MEDICARE PART D: PAST AND PRESENT

Juliette Cubanski, Ph.D.Associate Director, Program on Medicare Policy

The Henry J. Kaiser Family Foundation

MAPRx Congressional BriefingWashington, D.C.October 10, 2012

• Part A – Hospital Insurance Program– Inpatient hospital, skilled nursing facility, home health, and hospice

care

• Part B – Supplementary Medical Insurance– Physician visits, outpatient hospital, preventive services, home

health

• Part C – Medicare Advantage plans– An alternative to Original Medicare; beneficiaries can enroll in a

private plan to receive all Medicare-covered benefits and (often) extra benefits

Medicare Part A, Part B, and Part CExhibit 1

History of Medicare and Prescription Drugs, 1965-2006

1965 1970 1975 1980 1985 1990 1995 2000 2005

1969: HEW Task Force on Prescription Drugs

2003: Medicare Prescription Drug, Improvement, and Modernization Act (MMA) signed into law by President Bush

1989: MCCA repealed

1988: Passage of Medicare Catastrophic Coverage Act (MCCA) - includes a drug benefit

1965: Medicare enacted — no prescription drug coverage

2002: Bill to create a Medicare drug benefit (H.R. 4954) passes the House, 221-208; Several competing proposals for a Medicare drug benefit fail to pass the Senate

1993: Clinton proposed a Medicare Drug benefit as part of the Health Security Act

2006: Medicare prescription drug coverage begins

2000: Clinton releases plan to provide drug coverage under a new Medicare Part D

2000: Bill to create a Medicare drug benefit (H.R. 4680) passes the House, 217-214

Exhibit 2

The Need for a Medicare Drug Benefit

• Because of their age and health conditions, Medicare beneficiaries tend to be sicker and use more health care services than others

• Prior to 2006, Medicare beneficiaries did not have access to a government-subsidized drug benefit through Medicare

• Existing sources of drug coverage included:– Employer-sponsored retiree health benefits– Individually-purchased Medigap supplemental policies– State Medicaid programs for low-income Medicare beneficiaries– Medicare managed care plans– Veterans Administration, state pharmacy assistance programs, pharmaceutical

company assistance programs

• One-third had no drug coverage in 2004– Those without coverage used fewer drugs but spent more out-of-pocket than those

with coverage– Cost-related non-adherence (skipping/splitting doses, not filling prescriptions) was

more common among those without coverage

Exhibit 3

Medicare Part D – Prescription Drug Benefit

• Medicare Part D, enacted as part of the Medicare Modernization Act of 2003, took effect in 2006– Part D is provided exclusively through private plans; benefits are not offered

directly through the traditional fee-for-service program– Enrollment in a Part D prescription drug plan is voluntary

• Beneficiaries may enroll in one of two types of private plans to get the Part D benefit – Stand-alone prescription drug plans (PDPs) to supplement traditional

Medicare – Medicare Advantage prescription drug plans

• Additional subsidies available for people with low incomes and modest assets to help pay for premiums and cost-sharing– Below 150% poverty ($16,755/individual, $22,695/couple in 2012)– Assets less than $11,570/individual, $23,120/couple in 2012

Exhibit 4

The Role of CMS in Regulating Part D

• CMS exercises a great deal of authority over Part D and plays a critical role in regulating and overseeing the program and market operations, including:– Reviewing and approving plan bids annually– Establishing the rules for coverage, subject to law– Regulating plan marketing materials– Monitoring plan behavior and sanctioning plans for violations of

rules and regulations– Implementing legislative changes (e.g., closing the “doughnut hole”– Reacting to marketplace, legislative, and political conditions with

new rules, guidance, and regulations– Providing consumer information (e.g., the Medicare Plan Finder)

Exhibit 5

Prescription Drug Coverage Among Medicare Beneficiaries in 2012

Part D non-LIS enrollees21.7 million

Part D LIS enrollees11.0 million

Employer subsidy4.5 million

All other13.5 million

Exhibit 6

NOTE: LIS is low-income subsidy. Total Part D and Medicare enrollment based on 2012 intermediate estimates. SOURCE: Kaiser Family Foundation Analysis of data from the 2012 Medicare Trustees report.

