Part D

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How to drop the individual mandate and avoid the collapse of the private health insurance market

March 28, 2012 in Health Insurance, Health Reform, Medicare Part D | 1 comment

Today, the Supreme Court is deciding  whether to let many of the provisions of the Affordable Care Act (a.k.a. ACA, a.k.a. Health Reform, a.k.a. Obamacare) stand.  One of the key provisions is the individual mandate.  The individual mandate requires all individuals to purchase health insurance.  If you don’t buy health insurance, you must pay a penalty or fine.

The reason Obama claims the individual mandate is necessary is due to the prohibition of setting premiums based on pre-existing conditions.  Currently, if you don’t have insurance, you become ill and try to buy insurance, it is very expensive.  The ACA, however, would prohibit insurers from price discriminating based on your health status.  Although this may sound good in theory, there are problems in practice if the individual mandate is not in place.  Many individuals will have an incentive not to buy insurance when they are healthy.  When they become sick, they can purchase an insurance plan for the same price as someone who has had insurance for 10 years.  Because only sick people will be insured, the average cost of health insurance will rise for everyone.  Hence, the need for the individual mandate arises.

The individual mandate, however, may not be constitutional.  Can the government compel individuals to buy something?  Many states already require auto insurance.  This requirement is only applied to those who own a car whereas the only condition for the health insurance mandate is that you are alive.

Americans have already found a way around this problem, however.  Medicare’s prescription drug program (Medicare Part D) is an optional program.  No one has to buy prescription drug coverage.  Further, premiums do not vary based on health status (although insurers receive different subsidies based on individual’s health conditions).

To incentivize individuals to purchase prescription drug coverage while they are healthy, Medicare Part D relies on a late enrollment penalty.  Any individual who does not purchase prescription drug coverage when they are eligible has to pay an increased premium when they are eligible.  This increased premium depends not on your health status, but on the number of months you were not enrolled when eligible.  From the Medicare website:

The late enrollment penalty is calculated by multiplying 1% of the “national base beneficiary premium” ($31.08 in 2012) times the number of full, uncovered months you were eligible but didn’t join a Medicare drug plan and went without other creditable prescription drug coverage. The final amount is rounded to the nearest $.10 and added to your monthly premium.

This approach could solve both problems.  The one short-coming is determining how much the late-enrollment penalty should be for private plans.  Allowing the government to set prices is generally a poor idea.  One could allow private plans to set the late enrollment penalty, as long as this were regulated to prohibit price discrimination based on individual health status.  Although this approach certainly has a number of challenges, it may be more palatable to the American public (and the Supreme Court) than an individual mandate.

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Optimal Choices of Medicare Part D Plans

November 1, 2011 in Medicare, Medicare Part D | 4 comments

Are elderly Medicare beneficiaries able to choose Part D health plans optimally?  Many researchers may believe the answer is no.  Certain elderly individuals  (e.g., those with Alzheimer’s) may be cognitively impaired.  Inertia is also a problem; switching plans is mentally taxing and involves a spending a significant amount of time researching plan alternatives.

Nevertheless, a paper by Ketcham et al. finds that Medicare beneficiaries do learn from their mistakes and can decrease over spending over time.  The Medicare Part D program began in 2006.  The authors estimate that in that year, individual overspending was $547 (overspending is the difference in beneficiary out-of-pocket payments and premiums between their current plan and the lowest cost plan).  By 2007, overspending dropped by about $298 to $248.6.  Further, whereas 9.8% of the sample had overspending levels of more than $1,000 in 2006, only 1.7% of the cohort reached these high levels in 2007.

A portion of this decrease was due to certain high-cost plans changing their benefit structure, but much of the change was due to beneficiaries switching plans.  Specifically, individuals with overspending levels of more than $1,000 were not only more likely to switch plans, but also more likely reduce the levels of overspending by more than individuals with lower levels of overspending.  This may be a regression to the mean phenomenon, or it could be the case that it takes a high level of overspending for individuals to spend the time researching plans to switch their PDP.

How did this reduction in overspending occur?  CMS’s planfinder website may have improved the information available to beneficiaries.  The site itself may have improved or more beneficiaries may have been made aware of it.  Also, the children of Medicare beneficiaries may have been more active in choosing plans for their parents.  For instance, individuals newly diagnosed with Alzheimer’s saw a decrease in overspending; this result is likely due to children helping their parents choose better PDP.

