To Switch or Not to Switch: Are Medicare Beneficiaries Switching Drug Plans To Save Money?
Enrollees whose current plan is scheduled to exit the market at the end of the year may be transferred to a new plan if the same sponsor has other plans in the program. Otherwise, they are required to select new plans in order to remain in the program. In addition, some plan enrollees who receive the program’s Low-Income Subsidy (LIS) are transferred to a new plan if their current plans no longer qualify as zero-premium plans for LIS beneficiaries.
Jack Hoadley, Laura Summer, Elizabeth Hargrave, and Juliette Cubanski, “Medicare Part D Prescription Drug Plans: The Marketplace in 2013 and Key Trends, 2006-2013,” Kaiser Family Foundation, forthcoming.
Yaniv Hanoch, Thomas Rice, Janet Cummings, and Stacey Wood, How Much Choice is too Much? The Case of the Medicare Prescription Drug Benefit,” HSR 44(4):1157-1168, August 2009; Jeffrey R. Kling, Sendhil Mullainathan, et al., “Comparison Friction: Experimental Evidence from Medicare Drug Plans,” Quarterly Journal of Economics 127(1): 199-235, January 2012.; Jason T. Abaluck and Jonathan Gruber, “Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program,” American Economic Review 101(4): 1180-1210, June 2011; Florian Heiss, Adam Leive, Daniel McFadden, and Joachim Winter, “Plan Selection in Medicare Part D: Evidence from Administrative Data” (No. w18166), National Bureau of Economic Research, 2012.
Chou Zhou and Yuting Zhang, “The Vast Majority of Medicare Part D Beneficiaries Still Don’t Choose the Cheapest Plans That Meet Their Medication Needs,” Heath Affairs 31(10): 2259-2265, October 2012; Jason Abaluck and Jonathan Gruber, “Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance,” National Bureau of Economic Research Working Paper 19163, June 2013.
Jennifer M. Polinski, Aman Bhandari, Uzaib Y. Saya, et al., “Medicare Beneficiaries’ Knowledge of and Choices Regarding Part D, 2005 to the Present,” Journal of the American Geriatrics Society, 58(5): 950–966, May 2010; Hanoch et al. (2009). One other study agrees that decision costs are greater with more options, but finds that benefits also increase. M. Kate Bundorf and Helena Szrek, “Choice Set Size and Decision Making: The Case of Medicare Part D Prescription Drug Plans,” Medical Decision Making, 30(5): 582-593, September/October 2010.
Kaiser Family Foundation, “Key Findings from the Kaiser Family Foundation 2012 National Survey of Seniors: Seniors’ Knowledge and Experience with Medicare’s Open Enrollment Period and Choosing a Plan,” October 2012, available at http://www.kff.org/medicare/issue-brief/seniors-knowledge-and-experience-with-medicares-open/.
Abaluck and Gruber (2013). Another study suggested that Part D enrollees dramatically improved their plan choices in the program’s second year. But because this study uses data from only a single plan manager with a limited range of plan offerings, it is not generalizable to the broader Part D population. Jonathan D. Ketcham, Claudio Lucarelli, et al., “Sinking, Swimming, or Learning to Swim in Medicare Part D,” American Economic Review 102(6): 2639-2673, 2012.
Some LIS beneficiaries whose plans will no longer qualify as benchmark plans in the new year, are randomly reassigned to benchmark plans during the annual enrollment period. Because the plan choice dynamics are different for LIS beneficiaries, they will be the subject of a separate analysis.
Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy, March 2013; Shinobu Suzuki, “Medicare Part D’s Competitive Design: Do Part D Enrollees Switch Plans?” Academy Health, June 2013.
See Appendix 1 for a discussion of issues with the race variable in the Medicare data used for this analysis.
The 13 percent switching rate exceeds the estimate reported in a CMS press release in January 2008 stating that 6 percent of all non-LIS beneficiaries enrolled in Part D who made a change between 2007 and 2008 (more recent estimates have not been released by CMS). CMS press release, January 31, 2008. It is unclear what methodology was used by CMS for their 6 percent estimate. Our estimate is comparable to numbers reported recently by the MedPAC (Report to the Congress, March 2013; Shinobu Suzuki, “Medicare Part D’s Competitive Design: Do Part D Enrollees Switch Plans?” June 2013) and Andrew Stocking (Congressional Budget Office, “Competition and Bids in Medicare’s Prescription Drug Program,” Academy Health, June 2013). In the March 2013 report, MedPAC reported an overall Part D switching rate of 13.6 percent for 2009-10; separately by plan type, the reported switching rate for 2009-10 was 13 percent for PDPs and 15 percent for MA-PD plans.
Marsha Gold et al., “Medicare Advantage 2010 Data Spotlight: Plan Availability and Premiums,” Kaiser Family Foundation, November 2009; available at https://www.kff.org/medicare/issue-brief/medicare-advantage-2010-data-spotlight-plan-availability/.
Despite taking no action to switch PDPs, some ended up in different PDPs because of market changes. Several large mergers and acquisitions occurred during these years, and most plan sponsors made at least some adjustments to their array of plan offerings. The resulting transfer of enrollees out of existing plans (excluded from the switching definition used in this analysis) meant that some non-switchers still experienced a change in plans.
Jack Hoadley, Jennifer Thompson, Elizabeth Hargrave, Juliette Cubanski and Tricia Neuman, “Medicare Part D 2009 Data Spotlight: Premiums,” Kaiser Family Foundation, November 2008, available at http://www.kff.org/medicare/report/medicare-part-d-2009-data-spotlight-premiums/.
Heiss et al. (2012); Abaluck and Gruber (2013).
