MEDICARE PRESCRIPTION DRUG BENEFIT

Presented by Juliette Cubanski, Ph.D.Principal Policy AnalystMedicare Policy Project

The Henry J. Kaiser Family Foundation

June 2009

Return to tutorials

Exhibit 1

• Major source of coverage for seniors and younger people with permanent disabilities

• Medicare beneficiaries tend to be sicker and use more health services than the general population

• Entitlement program – provides coverage without regard to income or heath status

• Original Medicare – fee-for-service program

• Part A – Hospital Insurance Program

– Inpatient hospital, skilled nursing facility, home health, and hospice care

• Part B – Supplementary Medical Insurance

– Physician visits, outpatient hospital, preventive services, home health

• Part C – Medicare Advantage plans

– An alternative to Original Medicare; beneficiaries can enroll in a private plan to receive all Medicare-covered benefits and (often) extra benefits

– Private plans include HMOs, PPOs, and Private Fee-for-Service plans

Medicare Part A, Part B, and Part CExhibit 2

Return to tutorials

Exhibit 3

The Need for a Medicare Drug Benefit

• Prior to 2006, Medicare beneficiaries did not have access to a government-subsidized drug benefit through Medicare

• Existing sources of drug coverage included:

– Employer-sponsored retiree health benefits

– Individually-purchased Medigap supplemental policies

– State Medicaid programs for low-income Medicare beneficiaries

– Medicare managed care plans

– Veterans Administration, state pharmacy assistance programs, pharmaceutical company assistance programs

• One-third had no drug coverage in 2004

– Those without coverage used fewer drugs but spent more out-of-pocket than those with coverage

– Cost-related non-adherence (skipping/splitting doses, not filling prescriptions) was more common among those without coverage

Return to tutorials

Medicare Part D – Prescription Drug Benefit

• Medicare Part D, enacted as part of the Medicare Modernization Act of 2003, took effect in 2006

– Part D is provided exclusively through private plans; benefits are not offered directly through the traditional fee-for-service program

– Enrollment in a Part D prescription drug plan is voluntary

• Beneficiaries may enroll in one of two types of private plans to get the Part D benefit

– Stand-alone prescription drug plans to supplement Original Medicare

– Medicare-Advantage prescription drug plans

• Additional subsidies available for people with low incomes and modest assets to help pay for premiums and cost-sharing

– Below 150% poverty ($16,245/individual, $21,855/couple in 2009)

– Assets less than $12,510/individual, $25,010/couple in 2009

Exhibit 4

Return to tutorials

19%

4% 23%

5%

28%

11%

9%

3%

Total Benefit Payments, 2009 = $484 billionTotal Benefit Payments, 2009 = $484 billion

NOTE: Does not include administrative expenses such as spending for implementation of the Medicare drug benefit and the Medicare Advantage program. Total is net of $9.4 billion in recoveries for 2009 .SOURCE: Congressional Budget Office, Medicare Baseline, March 2009.

Part D Financing and Benefit Payments

Part A Part B Part A and B Part D

Exhibit 5

• Part D is funded by premiums, general revenues, and state payments

• Plans are paid a fixed amount for each enrollee

• “Reinsurance” payments from the government protect plans from unexpectedly high costs

Return to tutorials

Prescription Drug Benefit

Hospital Outpatient/

Other Part B Benefits

Physicians and Other Suppliers

Home Health

Medicare Advantage

(Part C)

Hospice

Skilled Nursing Facilities

Hospital Inpatient

NOTE: Percentages do not sum to 100% due to rounding. 1Includes Veterans Affairs, retiree coverage without RDS, Indian Health Service, state pharmacy assistance programs, employer plans for active workers, Medigap, multiple sources, and other sources. 2Includes Retiree Drug Subsidy (RDS) coverage and FEHBP and TRICARE retiree coverage. SOURCE: Centers for Medicare & Medicaid Services, 2009 Enrollment Information (as of February 1, 2009).

