Medicare Part D

Medicare Part D: A Success Story

Almost fifteen years has passed since Congress authorized creation of Medicare Part D, the government program providing seniors and individuals with disabilities with access to affordable prescription drug coverage. Through market-based competition, Part D allows beneficiaries to choose from a range of private plans that best meet their needs. And several surveys show 90 percent or more of beneficiaries are satisfied with their Part D coverage.

Part D is providing needed prescription drug coverage while helping to keep costs low and also improving beneficiaries’ health:

  • Part D spending is far lower than the Congressional Budget Office’s initial projections. Total costs for Part D are $349 billion, or 45 percent less, than the initial 2004-2013 projections,i and spending on Medicare Part D was just 14 percent of total Medicare spending in 2017. ii
  • Average beneficiary Part D premiums are substantially lower than the projected amount. The average monthly beneficiary premium for Part D coverage is $33.50 in 2018, slightly less than the premium in 2017.iii Since 2011, premiums have remained relatively stable – between $30 and $34.
  • Part D helps reduce spending on other Medicare services. Medicare Part D prescription drug coverage has led to an 8 percent decrease in hospital admissions for seniors.iv Gaining Part D coverage also improved adherence among enrollees with congestive heart failure, resulting in $2.3 billion in annual savings to Medicare as a result of reduced spending in Parts A and B.v
  • Part D helps beneficiaries live longer lives. A growing body of research finds reductions in mortality following the implementation of Medicare Part D. One study found since 2006, nearly 200,000 Medicare beneficiaries have lived at least one year longer with an average increase in longevity of 3.3 years.vi

While Part D has been a great success over the years, more can be done to improve affordability and predictability for seniors. For example, requiring Part D plans to share the savings from negotiated rebates directly with seniors at the pharmacy counter would reduce out-of-pocket costs. Currently, Part D plans require beneficiaries to pay cost-sharing based on the full price of their medicine, even in cases where the plan has negotiated a drastic price reduction through rebates. If more of the savings from negotiated rebates were passed through to the beneficiary at the point of sale, millions of Part D seniors could save more out-of-pocket at the pharmacy counter, enabling them to access their medicines consistently and therefore manage their conditions more effectively. 

Continued Success is at Risk

As lawmakers look for solutions to the nation’s fiscal problems, harmful policy changes risk destabilizing the Medicare Part D program and jeopardizing access for seniors.

Changes made to Part D in the Bipartisan Budget Act of 2018 (BBA) that passed in February dramatically raised the costs that brand manufacturers pay in the donut hole – from the prior level of 50 percent to the current law level of 70 percent. Beginning in 2019, beneficiaries will pay 25 percent of costs in the donut hole, while insurance plans will only be paying 5 percent.

This fundamental change to the program was made with very little Congressional input and threatens the program’s market-based structure. Congress should reinstate some of the plan liability in the coverage gap to ensure that Part D remains a successful program for seniors.

Out of Pocket Costs Skyrocketing for Seniors

The Affordable Care Act (ACA) temporarily slowed the growth rate of the catastrophic threshold from 2014 to 2019, reducing the amount of beneficiary out-of-pocket spending required to enter into catastrophic coverage.

If Congress does not act to stop this looming “Medicare cliff,” the coverage gap will widen by more than $1,200 from 2019 to 2020, significantly increasing out of pocket costs for beneficiaries.

Repealing Non-Interference

The non-interference provision in the Medicare Modernization Act (MMA) prohibits the Secretary of the U.S. Department of Health and Human Services (HHS) from interfering in private price negotiations between Part D plans and pharmaceutical manufacturers, or requiring a particular formulary (i.e., list of covered drugs) for the Part D program. This has fostered successful competition among Part D plans, which negotiate substantial discounts and rebates directly with manufacturers. Some have proposed repealing this provision, even though these private negotiations help create savings for both seniors and the government. The latest Medicare Trustees report again showed rebates for brand medications have increased each year of the program and are projected to continue increasing.vii

The Congressional Budget Office (CBO) has repeatedly said allowing the government to negotiate drug prices would have a negligible impact on federal spending unless HHS were to also limit access to prescription medications. viii Restricted access to affordable prescriptions means patients may not take the medicines they need in order to improve health outcomes and avoid costly emergency room visits and hospitalizations. Not only could these proposals impact health outcomes, but they could also lead to higher spending for other Medicare services.

Changes to LIS Copays

The Medicare Part D Extra Help program – also known as the low-income subsidy (LIS) – is designed to help beneficiaries with limited income better afford needed medicines. Policymakers have proposed increasing statutory LIS copayments for brand drugs in order to “induce greater generic utilization.”ix The Medicare Payment Advisory Commission (MedPAC) has also recommended similar changes.x

However, the evidence does not support a need for these proposed changes, which could harm access to needed medicines for some of the most vulnerable Part D beneficiaries. The latest MedPAC report found generic utilization in Medicare Part D in 2015 increased to 87 percent – up from 61 percent in 2007.xi MedPAC has also noted use of generic drugs is already high among all Part D enrollees, including the LIS population, and that generics may not always be medically appropriate substitutes for brand medicines in a therapeutic class. xii In many cases, beneficiaries may rely on a brand drugs with no generic alternatives, so increasing brand copays may impose a heavy financial burden on beneficiaries who have no therapeutic alternative. This could compromise access to care, reduce adherence, harm patient outcomes, and fall on those patients least able to afford such increased expenses.

i. See CBO Medicare baselines available at http://www.cbo.gov.

ii. 2018 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/ReportsTrustFunds/Downloads/TR2018.pdf

iii. CMS Press release, “Medicare Issues Projected Drug Premiums for 2018.” August 2, 2017. Available at: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2017-Press-releases-items/2017-08-02-3.html

iv. Kaestner et al. Effects of Prescription Drug Insurance on Hospitalization and Mortality: Evidence from Medicare Part D. NBER, Feb 2014. http://www.nber.org/papers/w19948

v. Dall et all. The Economic Impact of Medicare Part D on Congestive Heart Failure. AJMC, May 2013. http://www.ajmc.com/journals/supplement/2013/a460_13may_medicarepartd/a460_13may_medicarepartd

vi. Semilla et al. Reductions in Mortality Among Medicare Beneficiaries Following the Implementation of Medicare Part D. AJMC, July 2015. http://www.ajmc.com/journals/supplement/2015/a580_jul15_medicarepartd/a580_jul15_medicarepartd_web

vii. 2018 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/ReportsTrustFunds/Downloads/TR2018.pdf

viii. CBO Letter to the Hon. Bill Frist, January 23, 2004; CBO Letter to Congressman John Dingell, January 10, 2007; Remarks of CBO Director Dr. Douglas Elmendorf before the Senate Finance Committee, February 25, 2009.

ix. HHS, FY 2015 Budget in Brief, p. 63.

x. Medicare Payment Advisory Commission, “Report to the Congress: Medicare and the Health Care Delivery System,” March 2018, pp. 412. http://www.medpac.gov/docs/default-source/reports/mar18_medpac_ch14_sec.pdf?sfvrsn=0

xi. Trustees Report & Trust Funds. CMS.gov. June 2016. Available at: https://www.cms.gov/Research-Statistics-Data-andSystems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html

xii.Medicare Payment Advisory Commission, “Report to Congress: Medicare Payment Policy,” March 2016, p. 393. http://www.MedPAC.gov

Resources

Video
Five Things You Might Not Know About Medicare Part D
youtube://v/CGF0s-YLqJQ
Document
public://wwfh_medicare_part_d_issue_lab_final_web.pdf