Total Medicare Enrollment in 2012 = 50.7 millionTotal Part D Enrollment (excluding employer subsidy) = 32.7 million

26%

43%

22%9%

Medicare Part D Enrollment, 2006-2012

2006 2007 2008 2009 2010 2011 2012

16.6 17.1 17.4 17.5 17.8 18.7 19.5

6.6 7.5 8.4 9.5 10.1 10.8 11.4

PDP enrollees MA-PD enrollees

23.2 24.6 25.827.927.0

29.5 30.9In millions:

Exhibit 7

NOTE: LIS is low-income subsidy. Total Part D and Medicare enrollment based on 2012 intermediate estimates. SOURCE: Kaiser Family Foundation analysis of data from the CMS Medicare Advantage, Cost, PACE, Demo, and Prescription Drug Plan Contract Report - Monthly Summary Report, 2006-2012.

31

31

32

32

29

29 30

31 31

30

31

23

23

34

30

34

31

31

30

32

35

31

33

28

NOTE: Excludes Medicare Advantage Drug Plans. SOURCE: Kaiser Family Foundation analysis of Centers for Medicare & Medicaid Services (CMS) PDP landscape source file, 2013.

23-29 drug plans (10 states and DC)

30-31 drug plans (18 states)32 drug plans (14 states)33-38 drug plans (8 states)

30CT, MA, RI, VT

29DE, DC, MD

29 NJ

28ME, NH

Number of Medicare Part D Stand-Alone Prescription Drug Plans, by Region, 2013

32IA, MN, MT, NE,

ND, SD, WY32ID, UT

30 OR, WA

38PA, WV

32IN, KY

33AL, TN

National Average: 31 drug plans

Exhibit 8

Number of Medicare Part D Stand-Alone PDPs, by Benchmark Status, 2006-2013

2006 2007 2008 2009 2010 2011 2012 2013

409 640 495

308 307 332 327 332

1,020

1,2351,329

1,381 1,269

777 714 713

LIS benchmark plans Non-benchmark plans

NOTE: Excludes Part D plans in the territories. SOURCE: Georgetown/NORC analysis of CMS PDP landscape source files, 2006-2012, for the Kaiser Family Foundation.

EXHIBIT 9

1,429

1,875 1,824

1,5761,689

1,109 1,041

Exhibit 9

1,045

3331

34 34

10

2525

0

27

3

23

34

4

34

30

34

2006 2007 2008 2009 2010 2011 2012 2013

Number of Low-Income Subsidy “Benchmark” Plans Offered by Two Major Part D Sponsors, 2006-2013

NOTES: Counts include combined offerings of merged organizations. SOURCE: Georgetown/NORC analysis of CMS PDP landscape files, 2006-2012, for the Kaiser Family Foundation.

UnitedHealth Humana

Number of PDP regions (out of 34):

Exhibit 10

~ 2 million LIS enrollees in 2011 < 1 million LIS enrollees in 2011

Standard Medicare Prescription Drug Benefit, 2013

$325 Deductible

Initial Coverage Limit = $2,970 in Total Drug Costs

NOTE: *Amount corresponds to the estimated catastrophic coverage limit for non-low-income subsidy enrollees ($6,734 for LIS enrollees), which corresponds to True Out-of-Pocket (TrOOP) spending of $4,750 (the amount used to determine when an enrollee reaches the catastrophic coverage threshold.SOURCE: Kaiser Family Foundation illustration of standard Medicare drug benefit for 2013 (standard benefit parameter update from Centers for Medicare & Medicaid Services, 2012). Amounts rounded to nearest dollar.

