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Medicare and the New Prescription Drug Benefit
Presented byTricia Neuman, Sc.D.
Vice President and Director, Medicare Policy Project
The Henry J. Kaiser Family Foundation
for
KaiserEDU.org
January 2004
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Background and Context: Why Drug Coverage Matters
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Key Characteristics of the Medicare Population
6%
14%
23%
24%
29%
31%
37%
43%
Percent of total Medicare population:
SOURCE: Stuart and Briesacher, estimates based on 2000 MCBS; Medicare Current Beneficiary Survey, 1997-2002; Low-income estimate from Urban Institute based on March 2003 Current Population Survey.
Exhibit 1
Low Income (<150% FPL or less than $13,965 in 2004)
1+ Functional Limitation
Fair/Poor Health
Rural
Cognitive Impairment
Under 65 Disabled
Nursing Home/Assisted Living Resident
Lack Drug Coverage (Full and Part Year)
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Skipping Doses of Medication Among Chronically Ill Seniors With and Without Drug Coverage
Percent of seniors in 8 states who skipped doses of medicine to make it last longer:
SOURCE: Kaiser/Commonwealth/New England Medical Center 2001 Survey of Seniors in Eight States.
16% 17%14%
33%30% 31%
Heart Failure Diabetes Hypertension
Seniors with coverage Seniors without coverage
Exhibit 2
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Medicare Beneficiaries’ Out-of-Pocket Prescription Drug Spending, 2000-2013
$644
$999
$1,457*
$2,763*
2000 2003 2006 2013
* Without Medicare drug benefit.SOURCE: Actuarial Research Corporation analysis for The Kaiser Family Foundation, June 2003 and November 2004.
Average annual out-of-pocket drug costs among the Medicare population:
Exhibit 3
Projected:
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The Medicare Modernization Act of 2003
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History of Medicare and Prescription Drugs, 1965-2003
1965 1970 1975 1980 1985 1990 1995 2000 2003
1969: HEW Task Force on Prescription Drugs Report issued
2003: Medicare Prescription Drug, Improvement, and Modernization Act signed into law by President Bush on December 8
2000: Clinton releases plan to provide drug coverage under a new Medicare Part D
1989: Repeal of MCCA
1988: Passage of Medicare Catastrophic Coverage Act (MCCA)—drug benefit included
1965: Medicare enacted -no outpatient prescription drug coverage included
2002: Republican-sponsored bill to create a Medicare drug benefit. (H.R. 4954) passes the House of Representatives, 221-208; Several competing proposals for a Medicare drug benefit fail to pass the Senate
2000: Republican-sponsored bill to create a Medicare drug benefit (H.R. 4680) passes the House of Representatives, 217-214
1993: Clinton proposed a new Medicare Rx benefit as part of the Health Security Act
Exhibit 4
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Medicare Prescription Drug, Improvement, and Modernization Act of 2003
Phase 1: Medicare-Approved Drug Discount Card Program (June 2004 – December 31, 2005)
– Cards provide discounts (not same as insurance)
– New $600 credit in 2004 and 2005 for low-income beneficiaries who do not have Medicaid, with incomes below 135% poverty
– 5.8 million beneficiaries currently enrolled (CMS, Dec 2004)
• 1.4 million low-income beneficiaries receiving $600 subsidy (of ~7.2 million eligible)
Phase 2: Medicare Prescription Drug Benefit (begins January 1, 2006)
– Beneficiaries will have access to private plans that provide new prescription drug benefit under Medicare
Estimated cost: $400 billion (CBO) to $553 billion (HHS) over 2004-2013 period
Exhibit 5
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Medicare Prescription Drug Benefit (Part D)
• Beginning in 2006, beneficiaries will have choice of:
– Fee-for-service Medicare, with access to private plans offering prescription drug coverage only (PDPs)
– Medicare Advantage plans covering Medicare benefits and prescription drugs (MA-PD plans
• New plans will provide “standard” prescription drug benefit or its actuarial equivalent
• Plans have flexibility (subject to certain constraints) to establish varying features:
– Levels of cost-sharing requirements and coverage limits other than “standard” coverage
– Lists of drugs to include on their formulary, and on which tier
– Cost management tools
• Premium and cost-sharing subsidies for beneficiaries with incomes up to 150% FPL ($13,965 for an individual in 2004) and modest assets up to $10,000
Exhibit 6
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Standard Medicare Part D Drug Benefit, 2006
+ ~$420 average annual premium$250 Deductible
$2,250 in Total Drug Costs*
$5,100 in Total Drug Costs**
25%
5%
$2,850 Gap: Beneficiary Pays 100%
*$2,250 in total spending is equivalent to $750 in out-of-pocket spending. **$5,100 in total spending is equivalent to $3,600 in out-of-pocket spending. SOURCE: Kaiser Family Foundation analysis of Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
Medicare Pays 75%
Medicare Pays 95%
Exhibit 7
No Coverage
CatastrophicCoverage
PartialCoverage
up to Limit
Beneficiary Out-of-PocketSpending
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Provisions in the MMA for Low-Income Beneficiaries
• Premium and cost-sharing subsidies, with most generous assistance provided to those with lowest incomes– 6.5 million Medicare beneficiaries eligible for full Medicaid
benefits (“dual eligibles”) – Beneficiaries with incomes <135% FPL ($12,569/individual in
2004) and assets <$6,000/individual– Beneficiaries with incomes 135%-150% FPL
($12,569-$13,965/individual in 2004) and assets <$10,000/individual
• Treatment of dual eligibles– Medicaid stops paying for prescription drugs after December 31,
2005– Dual eligibles can enroll in Part D plans, or will be auto-enrolled,
if necessary– Key questions:
• Will “dual eligibles” transition from Medicaid to Medicare plans without falling through cracks?
