Part D

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Picking a Medicare Plan

November 5, 2007 in Medicaid/Medicare | Permalink

Which Medicare plan should you choose? Health journalist Charles Ornstein of the L.A. Times was making just this choice for his mother in “Puzzling out plan option for Medicare.” Even for a veteran health journalist, the choice is not as easy as it seems.

Below, I will give some background information which will help people like Mr. Ornstein’s mother better understand the choices she is facing.

  • Medicare Advantage plan (Part C): “These programs are designed to provide full coverage — replacing traditional Medicare — and include HMOs and preferred provider organizations.” The CHA Medicare Advantage fact sheet states that “In order to join one of these plans, you have to have both Medicare Part A and Part B and you must continue to pay the Part B premiums ($93.50 in 2007). You receive all Medicare-covered benefits through the private plan chosen.” There are 5 types of plans.
    1. Medicare Health Maintenance Organizations (HMOs)
    2. Medicare Preferred Provider Organizations (PPOs)
    3. Medicare Private Fee-for-Service Plans (PFFS)
    4. Medicare Special Needs Plans (SNPs)
    5. Medicare Medical Savings Accounts (MSAs)
  • Medigap plan: “Also known as supplemental plans, these cover co-pays and deductibles that patients normally pay under Medicare.” Medigap benefit packages are labeled A through L. Each letter represents a different standardized benefit package mandated by law. According to the CHA Medigap fact sheet, all Medigap plans must offer the following benefits.
    • Co-insurance for hospital days 61-90 ($248/day in 2007) and co-insurance for the 60 lifetime reserve days ($496/day in 2007).
    • 100% of the cost of hospital care beyond 150 days covered by Medicare, up to a maximum of 365 lifetime days.
    • 20% co-insurance for Medicare approved charges after the $131 annual Part B Medicare deductible has been met.
    • The first three pints of blood in each calendar year.
  • Medicare Drug Plan (Part D): These are the Medicare prescription drug plans. Standard Part D coverage according to the CHA Medicare Part D fact sheet includes:
    • An initial $265 deductible.
    • Then, Part D covers 75% of the cost of all drugs between $265 and $2400 spent per year.
    • There is a doughnut hole between $2401-$5451 where Medicare Part D offers no coverage.
    • Above $5451, Part D pays 95% of drug costs.
    • After the consumer has spent $3850 in out of pocket costs, Part D will cover all drug costs.

There are so many options, what is a person to do?

First do some research to help you understand what Medicare will cost and what benefits will be included. The California Health Advocates is a good place to start. For instance, you can learn about Medicare Part A hospital benefits. Some of the benefits included are as follows:

Medicare Benefits for 2007
Service Medicare Pays You Pay
Days 1-60 Everything After Deductible $992 Deductible
Days 61-90 Everything After co-payment $248 per day co-payment
60 Reserve Days Everything After co-payment $496 per day co-payment
Beyond 150 Days Nothing All Costs Beyond 150 days
Source: California Health Advocates
     

The Medicare.gov website also has some tools to help you choose a plan. The Medicare Personalized Plan Search seems like a useful tool. Depending on your trust level in the federal government, you may or may not believe that the Plan Search is constructed in an unbiased manner. Since I do not have a Medicare claim number, I could not try out the service.

If you trust your state government more than the feds, you can look at California’s Department of Insurance rate comparison website at www.insurance.ca.gov.

You can also seek more information from one of the Patient Advocacy websites recommended by Dr. Richard Fogoros of GUTHealthcare.

Just like making any big purchase, you need to do some research, shop around, and try to find an unbiased source of information to help you find the ideal plan to meet your individual needs. Good luck!

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Prescription Drug Coverage and Elderly Medicare Spending

October 17, 2007 in Medicaid/Medicare, Pharmaceuticals | Permalink

In 2006, the federal government first began expanding Medicare coverage to include prescription drugs using the Medicare Part D program. According to one report, Part D will cost taxpayers $47 billion in 2007.

