocket costs in the coverage gap. Enrollees in plans with no additional gap coverage in 2014 will pay 47.5% of the total cost of brands and 72% of the total cost of generics in the gap until they reach the catastrophic coverage limit. Medicare will phase in additional subsidies for brands and generic drugs, ultimately reducing the beneficiary coinsurance rate in the gap to 25% by 2020.
The monthly Part D premium averages $39.90 in 2013 (weighted by 2013 enrollment), a 5% increase since 2013. Actual PDP premiums vary across plans and regions, ranging from $12.50 to $174.70. Part D plans vary in benefit design, cost-sharing amounts, and utilization management tools (prior authorization, quantity limits, and step therapy). Plans also vary in terms of formularies (covered drugs), provided they comply with requirements established by the Centers for Medicare & Medicaid Services (CMS) to ensure a minimum level of coverage and prohibit formularies that discourage enrollment of certain types of beneficiaries.
Part D Enrollment
Enrollment in Medicare drug plans is voluntary, with the exception of beneficiaries who are dually eligible for both Medicare and Medicaid and certain other low-income beneficiaries who are automatically enrolled in a PDP if they do not choose a plan on their own. Unless beneficiaries have drug coverage from another source that is at least as good as standard Part D coverage (“creditable coverage”), they face a penalty equal to 1% of the national average premium for each month they delay enrollment.
In 2013, nearly 39 million Medicare beneficiaries are enrolled in Medicare Part D plans or in retiree drug subsidy plans (Medicare Trustees, 2013). Of this total, an estimated 35.7 million are in Part D plans—about two-thirds are enrolled in stand-alone PDPs and one-third are enrolled in Medicare Advantage drug plans, while another 3.2 million beneficiaries have drug coverage through employer-sponsored retiree plans where the employer receives subsidies equal to 28% of drug expenses between $325 and $6,600 per retiree in 2013 (decreasing to $310 and $6,350 in 2014) (Medicare Trustees, 2013). Several million beneficiaries are estimated to have other sources of drug coverage, including employer plans for active workers, FEHBP, TRICARE, and Veterans Affairs (VA). Yet an estimated 10% of the Medicare population lacks creditable drug coverage, according to CMS’s most recent estimates from 2010.
Part D enrollment is highly concentrated, with five firms—UnitedHealth, Humana, CVS Caremark, Express Scripts, and Aetna—accounting for 65% of enrollees in 2013. While beneficiaries have the option to choose among dozens of plans each year, and often could save money if they switched plans, most (7 out of 10) beneficiaries who were in a PDP during all four annual open enrollment periods from 2006 to 2010 did not voluntarily switch plans in any of the enrollment periods.
Assistance For Low-Income Beneficiaries
Part D includes substantial premium and cost-sharing assistance for beneficiaries with low incomes (less than 150% of poverty, or $17,235 for individuals in 2013) and modest assets (less than $13,300 for individuals). Beneficiaries who are dually eligible, QMBs, SLMBs, QIs, and SSI-onlys automatically qualify for the additional assistance, and Medicare automatically enrolls them into PDPs with premiums at or below the regional average (“benchmark” plans) if they do not choose a plan on their own. Other beneficiaries are subject to both an income and asset test and need to apply for the low-income subsidy (LIS) through either the Social Security Administration or Medicaid. People determined eligible for LIS are assigned to a PDP if they do not enroll on their own.
Around 11 million beneficiaries are currently receiving the low-income subsidy, but CMS has estimated that approximately 2 million other low-income beneficiaries are eligible for but not receiving these subsidies. In 2014, 352 plans will be available for enrollment of LIS recipients for $0 premium, a 6% increase in plans from 2013 (Figure 3).
Figure 3. Number of Benchmark Plans, by Region, 2014