Plan pays 75%

Plan pays 15%;Medicare pays 80%

Enrolleepays 5%

Enrollee pays 25%

CatastrophicCoverage Limit =

$6,955* in Estimated Total Drug Costs

Brand-name drugs Enrollee pays 47.5%;

Plan pays 2.5%50% manufacturer discount

Generic drugsEnrollee pays 79%;

Plan pays 21%

Exhibit 11

INITIAL COVERAGE

PERIOD

COVERAGE GAP

CATASTROPHIC COVERAGE

… But most plans do not offer the “standard” benefit, and coverage varies across most dimensions, including:

Monthly premiums

Deductibles

The “doughnut hole”

Covered drugs and utilization management restrictions

Cost sharing for covered drugs

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

100%

50% 50% 47.5% 47.5% 45% 45% 40% 35% 30% 25%

50% 50% 50% 50% 50% 50% 50% 50% 50% 50%

2.5% 2.5% 5% 5% 10% 15% 20% 25%

Paid by Enrollee Paid by Plan Manufacturer Discount

Cost Sharing for Brand-Name Drugs in the Medicare Part D Coverage Gap, 2010-2020

minus $250

rebate

SOURCE: Kaiser Family Foundation analysis of the standard Medicare drug benefit under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010.

Exhibit 12

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

100%93%

86%79%

72%65%

58%51%

44%37%

25%

7%14%

21.0%28.0%

35%42%

49%56%

63%75%

Paid by Enrollee Paid by Plan

Cost Sharing for Generic Drugs in the Medicare Part D Coverage Gap, 2010-2020

SOURCE: Kaiser Family Foundation analysis of the standard Medicare drug benefit under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010.

Exhibit 13

$43.39

$40.72

$39.73

$40.25

$35.22

$32.71 $29.25

$42.46$41.01

$41.43

$39.40

$38.07

$35.99

$37.98

$40.71

$41.44

$39.40

$41.01

$39.90

$42.71

$42.52

$37.13

$43.47

NOTE: Excludes Medicare Advantage Drug Plans. SOURCE: Kaiser Family Foundation analysis of Centers for Medicare & Medicaid Services (CMS) PDP landscape source file, 2013.

$29 to <$38 (8 regions)

$38 to <$40 (7 regions)$40 to <$42 (11 regions)$42 to <$46 (8 regions)

$37.63CT, MA, RI, VT

$43.54DE, DC, MD

$41.49 NJ

$37.14ME, NH

Weighted Average Premium for Medicare Part D Stand-Alone PDPs, by Region, 2013

$39.00IA, MN, MT, NE,

ND, SD, WY$45.90

ID, UT

$40.53 OR, WA

$40.59PA, WV

$43.68IN, KY

$41.08AL, TN

National Weighted Average: $40.18

Exhibit 14

$38.01

Weighted Average Monthly Premiums for Medicare Part D Stand-Alone PDPs, 2006-2013

Exhibit 15

NOTES: Average premiums are weighted by enrollment in each year. Excludes plans in the territories.SOURCE: Georgetown/NORC analysis of data from CMS for the Kaiser Family Foundation.

2006 2007 2008 2009 2010 2011 2012 2013$0

$5

$10

$15

$20

$25

$30

$35

$40

$25.93$27.39

$29.89

$35.09$37.25 $38.29 $37.57

$40.18Chart Title

2006-2013: 55% increase

2012-2013: 7% increase

Premiums in Medicare Part D Stand-Alone PDPs with Highest 2012 Enrollment, 2006-2013

PDP Rank in 2012

2012 Enrollment (of 17.7 million)

Weighted Average Monthly Premium1 % Change

Number (in millions)

% of Total 2006 2012 2013 2012-

20132006-2013

AARP MedicareRx Preferred 4,011,357 22.6% $26.31 $39.85 $40.42 +1% +54%

CCRx Basic 1,768,148 10.0% $30.94 $30.75 $33.33 +8% +8%

Humana Walmart-Preferred 1,511,850 8.5% -- $15.10 $18.50 +23% --

Humana PDP Enhanced 1,374,479 7.8% $14.73 $39.58 $43.77 +11% +197%

Silverscript Basic 1,322,856 7.5% $28.32 $30.24 $32.55 +8% +15%

NOTES: 1Average premiums are weighted by enrollment in each region for each year. SOURCE: Georgetown/NORC analysis of CMS 2006-2012 PDP Landscape Source Files for the Kaiser Family Foundation.

Exhibit 16

Costs for Top Brands in Stand-Alone PDPs with Highest 2012 Enrollment in DC Zip Code (20037)

Advair Diskus

Celebrex

Crestor

Cymbalta

Lantus

Lyrica

Namenda

Nexium

Spiriva

Zetia

$43

$43

$43

$43

$43

$43

$43

$43

$43

$43

$60

$74

$57

$47

$127

$71

$58

$49

$186

$139

$89

$346

$36

$69

$127

$114

$86

$227

$275

$139

Humana Walmart Preferred CCRx Basic AARP MedicareRx Preferred

SOURCE: Kaiser Family Foundation analysis of data from Medicare Plan Finder.

