When Congress created the Medicare drug benefit in 2003, it also sought to generate more private plan options for senior and disabled beneficiaries in Medicare, with increased payments to attract sponsors and to support added benefits attractive to enrollees, especially in rural and other areas that previously had few such plans. The effects of these changes and additional payments are particularly visible this year, with a total of 1,314 Medicare Advantage plans and 1,429 stand-alone prescription drug plans being offered. Beneficiaries in most states have a choice of at least 40 stand-alone drug plans, and, in some areas, also have a choice of dozens of Medicare Advantage options.

A new analysis by Marsha Gold of Mathematica Policy Research, prepared for the Kaiser Family Foundation, provides a comprehensive look at premiums, deductibles and selected cost-sharing features of Medicare Advantage prescription drug plans in 2006, including Medicare HMOs, new regional (and traditional local) PPOs, and private fee-for-service plans, and compares them to stand-alone Medicare drug plans. The new analysis, Premiums and Cost Sharing Features Medicare's New Prescription Drug Program, 2006, finds that Medicare Advantage plans on average charge less for their drug coverage ($18 per month) than stand-alone drug plans ($37 per month).

The growth in private plan options reflects a policy choice to pay private plans more to encourage more options for Medicare beneficiaries. Because Medicare now pays more for beneficiaries who enroll in private plans than it does for beneficiaries who enroll in traditional, government-run Medicare, increases in private-plan enrollment cost the government money. This reflects a significant departure from previous policy that sought to promote managed care without increasing total Medicare outlays or even to generate some savings. Currently about one in seven Medicare beneficiaries is enrolled in a Medicare Advantage plan, but the Medicare trustees project that enrollment will more than double over the next decade under current payment policies.

 Issue Brief (.pdf)