Medicare Part D at Ten Years: The 2015 Marketplace and Key Trends, 2006-2015
Medicare Part D plans are an important source of prescription drug coverage for more than 39 million Medicare beneficiaries in 2015, the program’s tenth year. Participation in the program has grown more in recent years than in the first few years of the program, due to both increased enrollment of retirees in employer-only Part D plans and enrollment growth in Medicare as the baby boomers started reaching Medicare eligibility age in 2011.
Growth in average monthly Part D premiums has essentially flattened since 2010 after rising about 10 percent annually before then. Rising use of generic drugs, triggered by patent expirations for many popular brand-name drugs, has been a major factor in slowing premium growth—paralleling slower prescription drug spending growth in the broader health system.1 The result has been savings for both the government and Part D plan enrollees. Overall Part D spending rose more rapidly in 2014, driven especially by new hepatitis C drugs, and the Medicare trustees project higher drug spending growth in the future as the rate of patent expirations slows and as other new drugs enter the market at prices far beyond those for older brand-name drugs.2
Plan premiums vary substantially across regions and across different plans offered in each region. Beneficiaries in the region with the highest premiums pay monthly premiums that are twice as high, on average, as those in the region with the lowest premiums. And even within a region, among PDPs offering benefit packages having the same value, beneficiaries can pay as much as seven times as much in monthly premiums for one PDP compared to another. Despite these wide variations and large year-to-year increases for some of the program’s most popular plans, most enrollees remain in the same plan from one year to the next. In fact, seven of ten enrollees never changed plans across four annual enrollment periods from 2006 to 2010.3
At a time of heightened public concern about the cost of prescription drugs,4 enrollees have continued to face higher cost sharing for brand-name drugs. At the same time, cost sharing is lower for generic drugs, thus increasing incentives to select generics.5 A growing number of PDPs are switching from flat copayments to percentage-based coinsurance for brand-name drugs, and nearly all plans use coinsurance for specialty drugs. Furthermore, the share of PDP enrollees in plans that charge the maximum coinsurance for specialty drugs (33 percent) increased from 13 percent to 48 percent between 2006 and 2015. Many beneficiaries who use these expensive drugs will pay much lower coinsurance (5 percent) when they reach the catastrophic benefit phase than in the initial coverage period. But Part D has no absolute limit on out-of-pocket spending, and high initial cost sharing can deter enrollees from starting treatment with a new medication, meaning they never reach the out-of-pocket spending threshold that qualifies them for catastrophic coverage.
The Low-Income Subsidy (LIS) program continues to represent a significant source of savings for qualifying beneficiaries. But the extent of annual changes in the PDP offerings available without a premium to LIS beneficiaries remains a concern. CMS assigned nearly 400,000 LIS beneficiaries to new plans in 2015, thus protecting their full LIS benefits but potentially resulting in disruptions in coverage. Nevertheless, about 1.5 million LIS enrollees in PDPs or MA-PD plans are paying monthly premiums for Part D coverage when they could be in zero-premium drug plans, including one million LIS beneficiaries paying premiums of at least $10 per month in 2015.
A major trend in recent years, starting in 2011, is the use of tiered pharmacy networks that offer lower cost sharing in a select set of pharmacies and higher cost sharing elsewhere. As of 2015, 81 percent of PDP enrollees are in these plans. Some of these enrollees may find that no pharmacy offering preferred cost sharing is located near their homes. CMS is now monitoring pharmacy networks and encourages plans to make changes if access to pharmacies offering preferred cost sharing is inadequate.
The Part D program has undergone various modifications in recent years. Part D enrollees have benefited from lower out-of-pocket costs on both brand-name and generic drugs in the gap because of changes specified in the 2010 Affordable Care Act. Ongoing efforts by CMS to streamline the program have led to a smaller and better-defined set of plan options for Part D enrollees. CMS has also strengthened the plan performance rating system, though there is little evidence that ratings play a significant role in plan selection. Ratings are up in 2015, with nearly half of PDP enrollees and nearly two-thirds of MA-PD plans enrollees in plans with at least 4 stars (out of 5).
One key measure of success of the Part D program is that it has increased the availability of prescription drugs among Medicare beneficiaries at a lower out-of-pocket cost than in the absence of drug coverage. This increased access has occurred as Part D program spending has come in considerably below the government’s original expectations. The Part D marketplace remains dynamic, however, with mergers continuing to reshape the market and changes affecting plan availability for Low-Income Subsidy beneficiaries.