Medicare PDP Premiums Rising, Plan Options Falling

Premiums

• The weighted average premium paid by beneficiaries for stand-alone Part D coverage has increased by 44 percent, from $25.93 in 2006 to $37.25 in 2010. However, between 2009 and 2010, the average PDP enrollee paid 6 percent more in premiums – a significantly smaller one-year premium increase than the previous year-to-year increase of 17 percent.
• Monthly premium increases for some drug plans with the highest enrollment have been larger than the increase in the national average. Since 2006, the premium for UnitedHealth’s AARP MedicareRx Preferred plan has increased by 50 percent from $26.31 to $39.41, while the average monthly premium for Humana’s Enhanced PDP has nearly tripled from $14.73 to $41.40.
• Premiums for the drug benefit offered by MAPD plans (excluding SNPs) are lower than PDP premiums, on average. The average 2010 monthly premium amount attributable to drug benefits is $13.32, more than $20 below the PDP average. Many MAPD plans reduce or eliminate their premiums by using a portion of rebates from the Medicare Advantage payment system.
• Enrollees in stand-alone Part D plans tend to pay substantially higher premiums for plans with gap coverage compared to those without such coverage. On average, the weighted monthly premium for a stand-alone PDP offering some gap coverage (mainly for generic drugs) is more than twice that for plans offering an enhanced benefit with no gap coverage.
• Plans with an enhanced benefit design without gap coverage are priced only modestly higher than plans offering a basic benefit. Although enhanced plans are less likely to have deductibles, they often charge higher cost sharing than basic plans.

The coverage gap

• In 2010, most plans (81 percent of stand-alone PDPs and 66 percent of MAPD plans) offer little or no gap coverage. Thus, in 2010, 94 percent of PDP enrollees are enrolled in plans with little or no gap coverage – the same as in 2006.
• The share of all PDP enrollees who actually face a gap is 47 percent, considerably smaller than the 94 percent enrolled in plans without gap protection, because enrollees receiving low-income subsidies do not face a gap in drug coverage. In 2010, the majority of non-LIS Part D enrollees (89 percent) are in PDPs without gap coverage, similar to previous years.
• More than 4 in 10 (44 percent) MAPD plan enrollees have at least some gap coverage, a substantial increase since 2006. This is largely because Medicare Advantage plans are able to use payments received from the government for providing benefits covered under Parts A and B to reduce cost sharing and premiums under Part D. Furthermore, because Medicare Advantage plans cover hospital and physician services and other Medicare benefits, they have somewhat stronger incentives than PDPs to offer at least some gap coverage to forestall the negative health and cost consequences that could arise if enrollees do not take their medications when they reach the gap.
• However, the vast majority of beneficiaries with gap coverage are in plans that only cover generic drugs in the gap. Only about 3 percent of MAPD plans enrollees and no PDP enrollees have any significant brand coverage in the gap. Furthermore, gap coverage that includes all generic drugs has declined over time. In 2010, only 11 percent of MAPD plan enrollees and less than 1 percent of PDP enrollees are in plans that cover all generics in the gap.

Standard benefit coverage

• The number of plans that offer the defined standard benefit has declined over time; in 2010, only 11 percent of PDPs and 5 percent of MAPD plans make no use of formulary tiers. The most common model for tiered cost sharing includes four tiers: generic drugs, preferred brand drugs, non-preferred brand drugs, and specialty drugs. An increasing number of plan sponsors now offer formularies with two generic tiers.
• Use of a deductible by stand-alone PDPs is considerably higher in 2010 than in previous years. About 60 percent of PDPs charge a deductible this year, compared to between 40 percent and 45 percent in prior years.
• Although flat dollar copayments remain the most common type of cost sharing, the share of PDPs using coinsurance for non-specialty brand-name drug tiers has increased since 2006. In 2010, one-fourth of PDPs charge a coinsurance rate for non-preferred brand drugs. Of these plans, most have a mixed pricing design with flat copayment in their generic drug tiers for generic drugs and sometimes for preferred brand drugs as well.

Source: Kaiser Family Foundation