Marisa Elena Domino, Sally C. Stearns, Edward C. Norton, and Wei-Shi Yeh, “Why Using Current Medications to Select a Medicare Part D Plan May Lead to Higher Out-of-Pocket Payments, Medical Care Research and Review 65(1): 114-126, February 2008.
Authors’ analysis of data from the Centers for Medicare & Medicaid Services 2011 Medicare Current Beneficiary Survey Access to Care file; available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/MCBS/index.html.
Hoadley et al. (2008).
This pattern—that enrollees in any PDPs that retained an existing deductible were more likely to switch plans than those in PDPs with no deductible—also occurred in earlier annual enrollment periods.
Abaluck and Gruber (2013); Heiss et al. (2012).
This market reappeared somewhat in 2011 when CMS allowed sponsors to offer a third PDP only if it included brand gap coverage. In 2013, 16 percent of PDPs offer gap coverage for some brand drugs (but less extensive than the coverage offered in 2006 and 2007). Premiums for this coverage are especially high (nearly triple that of PDPs with no gap coverage), and only 3 percent of PDP enrollees have selected these PDPs. Jack Hoadley, Laura Summer, Elizabeth Hargrave, and Juliette Cubanski, “Medicare Part D Prescription Drug Plans: The Marketplace in 2013 and Key Trends, 2006-2013,” Kaiser Family Foundation, forthcoming; Jack Hoadley, Juliette Cubanski, et al., “Medicare Part D: A First Look at Part D Plan Offerings in 2013,” November 2012, available at https://www.kff.org/medicare/report/medicare-part-d-first-look-at-2013-plan-offerings/.
Adam Atherly, Curtis S. Florence, and Kenneth E. Thorpe, ‘‘Health Plan Switching among Members of the Federal Employees Health Benefits Program,’’ Inquiry 42(3): 255–65, 2005.
Peter J. Cunningham, “Few Americans Switch Employer Health Plans for Better Quality, Lower Costs,” NIHCR Research Brief No. 12, Center for Studying Health System Change, January 2013. Many employers do not offer a choice of health plans; those that do offer only a limited array of choices.
These rates also include some involuntary switchers. “Commonwealth Care Quarterly Update,” September 2011.
In the 1996 survey, the switching rate is 11 percent if switches to fee-for-service Medicare are included. Physician Payment Review Commission, “Access to Care in Medicare Managed Care: Results from a 1996 Survey of Enrollees and Disenrollees,” Selected External Research Series, Number 7, November 1996, page 36; Marsha Gold and Natalie Justh, “How Salient is Choice to Medicare Beneficiaries,” Monitoring Medicare+Choice: Fast Facts, Number 5, Mathematica Policy Research, January 2001.
Hanoch et al. (2009); Kling et al. (2012); Abaluck and Gruber (2013).
Elizabeth Hargrave, Bhumika Piya, Jack Hoadley, Laura Summer, and Jennifer Thompson, “Experiences Obtaining Drugs under Part D: Focus Groups with Beneficiaries, Physicians, and Pharmacists,” Contractor report submitted to the Medicare Payment Advisory Commission, March 2008.
Kaiser Family Foundation, “Chartpack: Seniors and the Medicare Prescription Drug Benefit,” November 2006, available at https://www.kff.org/medicare/poll-finding/chartpack-seniors-and-the-medicare-prescription-drug/; Kaiser Family Foundation, “Key Findings from the Kaiser Family Foundation 2012 National Survey of Seniors: Seniors’ Knowledge and Experience with Medicare’s Open Enrollment Period and Choosing a Plan,” October 2012; Marc Berk, Karen Cheung, Elizabeth Eaton, et al., “How Beneficiaries Learned about Medicare Drug Plans and Made Plan Choices,” Contractor report submitted to the Medicare Payment Advisory Commission, Aug. 2007; Florian Heiss, Daniel McFadden, and Joachim Winter, “Who Failed to Enroll in Medicare Part D, and Why? Early Results,” Health Affairs 25(5) w344-w354, 2006.
The broader theory is stated in Sheena Iyengar and Mark Lepper, “When Choice is Demotivating: Can One Desire Too Much of a Good Thing?” Journal of Personality and Social Psychology 79(6):995-1006, December 2000. Applications to Part D are available in Hanoch et al. (2009) and Bundorf and Szrek (2008).
Kling et al. (2012); Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness, New Haven: Yale University Press, 2008.
Kaiser Family Foundation, “Chartpack: Seniors’ Early Experiences with the Medicare Prescription Drug Benefit,” April 2006, available at https://www.kff.org/medicare/poll-finding/chartpack-seniors-early-experiences-with-the-medicare/; Berk et al. (2007); Kling et al. (2012).
Jack Hoadley, “Medicare Part D: Simplifying the Program and Improving the Value of Information for Beneficiaries,” The Commonwealth Fund, May 2008.
Medicare Payment Advisory Commission (MedPAC), Report to the Congress: Medicare Payment Policy, March 2013.
Effective in 2011, this policy was revised to allow Medicare Advantage enrollees, but not PDP enrollees, to change their plan elections during the first 45 days of a year. Under the revised policy, they may only make a change back to traditional Medicare and a PDP and not to another Medicare Advantage plan.
These are mostly situations where a plan sponsor has reorganized plan offerings as a result of acquiring plans from another sponsor, dropping some of its plans, or adding new plans.
These situations have occurred relatively rarely in the Part D program to date.
Daniel R. Waldo, “Accuracy and Bias of Race/Ethnicity Codes in the Medicare Enrollment Database,” Health Care Financing Review 26(2): 61-72, Winter 2004/2005.
Celia Eicheldinger and Arthur Bonito, “More Accurate Racial and Ethnic Codes for Medicare Administrative Data,” Health Care Financing Review 29(3): 27-42, Spring 2008.