Yet it is possible that Medicare Part D could actually save taxpayers money. If prescription drugs and other medical care are substitutes, then increasing funding for lower cost pharmaceuticals could actually save taxpayers money on the more expensive hospital stays (covered by Medicare Part A) and physician visits (covered by Medicare Part B). For instance, it is possible that regularly taking beta blockers may reduce the chance that one needs an expensive heart surgery.

On the other hand, if pharmaceuticals and other medical care are compliments, than increasing Part D funding, could increase the total spending in Medicare Parts A and B. For instance, individuals taking prescriptions drugs may need to go to the doctor more often–covered by Part B–in order to have their pharmaceutical usage monitored.

So how does Medicare Part D affect other Medicare spending?

This is the question Baoping Shang and Dana Goldman investigate in their NBER Working paper “Prescription Drug Coverage and Elderly Medicare Spending.”

Data and Methods

Shang and Goldman use data from the 1992-2000 Medicare Current Beneficiary Survey (MCBS) and compares Medicare spending differentials between individuals who have a Medigap policy with drug coverage and individuals who have a Medigap policy without drug coverage.

Since Medicare spending–like most health care spending–is right skewed with a large mass at zero expenses. The authors use a two-part regression structure. In the first regression, the the authors use a probit regression to determine the probability an individual had any health care spending. In the second regression, Shang and Goldman utilize an OLS (an later an IV) structure to find the impact of Medigap drug coverage on total spending, conditional on the fact that the individual had some spending. Mathematically, the two regressions look as follows:

  1. p* = β0 + β1*d +β2(d*Income) + ε
  2. ln(Y|Y>0) = γ0 + γ1*d +γ2(d*Income) + ν

p* is the probability of any spending, d is a dummy variable if the individual has drug benefits, and Y is total Medicare spending.
This econometric structure could lead to incorrect inferences if selection bias were present. In fact, “[c]ompared to those with prescription drug benefits, Medicare beneficiaries without drug benefits tend to be older, less educated, less likely to be in an urban area, and poorer. They are sicker in term of both self-reported overall health and histories of chronic diseases.”
In an attempt to eliminate selection bias, Shang and Goldman employ state reforms in the health insurance markets as instrumental variables. These reforms include the following:

  • “Guaranteed issue requires health plans to offer coverage to all individuals, regardless of their health status or claims experience.
  • Rate rating includes rating bands, very tight rating bands, and community rating. Rating bands restrict health plans’ use of experience, health status, or duration of coverage in setting premium rates for individuals. Very tight rating bands allow very limited adjustment for experience, health status, and duration. Community rating prohibits health plans’ use of experience, health status, or duration of coverage in setting premium rates for individual coverage.”

For their instrument, Shang and Goldman look at states with 1) both guaranteed issue and rate rating, 2) states with only rate rating, and 3) states with neither. Since MCBS is a panel, the authors employ a discrete factor model to control for three different levels of unobserved heterogeneity directly and allows some correlation of these fixed effect terms with the error terms.

Results

A simple two part model finds that the “prescription drug benefits increase drug spending by $157, reduces Medicare Part A spending by $135, and increases Medicare Part B spending by $31″–a net $104 reduction in Medicare spending. The more complicated structural model using structurally estimating unobserved heterogeneity parameters finds that the drug benefit increases drug spending by $170 (or 22%). However, “prescription drug benefits decrease Medicare Part A spending by $350 or 13%; and prescription drug benefits decrease Medicare Part B spending by $74 or 4% although the estimates are statistically insignificant.”

Healthcare Economist comment

Even for those who oppose government provided health insurance, few would argue with the statement that given Medicare’s existence, it is important to be sure it operates in the most efficient way possible. This paper demonstrates that Medicare Part D may be cost saving. Leaving out prescription drug benefits may lead patients to choose expensive surgeries–which are free to them since they are covered by Medicare –over taking prescription drugs–which are costly without Medicare Part D. The authors sum up their findings in a compelling manner: “…it appears that Medicare beneficiaries may have been overinsured with respect to medical services, and underinsured with respect to prescription drugs.”

Shang, Baoping; Goldman, Dana; (2007) “Prescription Drug Coverage and Elderly Medicare Spending” NBER WP #13358.

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