Medicare Part D

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Getting Poor/Old People Drug Coverage: Part II

June 29, 2010 in Medicaid/Medicare | 1 comment

Yesterday, I mentioned that low-income individuals on Medicare can also qualify for Medicaid and, as full-beneift dual eligible beneficiaries, they have significantly lower cost sharing than the typical Part D beneficiary.  How does CMS identify these individuals?

For currently beneficiaries on Medicaid who ‘age’ into Medicare, this process is fairly easy.  CMS can auto-enroll these individuals prospectively into Medicare drug plans.  The “Medicaid–>Medicare” population makes up 25% of all new full benefit dual eligible (FBDE) individuals each month.

For individuals who are currently Medicare eligible who become poor, this process is more complex.  Oftentimes, these beneficiaries only receive the more generous coverage months after they are initially eligible.  Thus, CMS must retroactively reimburse these beneficiares for the additional incurred expense.

To eliminate the lag in identifciation of these new FBDE individuals, CMS has taken a number of steps such as: increasing the rate at which state data are reviewed and eligibility and provided additional guidance to states on how to backdate FBDE coverage already in Medicare Prescription Drug Plans (PDP).

In addition, a new demonstration aims to make the transition between regular beneficiary and dual-eligible state more transparent.  The Limited Income Newly Eligible Transition (LI NET) “will cover all claims during retroactive auto-enrollment periods for full-benefit dual eligible (FBDE) beneficiaries and Supplemental Security Income (SSI)-only beneficiaries plus immediate need claims for all Low- Income Subsidy (LIS)-eligible beneficiaries.”  Humana won this contract for 2 years.  In particular, the LI NET will do the following:

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Getting Poor/Old People Drug Coverage: Part I

June 28, 2010 in Medicaid/Medicare | 1 comment

Health insurers face a conundrum.  Increased cost sharing helps to reduce patient utilization of medical resources and–at least inititally–lowers the cost of care.  Too much cost sharing, however, can lead to decreased patient adherence.  In this case, the patients may get sick and require hospitalization,  which will actually increase cost.  Cost sharing’s affect on adherence will likely be especially acute for low-income individuals.

To not discourage low-income individuals from receiving the care they need, Medicare significantly reduces the cost sharing provisions for low-income individuals.  For example, for Part D drug coverage, most beneficiaries face the following benefit structure as of 2008:

  • $275 deductible
  • 25% copay up to an initial coverage limit of $2,510
  • Doughnut hole coverage between $2,510 and $4050
  • Catastrophic coverage above $4050 where he pays the greater of $2.25 for generic, $5.65 for brand drugs, or 5% coinsurance, whichever is greater.

Many low income individuals, however, incur much less cost sharing.   Many of these low-income Medicare beneficiaries are known as dual eligibles since they are eligible for both Medicare and Medicaid coverage.  “…these beneficiaries—referred to as full subsidy beneficiaries—pay a small copayment (between $1.10 and $6.00 in 2009) and Medicare pays the difference between these amounts and the cost sharing required by the plans.”  Thus, by covering most of the cost of these poor, elderly individuals, Medicare hopes to avoid decreased adherence and–in the long run–save money and improve health outcomes.

Before January 2006, State Medicaid plans were responsible for paying for most drug coverage for these beneficiaries.  After this date, however, the drug costs for these beneficiaries was transitioned to Medicare’s newly enacted Part D program.

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Medicare Reimbursement Information II

September 1, 2009 in Medicaid/Medicare | No comments

I will continue reviewing some Medicare reimbursement information as described in a variety of MedPAC reports.

Medicare Advantage

  • Medicare Advantage is a program where Medicare beneficiaries can receive private heath insurance, partially or fully funded by CMS.  The health insurance must provide coverage at least as generous as Medicare Parts A and B.
  • Private health plans bid to provide services to Medicare beneficiaries.  If a plan’s standard bid is above the benchmark, then the plan receives a base rate equal to the benchmark and the enrollees have to pay an additional premium that equals the difference between the bid and the benchmark. Ifa plan bid falls below the benchmark, the plan receives a base rate equal to its standard bid.
  • Medicare payments are also based on enrolled beneficiaries’ demographics and health risk characteristics. Medicare uses beneficiaries’ characteristics, such as age and prior health conditions, and a risk-adjustment model—the CMS–hierarchical condition category (CMS–HCC)—to develop a measure of their expected relative risk for covered Medicare spending.
  • Medicare Advantage Plans can be either local or regional.  Regional plans can be offered to any beneficiary of one of the 26 Medicare regions.   A region’s benchmark is a weighted average of the average county rate and the average plan bid.  The average plan bid is each plan’s bid weighted by each plan’s projected number of enrollees