Exhibit 17

(not covered)

(not covered)

Median Cost Sharing for Medicare Part D Plans, 2006 and 2012

NOTES: Part D cost-sharing amounts are medians. Analysis excludes generic/brand plans, plans with coinsurance for regular tiers, and plans with flat copayments for specialty tiers.SOURCE: Georgetown/NORC analysis of data from CMS for MedPAC and the Kaiser Family Foundation.

Exhibit 18

PDP MA-PD PDP MA-PD PDP MA-PD

$5 $5

$28 $27

$55 $55

$5 $6

$41 $42

$92$84

2006 2012

PDP MA-PD

25% 25%29%

33%

Generics Preferred brands Non-preferred brands Specialty

Medicare Part D Spending and Financing

Hospital Inpatient Services

Skilled Nursing Facilities

Medicare Advan-tage (Part C)Home Health

Other Services

Physician Payments

Hospital Outpa-tient Services

Outpatient Prescription Drugs (Part D)

Total Benefit Payments, 2011 = $551 billionNOTE: Numbers do not sum to 100% due to rounding. Total does not include administrative expenses and is net of recoveries. SOURCE: CBO Medicare Baseline, March 2011.

12%

12%

4%

5%

26%12%

5%

Part A Part A and B Part B Part D

23%

Part D is funded by premiums, general revenues, and state payments

Plans are paid a fixed amount for each enrollee

“Reinsurance” payments from the government protect plans from unexpectedly high costs

Exhibit 19

Exhibit 20

Comparison of Projected and Actual Medicare Part D Benefit Spending, 2006-2013

2006 2007 2008 2009 2010 2011 2012 2013

$53$64

$72$79

$86$95

$105$116

$39$48 $49 $52

$56 $60 $61 $68

NOTE: CBO projections are adjusted from fiscal years to calendar years. Medicare Trustees actual spending amounts are adjusted for reconciliation payments. Amounts exclude offsetting receipts from beneficiary premium payments and state “clawback” payments for dual eligibles. All totals include administrative costs.SOURCE: J. Hoadley analysis of data from Congressional Budget Office (July 2004) and 2012 Medicare Trustees Report for the Kaiser Family Foundation.

2003 CBO projections

2012 Medicare Trustees actual estimates (2006-2011) and projections (2012-2013)

$13.8 $16.3 $22.8 $26.6 $30.6 $35.1 $43.9 $48.2

74% 75% 68% 66% 65% 63% 58% 58%

Difference,estimate less actual

$ %

CBO (2003) and Medicare Trustees (2012) (Billions of Dollars)

Slower overall drug spending growth compared to projections

Slow pipeline for new drugs since the start of Part D

More use of generic drugs since the start of Part D• Generic penetration in Part D: 61% in 2007; 75% in 2010

Slow growth in retail drug prices• Lower prices due to generic substitution balanced out higher prices for

brand drugs

Larger manufacturer rebates and other discounts• Trustees say rebates have exceeded expectations

Lower-than-expected Part D enrollment• ~90% projected, ~70% actual

Factors Affecting Medicare Part D Drug Spending Trends

Exhibit 21

Medicare Part D: Adding It Up

Coverage

Out-of-pocket drug spending, use, and access

Program spending

Choice

90% have drug coverage; 65% through Part D plans11 million receiving low-income subsidies

Out-of-pocket drug spending is generally lowerDrug use is higher and cost-related skipping is generally lower

~10% lack drug coverage A few million low-income eligible but without subsidies

Some enrollees may pay more – e.g., dual eligibles and those in the coverage gap

Lower than initially projected

Due partly to lower-than-projected Part D and low-income subsidy enrollment

Lots of plans means more options for beneficiaries

Lots of plans could lead to confusion and difficulty choosing the best plan

Drug prices Lower for those who had no drug coverage prior to Part D

Higher for dual eligibles and drugs with no competitors

Exhibit 22