Medicare Part D in Its Ninth Year: The 2014 Marketplace and Key Trends, 2006-2014
Medicare Part D plans are an important source of prescription drug coverage for more than 37 million Medicare beneficiaries in 2014, the program’s ninth 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. However, both CBO and Medicare’s Office of the Actuary are projecting higher growth in drug spending in the future as the rate of patent expirations slows and as new drugs, including new treatments for hepatitis C, 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 five 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
Enrollees have continued to face higher cost sharing for brand-name drugs, although many plans in recent years have lowered cost sharing for generic drugs, thus increasing incentives to select generics.4 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. Many beneficiaries who use these expensive drugs will pay much lower coinsurance when they reach the catastrophic benefit phase than in the initial coverage period. But 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 continuing volatility of the PDP offerings available without a premium to LIS beneficiaries remains a concern. CMS assigned nearly 400,000 LIS beneficiaries to new plans in 2014, thus protecting their full LIS benefits but potentially resulting in disruptions in coverage. Nevertheless, 1.3 million LIS enrollees in PDPs and another 300,000 in MA-PD plans are paying monthly premiums for Part D coverage when they could be in zero-premium drug plans, including nearly one million LIS beneficiaries paying premiums of at least $10 per month in 2014.
A major new trend, starting in 2011, has been the introduction of preferred pharmacy networks—with lower cost sharing in a select set of pharmacies and higher cost sharing elsewhere. As of 2014, three-fourths of PDP enrollees are in these plans. But some beneficiaries in these plans may find that no preferred pharmacy is located near their homes. CMS is reviewing options for ensuring that beneficiaries have adequate access to the preferred pharmacies. Several PDPs that feature preferred pharmacy networks entered the market with low premiums, but premiums for those plans rose rapidly in subsequent years.
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. Fewer than one in ten PDP enrollees are in plans with at least 4 stars (out of 5), and nearly one-fourth are in PDPs with fewer than 3 stars—a level considered low performance.
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.
Jack Hoadley and Laura Summer are with the Health Policy Institute, Georgetown University; Elizabeth Hargrave is with NORC at the University of Chicago;
Juliette Cubanski and Tricia Neuman are with the Kaiser Family Foundation.