Total Number of Medicare Beneficiaries = 45.2 MillionTotal Number of Medicare Beneficiaries = 45.2 Million

Total in Part D Plans:

26.7 Million(59%)

Medicare AdvantageDrug Plan

Retiree Drug Coverage2

No Drug Coverage

Other Drug Coverage1

4.5million

10%

7.9 million18%

6.2million

14%

Prescription Drug Coverage Among Medicare Beneficiaries, 2009

Exhibit 6

Return to tutorials

9.2 million20%

Stand-Alone Prescription

Drug Plan

17.5million

39%

Beneficiaries Eligible for Low-Income Subsidies = 12.5 millionBeneficiaries Eligible for Low-Income Subsidies = 12.5 million

Medicare Drug Benefit Low-Income Subsidy Eligibility and Participation, 2009

Eligible but estimated to have

other drug coverage 0.5 million (4%)1

NOTE: 1Includes Veterans Affairs, Indian Health Service, and Retiree Drug Subsidy (RDS) coverage. SOURCE: Centers for Medicare & Medicaid Services, 2009 Enrollment Information (as of February 1, 2009).

Eligible but not receiving subsidy

2.3 million 19%

Low-income Medicare

beneficiaries receiving

additional Part D subsidies

Exhibit 7

9.6 million 77%

Return to tutorials

Number of Medicare Part D Stand-Alone Prescription Drug Plans, by State, 2009

NOTE: Excludes Medicare Advantage Drug Plans (HMOs, PPOs, and Private Fee-for-Service plans).SOURCE: Kaiser Family Foundation analysis of Centers for Medicare & Medicaid Services 2009 PDP landscape file.

45-49 drug plans (34 states and DC)

50-53 drug plans (14 states)

54-57 drug plans (3 states)

Exhibit 8

Return to tutorials

Medicare’s “Standard” Drug Benefit in 2009

… But most plans do not offer the “standard” benefit, and coverage varies across most dimensions, including:

– Monthly premiums

– Deductibles

– The “doughnut hole”

– Covered drugs and utilization management restrictions

– Cost sharing for covered drugs

$295 Deductible

$2,700 in Total Drug Costs

$3,454 Coverage Gap (“Doughnut Hole”)

Plan Pays 75%

Plan Pays 15%; Medicare Pays 80%

$6,154 in Total Drug Costs($4,350 out-of-pocket)

Enrollee Pays 25%

5%

Exhibit 9

Return to tutorials

$31.08$36.70

$73.75

Basic Benefits EnhancedBenefits

EnhancedBenefits with Gap

Coverage

Average Monthly Premiums for Stand-Alone PDPs

No Gap Coverage

Weighted Monthly PDP Premiums, 2006-2009

Weighted Average Monthly PDP Premiums, by Gap Coverage, 2009

SOURCE: Georgetown/NORC analysis of data from CMS for the Kaiser Family Foundation.

$35.09

$25.93$27.39

$29.89

$0

$5

$10

$15

$20

$25

$30

$35

$40

2006 2007 2008 2009

2006-2009: 35% increase

Exhibit 10

Return to tutorials

Cost Sharing in Medicare Part D Plans, 2006-2009

NOTE: Part D cost-sharing amounts are medians. Part D plan estimates weighted by enrollment in each year; analysis excludes generic/brand plans, plans with coinsurance for regular tiers, and plans with flat copayments for specialty tiers. PDP = Stand Alone Prescription Drug Plan; MA – PD = Medicare Advantage Prescription Drug PlanSOURCE: Georgetown/NORC analysis of data from CMS for MedPAC and the Kaiser Family Foundation.

FORMULARY TIER

PART D PLAN TYPE

PART D COST SHARING

2006 2009% Increase, 2006-2009

GenericPDP $5 $7 40%

MA-PD $5 $5 --

Preferred brandPDP $28 $37 32%

MA-PD $26.70 $30 12%

Non-preferred brand

PDP $55 $74.75 36%

MA-PD $55 $60 9%

SpecialtyPDP 25% 33% 32%

MA-PD 25% 33% 32%

Exhibit 11

Return to tutorials

Monthly Cost Sharing for Top Brand-Name Drugs in National Stand-Alone Drug Plans, 2009

$75$77

$86

$68

$88

$21$19$22 $20$22

NexiumLipitorLexaproAdvair DiskusActonel

Maximum

Covered Cost Sharing

Minimum Cost Sharing

SOURCE: Georgetown/NORC analysis of data from CMS for the Kaiser Family Foundation.