Additionally, high spending rates may provide the impetus to change plan.  Consider a model where individuals do not change plans unless their premium + OOP spending exceeds a certain threshold.  Once this threshold is met (which could differ by individual), they search for lower cost plans.  If the threshold were not met, individuals would decide that searching for a new plan is not worth the smaller savings.  In this model of behavior, one question is whether switchers (who generally have higher initial levels of overspending) tend to choose average plans (which would reduce overspending) or one of the best plans (which would decrease overspending even more).  The quantitative results of the paper seem to indicate the latter.

The conclusion of this paper: markets may not work perfectly—especially at first—but over time learning occurs and individual self-interest can more markets towards a more efficient equilibrium.

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Does Prescription Drug Coverage Save Money?

August 30, 2011 in Medicare Part D, Pharmaceuticals | 5 comments

Many experts have claimed that increasing Medicare beneficiary’s access to prescription drugs through Medicare Part D is cost saving.  Even if it does increase cost, by increasing patient adherence to various prescription drugs, Medicare could prevent certain expensive hospitalizations and emergency room visits.

The only problem is that it doesn’t.

According to Liu et al. (2011) :

“After adjustment, Part D was associated with a U.S.$179.86 (p=.034) reduction in out-of-pocket costs and an increase of 2.05 prescriptions (p=.081) per patient year. The associations between Part D and emergency department use, hospitalizations, and preference-based health utility did not suggest cost offsets and were not statistically significant.”

In fact, increased drug coverage could increase the number of prescriptions the elderly take and lead to a higher number of harmful drug interactions, leading to increased hospitalizations.

Another paper, however, disagrees.  Afendilus et al. (2011) use HCUP data and and find that for selected ambulatory care sensitive conditions:

“…our point estimates suggest that Part D reduced the overall rate of hospitalization by 20.5 per 10,000 (4.1 percent), representing approximately 42,000 admissions, about half of the reduction in admissions over our study period…The increase in drug coverage associated with Medicare Part D had positive effects on the health of elderly Americans, which reduced use of nondrug health care resources.”

The debate rages on.

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Trends in Medicare Part D

April 25, 2011 in Medicare, Medicare Part D, Pharmaceuticals | 1 comment

Recent research from Avalere Health, LLC using Medicare Part D reveals some interesting trends.  Overall, premiums for fee-for-service prescription drug plans (PDPs) increased by 3%.  For beneficiaries who enrolled in a Top 10 plan, however, premiums actually decreased by 6%.  This result was driven by a 12% decrease in premiums for the largest PDP, AARP MedicareRxPreferred and the recent arrival of the low cost Humana-Walmart-Preferred Rx Plan.

Although the total number of Special Needs Plans (SNP) has held fairly steady over time, the number of enrollees in a dual-eligible SNP has risen by 11% between 2010 and 2011.  Additional information on SNPs is below.

Within the Medicare Advantage program, enrollment in HMO and PPO plans continues to grow as PFFS enrollment declines.

Additional Part D trends are highlighted below.  This spreadsheet provides even more detail.

Plan Consolidation in 2011

  • The top 3 PDP plans made up 45.4% of all PDP enrollees.  The top 10 plans made up 73.2% of all PDP enrollees.
  • CIGNA Medicare Rx Plan One joined the top 10 PDPs as did the Humana Walmart-Preferred Rx Plan.
  • UnitedHealth, Humana, and Kaiser provide MA benefits to 44% of all MA enrollees

Part D Sponsor Acquisition and Plan Consolidation

  • CVS Caremark will acquire Universal American’s PDP plans and members after Q1 of 2011
  • AARP MedicareRxSaver consolidated into AARP MedicareRxPreferred
  • PrescriberRxBronze consolidated into Community CCRxBasic

Prices

  • Overall, PDP premiums increased by 3%.  For beneficiaries who enrolled in a Top 10 plan, however, premiums actually decreased by 6%.  This result was driven by a 12% decrease in premiums for the largest PDP, AARP MedicareRxPreferred and the advent of the low cost Humana-Walmart-Preferred Rx Plan.

Special Needs Plans

According to the CMS website, Special Needs Plans (SNPs) were created by Congress in the Medicare Modernization Act (MMA) of 2003 as a new type of Medicare managed care plan focused on certain vulnerable groups of Medicare beneficiaries: the institutionalized, dual-eligibles and beneficiaries with severe or disabling chronic conditions. These beneficiaries are typically older, with multiple comorbid conditions, and thus are more challenging and costly to treat.  Dual-eligible SNPs also offer the opportunity of enhanced benefits by combining those available through Medicare and Medicaid…Specific legislative and regulatory provisions allow SNPs to focus on specific subsets of the Medicare population with the intent to improve care and control costs for these beneficiaries. Consistent, comparable measures that reflect the service delivery and outcomes important to these populations and that promote quality improvement and maturation of SNP products are necessary.

