Asclepios
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Who's Complaining?
August 17, 2006 • Volume 6, Issue 33Occasionally, a satisfied Part D customer will write to complain that Asclepios is always running down the new drug benefit. Sharpen your pencils, Part D fans, because there is troubling news buried in this week’s announcement that the average drug plan premium will be lower next year. Since 2006 is an important election year, however, the Bush administration is shielding people with Medicare from the full impact of that bad news and perpetuating the illusion that Part D is working.
It seems counterintuitive, but a decline in the national average Part D premium can mean an increase in the monthly premium for individuals. That is because people who choose higher priced plans—because they cover all their drugs without restrictions, for example—pay any amount over the national average. And plans with below average premiums use the difference to further reduce the premiums they charge members; that is how people in Iowa can buy drug coverage for $1.87 this year. Since Medicare payments to the plans are based on the national average premium, premiums for both high- and low-cost plans go up when the average premium goes down: there is a larger surcharge for the more expensive plans and less money to buy down the premium on the lower cost plans.
For example, if the average monthly premium, including the 75 percent paid by Medicare and the 25 percent paid by individuals, is $100, then someone enrolled in a plan that costs $120 per month pays $25 plus the extra $20. Someone in an $80 plan pays $5—$25 minus $20. If these particular plans have the same total premium in 2007, but the average goes down to $80, then members of both the high- and low-cost plans will pay more. The basic Part D enrollee premium is now $20, but the enrollee in the high cost plan now gets a $40 surcharge, bringing his or her monthly bill to $60. The low-cost plan is now right at the national average. There is no money to buy down the customer's premium, which jumps from $5 to $20.
For 2007, however, the Bush administration is protecting people with Medicare from this premium volatility by ignoring how the law says the national average should be calculated. The low-cost plans should count for more in the calculation, because they have more members, but the administration is giving the high-priced plans with tiny enrollment numbers near equal weight. This move by the administration is good for people with Medicare since it keeps premiums from rising too fast. Taxpayers, however, will pay more to subsidize the Part D premiums of people with Medicare than if the government had followed the letter of the law.
But this is a temporary reprieve. The administration makes clear that it plans to phase out this accounting maneuver, although it does not say when. At that point, the premium pricing dynamic that is built into the Medicare law will take over, and that could be bad news for people with serious illnesses.
If Part D plans were interchangeable commodities, like soybeans, then there would be no problem in driving people to the lowest cost plans. But they’re not. Each plan covers a different array of drugs, and price competition pushes companies to cut costs by limiting the drugs they cover and restricting access to high-cost medicines. In fact, some of the national companies cover a lot more drugs for their high-premium plans then they do for their cheapest offerings.
That dynamic drives people with illnesses treated with higher cost medicines toward high-premium plans, while individuals can get by on a cheaper plan. The Part D law tries to squelch that tendency by “risk adjusting” payments to plans—paying more for enrollees with certain conditions—but that is like trying to put a genie back in the bottle. When everyone, sick and healthy, rich and poor, is in one risk pool, like they would be if Medicare ran the drug benefit, then the sickest, most vulnerable are not locked in a spiral of ever rising premiums. And, it is worth repeating, everyone, sick or healthy, would benefit from lower drug prices negotiated by Medicare.
We’re not looking for bad news. We’re looking for the best way to deliver affordable medicines to people with Medicare. Whatever illusions the administration tries to spin with the premium numbers, Part D is not it.
Medical Record
“To enable seniors and people with a disability to share in the substantial savings resulting from their informed choices in 2006, CMS is transitioning from a ‘uniform weighted’ benchmark to a ‘weighted average’ benchmark based on beneficiary enrollment in 2006. This is similar to transition approaches that CMS commonly uses in implementing other payment systems. This will ensure that beneficiaries who have made choices that lowered the cost of the drug benefit will continue to have access to low premiums in 2007” (“National Benchmark Shows Impact of Strong Competitive Bidding and Smart Beneficiary Choices,” CMS press release, August 15, 2006).
“Among PDPs [stand-alone prescription drug plans], the total number of drugs listed ranges from 618 drugs to 1,743, with a median of 957 drugs. Among MA-PDs [Medicare Advantage-Prescription Drug plans], the total number of drugs listed ranges from 509 to 2,130, with a median of 1,096. Formularies that are very large approach open formularies, in which all or mostly all drugs are covered. The median plan appears to have many therapeutic categories that exclude some drugs” (“Report to the Congress: Increasing the Value of Medicare,” Medicare Payment Advisory Commission, June 2006).
“In the case of many drugs, the prices paid by insurers participating in the plan are more than twice as high as the prices paid by the Veterans Administration [Department of Veterans Affairs]. Since the [pharmaceutical] industry is already making a profit at the price for which it sells drugs to the Veterans Administration [Department of Veterans Affairs], the higher price paid by the private insurers participating in the Medicare drug benefit is pure profit for the drug industry” (“The Origins of the Doughnut Hole: Excess Profits on Prescription Drugs,” Dean Baker, Center for Economic and Policy Research, August 2006).
***** The Medicare Rights Center (MRC) needs to hear about all the problems with the Medicare Part D benefit, whether they happen to you or someone in your community. With this information, we will be armed with the needed evidence to push for a Medicare-administered drug benefit.
Fast Relief: Part D Monitoring Project
Submit your story at www.medicarerights.org/partdstories.html
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The Louder Our Voice, the Stronger Our Message 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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