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3 things MedPAC officials are saying about Medicare Part D

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The Medicare Payment Advisory Commission (MedPAC) has news for Congress: The Medicare Part D prescription drug benefits program seems to be too friendly to insurers.

MedPAC, a body created in 1997 to give Congress advice about improving Medicare, talks about what its 17 members believe to be the overly attractive nature of the Part D program in its latest report.

See also: 5 ideas for the next health reform fight

Traditionally, Medicare did not provide drug coverage. Republican congressional leaders led efforts to build the Part D drug plan program into the Medicare Modernization Act of 2003 (MMA). 

See also: Bush Offers Prescription Drug Plan and H.R. 1: More Than Medicare Reform

Congress and Medicare Part D managers wanted to make the program generous enough to get insurers to participate, but now the program may have to be redesigned to discourage insurers from adopting pricing strategies that may increase Medicare’s share of the costs, MedPAC officials say.

See also: Insurers cut 2015 Medicare drug plans

Private insurers have influential allies in Congress, and, over the years, they have fought off, or, at least, tempered, many legislative attacks on the Medicare Advantage and Medicare supplement insurance programs.

But lawmakers who think overly generous private plans encourage enrollees to use too much health care and drive up the government’s Medicare costs, succeeded at getting restrictions on Medicare supplement plan provisions that completely eliminate enrollees’ deductibles signed into law earlier this year. 

Policymakers have to come up with the cash to keep the Social Security Disability Insurance (SSDI) program solvent after 2016, and efforts to rescue SSDI may give friends and foes of the Part D leverage they can use to defend or attack the program.

Many agents have been skeptical of the Part D market, but some seem to view it as attractive, and executives at some publicly traded insurers spend much more time boasting about the performance of their Part D programs than about their commercial major medical divisions. The Part D market has been an island of stability when compared with the markets heavily affected by the Patient Protection and Affordable Care Act (PPACA).

For a look at what MedPAC officials are saying about the Part D program, and what those observations could mean, read on.

Chessboard

1. MedPAC sees insurers gaming the system to hold premiums down and maximize enrollment.

Enrollee premiums account for only 14 percent of Medicare Part D revenue, according to analysts at the Henry J. Kaiser Family Foundation. General federal revenue covers 73 percent of the costs, and state governments pay 13 percent of the bills.

Program managers set the monthly premium paid to about 25 percent of the cost of standard drug coverage, then uses a bidding process to have plans pay as much as possible of the remaining cost, according to the Kaiser analysts.

In 2014, about 37 million people had individual or group Medicare Part D drug coverage. This year, the monthly base premium is about $33, up 2 percent from the 2014 base premium.

MedPAC members argue in their report that insurers seem to be consistently overestimating enrollees’ ordinary drug costs and underestimating the costs for enrollees with catastrophic expenses.

See also: The 10 costliest drugs covered by Medicare Part D

A reinsurance program reimburses insurers for 80 percent of the actual costs of enrollees with catastrophic claims, and insurers may have a financial incentive to underestimate catastrophic spending, MedPAC members argue.

Crying bald baby

2. MedPAC wants to give insurers more “skin in the game.”

Insurers have made headlines in recent years with efforts to encourage thoughtful use of health care by increasing deductibles and co-payments.

Plan designers say increasing enrollees’ out-of-pocket costs gives the enrollees “more skin in the game” and encourages them to shop more carefully for health care.

Increasing the enrollees’ skin in the game may also increase providers’ interest in controlling the cost of care, by exposing them to more bill collection risk, advocates of skin in the game say.

See also: A new way insurers are shifting costs to the sick

MedPAC now says Medicare should consider holding its costs down by giving Part D issuers more skin in the game.

“Given what appears to be a strong market for stand-alone drug plans, it may be time to emphasize policy approaches that encourage plan sponsors to better manage drug benefits for higher cost enrollees over policies designed to encourage or sustain plan entry,” the panel members say.

Medicare Part D program managers could consider taking steps such as requiring plans to put more of the cost of catastrophic spending in their covered benefits, and changing the structure of the Part D risk corridors program, which buffers the issuers against weak operating profit margins.

“By exposing plans to greater risk, plan sponsors would have stronger incentives to manage benefit spending,” MedPAC panel members say.

Fish jumping to another fishbowl

3. Debates over the future of the Medicare Part D program could affect other insurance markets, including the commercial major medical insurance market.

PPACA drafters based their efforts to create standardized, exchange-friendly products and market-protecting risk-management programs on lessons learned from the Part D program.

Any major changes in Part D rules and programs could eventually affect the equivalent PPACA rules and programs, and any other efforts to help consumers compare medically underwritten products on an apples-to-apples basis and buy the products through Web-based exchanges or similar shopping systems.

See also: House panel hears defense of PPACA’s risk corridor