PART D

  • Medicare Part D provides coverage for pharmaceutical expenses.
  • Overall, Medicare subsidizes premiums by about 75 percent and provides additional subsidies for beneficiaries who have low levels of income and assets.
  • The standard 2009 benefit includes: a $295 deductible; coverage for 75 percent of allowable drug expenses up to a benefit limit of $2,700; no coverage between $2700 and $6134, and about 5 percent coinsurance for drug spending above the catastrophic limit of $6154.
  • Individuals eligible for both Medicare and Medicaid with incomes up to 100 percent of poverty have no deductibles, nominal copays, and no coverage gap.
  • Medicare subsidies for Part D come in two forms: A direct, capitated payment to plans calculated as a share of the adjusted national average of plan bids, and individual reinsurance of 80 percent of drug spending above

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Take-up of Medicare Part D

May 26, 2009 in Health Insurance, Medicaid/Medicare, Pharmaceuticals | 2 comments

Using data from the 2004 and 2006 Health and Retirement Survey (HRS), Levy and Weir (2009) analyze the take up of Medicare Part D after its enactment on Jan 1, 2006.  They find that in 2006 only 7% of seniors lacked drug coverage compared to 24% in 2004.  It seems that Medicare Part D caused this large increase in drug coverage.

Medicare Part D Eligibility

Medicare Part D eligibility can be defined as follows:

  • Medicaid-covered Medicare beneficiaries (“dual eligibles”) were automatically enrolled in both Part D and a means-tested subsidy. 
  • Individuals with other coverage–usually through their employer–were instructed to keep their coverage.
  • Medicare Advantage (MA) plans had to offer drug coverage after Part D was implemented. Many of the MA plans, however, already had included drug benefits in their benefits package.
  • Individuals with private, non group insurance or those without prescription drug insurance had to decide whether or not they wanted to enroll in a Part D plan.

Results

The evolution of senior drug coverage is shown in the following table.  After the implementation of Medicare Part D we see that  7% of seniors lacked drug coverage compared to 24% before part D.  Why didn’t these 7% take up Medicare Part D?  Are they uneducated?  Are not native English-speakers? It turns out that they just have low demand for prescription drugs.  ”Those with low levels of education or income were no less likely to enroll in Part D than were beneficiaries with more education or income.”  Also, the authors find that 41% of individuals who didn’t take up Medicare Part D said they didn’t need any medications. 

Crowd out

Did part D crowd out employer drug coverage?  We did see  employer drug coverage drops from 40% in 2002 and 2004 to 37% in 2006.  However, individuals who have employer-provided drug benefits were almost just as likely to retain these benefits in 2004 as in 2006.  The authors argue that “while this does not rule out the possibility that some individuals dropped employer drug coverage because of Part D, it suggests that most new Part D enrollees are coming from individuals who would have remained uninsured or purchased Medigap in the absence of Part D.”

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Medicare Part D and Switching Costs

December 10, 2007 in Economics - General, Medicaid/Medicare, Pharmaceuticals | Permalink

It’s decision time for Medicare Part D purchasers. Seniors have until December 31st to make their Part D choice and this decision is not a painless one.

The Marketplace Money radio program recently reported (‘Deciphering Part D‘) that “the most popular policies have increased their prices substantially, especially Humana and United Healthcare, the ones that most of the people are in. Some of the policies’ prices have even doubled. So even though the average prices have only increased by about 14 percent, if you’re in one of the more popular plans, it’s really important to look at what your costs will be next year because you may want to change to a different policy.”

How can some plans double their prices yet still retain customers? Neo-classical economists would say that if the price of insurance at one company would rise, all seniors would switch to the cheaper plan and there would be a competitive equilibrium at the market price. Yet in the presence of switching costs, the insurance companies may be able to raise prices significantly without losing many customers.

Switching costs for Medicare Part D include the time consuming process of selecting from the hundreds of Medicare Part D plans. Children of seniors may also have to aid their parents in selecting a plan. Thus, if the price of my Part D insurance went up 16% while the rest of the plans went up 14%, I may decide to pay the higher price since I do not want to incur the search costs of finding a new Medicare Part D plan.

Companies such as Humana and UnitedHealth knew this would be the case. In the first year of Part D, these companies likely under-priced their insurance plans to attract customers. Once the customers had settled on their policies, they could more easily raise prices.

Despite the market inefficiencies caused by switching costs, this is not a reason to completely abandon a free market system. If the price increases of an individual company get too high, they will eventually outweigh the switching cost and the senior will move to a new plan. Further, information technology advances can help reduce switching costs. For instance, Medicare has a Prescription Drug Plan Finder that helps to estimate the cost of different plans depending on which prescriptions you are taking.

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