• Will “dual eligibles” be able to get needed medications under new Medicare plans?
Exhibit 8
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- 83%
- 28%
The MMA is Projected to Reduce Average Out-of-Pocket Spending but the Extent
of the Reduction is Likely to Vary
SOURCE: Actuarial Research Corporation analysis for the Kaiser Family Foundation, November 2004.
Average Change:
- 37%
All Other Part D Participants(20.3 million)
Part D Participants Who Receive Low-Income Subsidies
(8.7 million)
Exhibit 9
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$1-$250 36%
$751-$3,60013%
$251-$75030%
No spending
10%
>$3,60011%
Gap in Standard Part D Benefit in 2006 Could Leave Many Part D Participants Vulnerable to
High Out-of-Pocket Spending
Total = 29 Million Part D Participants
NOTE: Estimates exclude premiums and assume no supplementation of Part D coverage. SOURCE: Actuarial Research Corporation analysis for the Kaiser Family Foundation, November 2004.
8.6 million
10.5 million
3.0 million
6.9 Million Part D Participants Reach the
“Doughnut Hole”in 2006
Exhibit 10
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Exhibit 11
Challenges for Beneficiaries
• Learning about Part D
– Comparing features of plans available within a region, including premiums, cost-sharing, formularies, and pharmacy networks
– Learning about low-income subsidy programs and eligibility rules
– Learning about the rules of enrollment, including premium penalty for delayed enrollment and annual plan lock-in
• Enrolling in Part D
– Choosing between traditional fee-for-service and a stand-alone PDP, or a Medicare Advantage plan that covers prescription drugs (where available)
– Enrolling in low-income subsidy program, if eligible, at Social Security or state Medicaid office
• Using the New Benefit
– Tracking total and out-of-pocket drug spending
– Coordinating Part D with other sources of drug coverage (state pharmacy assistance programs, employer coverage, etc.)
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Decisions for Medicare Beneficiaries, 2006
Traditional Medicare
No Part D coverage
Part D Prescription Drug Plan
Medicare Advantage
HMO (local)
PPO (regional)
Private Fee-for-Service
Enroll in Part D Plan
Apply for Low-Income Subsidy
Medicaid Office
Social Security Office
Meet Income and Asset Test?
Dual Eligibles
Below 100% FPL: No premium or deductible, $1/generic Rx,
$3/brand name Rx, pay nothing after $5,100 in Rx
costs
Below 135% FPL: Subsidy for
premium, no deductible, $2/generic Rx, $5/brand name Rx, pay nothing after $5,100 in
Rx costs
Below 150% FPL: Subsidy for
premium on sliding scale, $50 deductible, 15% coinsurance to $5,100 in Rx costs, $2/generic
Rx, $5/brand name Rx after $5,100
Exhibit 12
If yes, qualify for:
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Conclusions• Implementation deadlines pose big challenge for CMS, plans,
beneficiaries– Plan bids due in June, awarded September, plans
announced Oct 15, 2005– Low-income subsidy enrollment begins June 2005– Initial enrollment period from Nov 15, 2005 to May 15, 2006
• Beneficiary education will be critical to ease confusion, help transition of dual eligibles to Part D, and inform plan choice
• Medicare drug benefit projected to reduce out-of-pocket drug spending, especially for low-income, but many unknowns– Will new prescription drug-only plans emerge?– Will seniors sign up for Part D and low-income subsidies?– Will dual eligibles transition from Medicaid to Medicare?– Will new drug plans cover needed medications?
• Important to monitor beneficiaries’ access to needed medications and out-of-pocket prescription drug spending as new Medicare drug benefit is implemented.
Exhibit 13