Exhibit 12

Return to tutorials

Share of Medicare Part D Plans in 2009, By Type of Gap Coverage

NOTE: *“Little/No Gap Coverage” includes plans that cover few drugs only. SOURCE: Georgetown/NORC analysis of data from CMS for the Kaiser Family Foundation.

Stand-alone Prescription Drug Plans

(1,689 plans in 2009)

Medicare Advantage Prescription Drug Plans

(1,991 plans in 2009)

Exhibit 13

Return to tutorials

Mostly Generics Only 25%

Little/No Gap Coverage*

75%

Generics and Brands2%

Little/No Gap Coverage*

61%

Mostly Generics Only 38%

Changes in Drug Use By Part D Enrollees Who Reached the Coverage Gap in 2007

8%

18%

10%

15%

20%

2%

1%

5%

1%

4%

6%

3%

8%

6%

Alzheimer's Treatments

OsteoporosisTreatments

Oral Anti-Diabetics

Antidepressants

Proton Pump Inhibitors

Stopped taking medication Reduced medication use Switched medications

26%

22%

23%

22%

14%

NOTE: Estimates based on analysis of retail pharmacy claims for 1.9 million Part D enrollees in 2007.SOURCE: Georgetown University/NORC/Kaiser Family Foundation analysis of IMS Health LRx database, 2007.

Among Part D enrollees who reached the coverage gap, percent who:

Exhibit 14

Return to tutorials

Medicare Part D: Adding It Up

CoverageCoverage

Out-of-pocket Out-of-pocket drug spending, drug spending, use, and accessuse, and access

Program Program spendingspending

ChoiceChoice

41 million (90%) have drug 41 million (90%) have drug coveragecoverage

9.6 million receiving 9.6 million receiving low-income subsidieslow-income subsidies

Out-of-pocket drug spending is Out-of-pocket drug spending is generally lowergenerally lower

Drug use is higher and cost-Drug use is higher and cost-related skipping is generally related skipping is generally lowerlower

4.5 million lack drug coverage4.5 million lack drug coverage 2.3 million low-income eligible 2.3 million low-income eligible but without subsidiesbut without subsidies

Some enrollees may pay more – Some enrollees may pay more – e.g., dual eligibles and those in e.g., dual eligibles and those in the coverage gapthe coverage gap

Lower than initially Lower than initially projectedprojected

Due partly to lower-than-Due partly to lower-than-projected Part D and low-income projected Part D and low-income subsidy enrollmentsubsidy enrollment

Lots of plans means more options Lots of plans means more options for beneficiariesfor beneficiaries

Lots of plans could lead to Lots of plans could lead to confusion and difficulty confusion and difficulty choosing the best planchoosing the best plan

Exhibit 15

Drug pricesDrug prices Lower for those who had no drug Lower for those who had no drug coverage prior to Part Dcoverage prior to Part D

Higher for dual eligibles and Higher for dual eligibles and drugs with no competitorsdrugs with no competitors

Future Issues and Options for Medicare Part D

• Increase enrollment in Part D plans

• Improve access to low-income subsidies; eliminate the asset test

• Minimize variation in plan offerings by standardizing benefit designs

• Reduce the number of plans that sponsors can offer

• Reduce or eliminate the coverage gap

• Allow the government to negotiate drug prices with pharmaceutical companies

• Create a public Part D plan option

Exhibit 16

Return to tutorials

• Kaiser Family Foundation’s Medicare Policy Project: www.kff.org/medicare

– Medicare Health and Prescription Drug Plan Tracker: http://www.kff.org/medicare/healthplantracker/

– State Facts on Medicare: http://www.statehealthfacts.org/cgi-bin/healthfacts.cgi

• Medicare (the official government website): www.medicare.gov

• Centers for Medicare & Medicaid Services (CMS): www.cms.hhs.gov

• Congressional Budget Office (CBO): www.cbo.gov

• Medicare Payment Advisory Commission (MedPAC): www.medpac.gov

Medicare Policy ResourcesExhibit 17

Return to tutorials