The fifteen SNP-specific chronic conditions approved for 2010 are: 1) Chronic alcohol and other drug dependence; 2) certain auto-immune disorders; 3) cancer (excluding pre-cancer conditions; 4) certain cardiovascular disorders; 5) chronic heart failure; 6) dementia; 7) diabetes mellitus; 8 ) end-stage liver disease; 9) end-stage renal disease requiring dialysis; 10) certain hematologic disorders; 11) HIV/AIDS; 12) certain chronic lung disorders; 13) certain mental health disorders; 14) certain neurologic disorders; and 15) stroke.

 

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CMS 2010 Requirements for Medicare Part D Plan MTM Programs

September 2, 2010 in Medicare Part D, Pharmaceuticals | 1 comment

In an effort to standardize the provision of medication therapy management (MTM) within Medicare Part D, CMS has outlined specific requirements for Part D Plan MTM programs in 2010.  The APhA’s Medication Therapy Management Digest (March 2010) reviews these requirements.

MTM programs must:

  • Enroll targeted beneficiaries using an opt-out method only (i.e., beneficiaries are automatically enrolled unless they choose not to be)
  • Target beneficiaries for enrollment at least quarterly.
  • Include the following enrollment criteria for targeted beneficiaries:
    • Does not require more than three chronic disease states.
    • Does not require more than eight medications.
    • In defining multiple chronic diseases, sponsors must target at least four of seven core chronic disease states.
    • Likely to incur annual costs of $3,000 for covered Part D drugs (a reduction from the previous requirement of $4,000).

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Medication Therapy Management

August 17, 2010 in Uncategorized | 2 comments

Recently, the N.Y. Times, ran a story on medication therapy management programs (MTMPs).  These programs typically involve either face-to-face or over-the-phone sessions between pharmacists and patients in retail stores or clinics.  For example, insurance plans pay pharmacists to track patients, monitor cholesterol or blood glucose levels, and prod customers to change their diets or exercise.  The goal is to reduce cost and improve patient outcomes by decreasing the frequency of patients taking contraindicated drugs, improving adherence, and providing a comprehensive medication review (CMR) to evaluate the potential interactions of drugs prescribed by multiple doctors.   Examples of MTMs include the Wisconsin Pharmacy Quality Collaborative (where  community pharmacies and health plans joined together to standardize MTM practices) and Mirixa (a private MTM firm which was founded by the National Community Pharmacists Association).

The American Pharmacists Association (APhA) even has a map summarizing MTM activities by state.

MTMPs have taken off since Medicare plans started covering medication therapy management programs in 2006.   Currently, about one-in-four Part D beneficiaries are eligible for MTMPs.  This CMS Fact Sheet provides an overview of the types of medication therapy management programs (MTMPs) currently in in operation during 2010 for Medicare Part D plans.

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Medicare Part D data available

July 24, 2008 in Data, Pharmaceuticals | Permalink

For researchers interested in studying the Medicare prescription drug benefit, CMS has claims data for Medicare Part D.  Academy Health also has a useful powerpoint presentation giving some more information regarding Medicare Part D and what information is available as part of the CMS Medicare Part D claims data.

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Choosing a Medicare Part D plan

July 10, 2008 in Healthcare IT, Medicaid/Medicare, Pharmaceuticals | Permalink

As I noted in an earlier post, choosing a Medicare part D plan is difficult.  However, there are resources to help people choose a Medicare Part D plan based on which prescriptions they are taking and where they live.  Medicare has its own Personalized Plan Search.  The private sector also has come up with user-friendly ways to search for the best health care plans.  MedicareSaver has an easy-to-use plan selector which also includes a video guiding you along the site.

With Health 2.0 gaining strength, choosing a health insurance is not as difficult as it once was.

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Medicare Part D lowers Pharmaceutical prices?

May 12, 2008 in Medicaid/Medicare, Pharmaceuticals | Permalink

What is Medicare Part D?

Medicare Part D began in 2006 and provides insurance coverage for pharmaceuticals for the elderly. The program is set up so that the government does not purchase the drugs directly, but subsidizes private prescription drug plans, which then negotiate prices with the pharmaceutical companies. There are two types of Part D plans. The first are prescription drug plans (PDP) which only cover drugs. Medicare Advantage plans (MA-PD) are comprehensive, managed care insurance plans which also include insurance coverage for pharmaceuticals.

