Asclepios
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What Are We Paying For?
August 3, 2006 • Volume 6, Issue 31
That’s the question many people with Medicare are asking when they hit the doughnut hole, the gap in coverage that is built into the Part D prescription drug benefit. Once people fall into the coverage gap, they continue to pay premiums to a Part D plan that pays nothing toward their drug costs. Altogether, they will have to spend $3,600 out of pocket on their drugs before coverage resumes.
Taxpayers should be asking themselves the same question about the $1 trillion Part D program.
One answer can be found in the quarterly earnings statement issued by Humana this week, which touts an 8 percent jump in corporate earnings and a near tripling of revenues from Medicare. Humana boasts some 3.5 million enrollees in its Part D plans, making it the second largest Medicare drug coverage provider.
Without explicitly saying so, Humana explains how the doughnut hole figures into its profit calculations, which rely on the difference in premium revenue over what it pays out for medicines. The company experienced a surge in Part D enrollment in the run-up to the May 15 deadline but warns investors not to expect a substantial increase in earnings from these new members. That is because most of these members will remain below the initial coverage limit for the remainder of the year, which means Humana will have to use its premium income to cover their medicines, the company explains. Overall, Humana says it expects its Part D profit margins to improve over the course of the year, as more plan enrollees enter the doughnut hole or pass into “catastrophic coverage,” when Medicare pays for most of the cost of drugs.
Humana is one of the only companies to offer a Part D plan that covers both brand-name and generic drugs in the doughnut hole. It charges monthly premiums of around $60 for these plans. According to the Centers for Medicare & Medicaid Services (CMS), there are about 200,000 people with Medicare in these “Humana Complete” plans—about 5 percent of the total Humana enrollment in stand-alone Part D plans. It is a tiny fraction of the 5 million people with Medicare estimated to have drug expenses high enough to put them in the doughnut hole this year but who do not qualify for coverage through the gap from the Extra Help program for the poorest people with Medicare.
It’s not surprising that a recent Health Affairs survey of older Americans found that only 30 percent thought that Part D was well designed, and 77 percent agreed that “it would have been better to provide drug insurance automatically as part of Medicare.”
So what are we paying for? To be sure, insurance company profits. Recent issues of Asclepios have discussed reports that pharmaceutical manufacturers are enjoying a windfall of billions of dollars since Part D started. Tell Congress we need a drug benefit directly through Medicare.
Medical Record
“Of the 6.9 million beneficiaries who are projected to have out-of-pocket spending in the doughnut hole in 2006:
(“Estimates of Medicare Beneficiaries’ Out-of Pocket Drug Spending in 2006: Modeling the Impact of the MMA,” Kaiser Family Foundation and Actuarial Research Corporation, November 2004).
“The MER [medical expense ratio (medical expenses as a percent of premium revenue)] for stand-alone PDP [prescription drug plan] offerings over each of the interim reporting periods is impacted by the recognition of benefit costs as incurred under each plan's provisions. Different PDP designs offered by the company result in varying levels of coverage through each of the different layers of beneficiary cost responsibility. The company now anticipates an MER for the full year for its stand-alone PDPs in the range of 86 percent to 89 percent, with MER improvement expected in each quarter sequentially throughout the remainder of the year” (“Humana Inc. Reports Second Quarter 2006 Financial Results Including Earnings Per Share of $0.53,” Humana Inc. press release, July 31, 2006).
“Asked the question, ‘Does your experience with Medicare Part D leave you more satisfied or less satisfied with the political process in Washington that produced this program?,’ 74.7 percent of the 2,023 responding said that they were less satisfied. The responses indicate substantial dissatisfaction with the design and administration of the program” (“Who Failed to Enroll in Medicare Part D, and Why? Early Results,” Health Affairs, August 1, 2006).
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Asclepios — named for the Greek and Roman god of medicine who, acclaimed for his healing abilities, was at one point the most worshipped god in Greece—is a weekly e-newsletter designed to keep you up-to-date with Medicare program and policy issues, and advance advocacy strategies to address them. Please help build awareness of key Medicare consumer issues by forwarding this action alert to your friends and encouraging them to subscribe today.
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