Typical Part D coverage includes a $250 deductible, with 75% coverage for the first $2000 (after the deductible). Part D defers 0% of the cost of drugs between $2000 and $3599–the “donut hole”–and then once annual spending reaches $3600, Part D pays only 95% of the costs.

The government subsidies these PDP and MA-PD plans based on a bidding process. A national average bid is calculated and multiplied by some constant percentage (it was 34% in 2007) to determine what premium the enrollees will pay. The 66% subsidy is distributed to the plans as a lump sum, so that if plans offer higher or lower premiums, the enrollee incurs the full cost (benefit) for higher (lower) premiums.

To reduce the possibility of crowd-out, CMS subsidies firms that provide prescription drug coverage to their retirees.

What does economic theory predict about Medicare Part D’s influence on prices?

Many economists would at first glance believe that this would lead to an increase in prices. Consumers should be have less elastic demand since they will only be paying for a fraction of the drug cost if they have Part D insurance. An NBER working paper by Duggan and Morton (2008) believe that this will not be the case. First, PDPs and MA-PD have large customer bases and can negotiate bulk discounts. Individuals do not have the buying power to negotiate these discounts. Further, drug companies often use formularies which advise patients as to alternative drugs (e.g., generics) which are cheaper. Physicians advice patients as to the most medically effective drug, but not the most cost effective treatment. Thus, insurance company formularies can make patient cross price demand elasticities for drugs more elastic since they are more aware of comparable drug substitutes.

Further, the production of pharmaceuticals is one with extremely high fixed costs (e.g., R&D, advertising) and very low, relatively flat marginal costs. Thus, prescription drug insurance will likely increase pharmaceutical utilization, which will decrease average costs.

Medicare Part D’s impact on Price

Duggan and Morton find the Medicare Part D decreased average overall price by 12%. Patients of course pay even less than this 12% figure, because insurance pays for a portion of the drug costs. Thus, for patients moving from cash payment to Medicare Part D, net drugs prices for them decreased 24%.

This decrease, however, could have reflected an overall decrease in drug costs and may be unrelated to Part D insurance. To test this, Duggan and Morton examine the prices of drugs in “protected” therapeutic classes. The government mandate that insurance companies must cover all drugs for treatment categories such HIV, anti-cancer, immunosuppressant, etc. Because the Part D plans are mandated to cover all drugs in the category, plans cannot 1) use their buying power to negotiate lower prices since producers know that the drug must be covered and 2) use formularies to direct enrollees to less expensive alternatives since all drugs must be covered. Thus, the authors predict that for drugs in these protected classes, their should be no price decrease. This is exactly what the authors find.

“The results…suggest that drug prices offered by Medicare part D plans grew with others in those therapeutic categories where their ability to move market share was most limited. This provides some support for our model…which predicted smaller price declines (or larger price increases) for those treatments without good substitutes.”

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Gary Becker on Medicare Part D

April 1, 2008 in Current Events, Medicaid/Medicare, Pharmaceuticals | Permalink

Medicare is inefficient and expensive. Medicare has been expanded through Medicare Part D, which covers prescription drugs. Can expanding an inefficient, expensive system be a good thing? Gary Becker argues yes.

Since drugs have high fixed research costs but low marginal costs, having the government pay for drugs can increase innovation. In fact, a working paper by Blume-Kohout and Sood (2008) finds that “…the passage of Medicare Part D was associated with significant increases in pharmaceutical R&D, especially for classes with high elderly market share.” Further, the fact that there are high fixed costs and low marginal cost means that passing Medicare Part D will likely reduce the average cost of drugs. According to Becker:

This property of the cost of producing drugs has two extremely important implications for Medicare costs. The first is that drugs are an efficient way to treat diseases and disorders that hit a large number of men and women since then the fixed costs can be spread over a larger number of users. This makes them particularly valuable to the elderly who are a growing share of the population in the United States and all other developed countries, and in many developing countries as well, including China…

Drugs are also valuable in inefficient delivery systems that have trouble choking off medical treatments that would not pass a benefit-cost calculation. This would characterize systems with highly subsidized medical care, with excessively low deductibles, or with rules that cannot deny treatments to the very elderly and those close to dying who would benefit only a little from receiving treatment. Surgery, hospitalization, and close physician supervision are expensive ways to treat seniors who do not benefit much from this care since the cost of these procedures tend to rise in proportion to the number treated. On the other hand, while treating seniors with drugs sometimes also may not add much in the way of benefits, the additional cost per user would be much smaller than the average cost per user.

Medicare Part D may increase efficiency in the “second-best” world in which we live today.

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