Prescription Drugs and Medicare

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Prescription Drugsand Medicare
John Rother Director Policy Strategy
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MedicareRx Drug Coverage The Need

• Pharmaceutical coverage isnt just about money
  its also about managing healthcare
• Modern Rx drugs
• Control chronic conditions
• Protect against acute episodes
• Reverse course of disease, in some cases
• And, improve the quality of life

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What ARE total Rx drug costs?
For Beneficiaries
Approximately 40 million Medicare beneficiaries
CBO Projected 2006
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Fiscal Context of Rx Drug Act
Waiting meant great risks

• Growing projected deficits -- federal and
  state
• Aging boomers increase cost estimates in
  out-years
• Rx prices increasing, esp. new drugs
• So, same benefit gets much more expensive with
  every years delay

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Fiscal Context of Rx Drug Act

• Allocated 400b in Budget Resolution
• Achieved 410b total benefit, with offsets
• Provider givebacks (raised payments) were
  largely self-financed
• Related employer tax incentives were outside
  this budget

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The Fiscal Context

• How 410b in benefits equals 395b
  in estimated total costs

(Still the best 10-year estimate)
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10-Year Total Federal Spending/Savings Under
Medicare Drug Law 395b
Source CBO Estimate of H.R. 1
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The Standard Benefit Design

• 35 monthly premium
• 250 annual deductible
• 75 coverage until 2250 total Rx cost
• Hole between 2250/yr total Rx cost 3600/yr
  out-of-pocket (2850 out-of-pket)
• After out-of-pocket 3600/yr, then 95 coverage
  (The greater of 5 co-pay or 2
  generic/5 brand applies, each Rx)
• (Stop-loss threshold 5100 total Rx cost )
• if person has no supplemental coverage

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The Benefit Design
95
75

250 2250 3600
out-of-pocket Total Rx Rx
Spending Spending
35/mo premium (420/yr in 2006)
Referred to as the DONUT HOLE
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How much help?
Beneficiaries

• Assuming no other Rx drug coverage, how much
  will the new law help enrollees?

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Impact of new law in 2006
The Benefit Design
TOTAL Rx SPENDING
PRESCRIPTION COST
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How much help?
Beneficiaries

• How much will the new law help low-income
  enrollees?

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Low-Income Protections

• Dually eligible are in Medicare for Rx --
  get special benefits beginning
  2006
• Offers Medicare discount card as a
  transition benefit for low-income without
  other Rx coverage adds 600/yr
• Began June 1, 2004
  and ends January 2006

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13.4 Million Low-Income Medicare Beneficiaries
Helped by Medicare Rx Act
2003 CBO Estimate
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13.4 Million Low-Income Medicare Beneficiaries
Helped
NOTES for LOW-INCOME TABLE

• Asset limits are for singles
• Couples 9,000 or 20,000 limits depending
  on benefit
• 2006 estimated FPL 100 9,600/13,000
• FPL 135 13,000/17,600
• FPL 150 14,400/19,500
• For beneficiaries in a few states with more
  generous Medicaid programs, copays under this
  legislation may be higher than they currently pay

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Employer-provided Retiree Health Coverage

• Feds to subsidize 28 of Rx costs between
  250-5000 in 2006 for firms offering actuarial
  equivalent of Medicare
• (if their retirees do not also enroll in
  Part D)
• CBO estimate 17-23 might lose Rx coverage (2.7
  million) -est. based on final legislation
• EBRI est 2-9 (Employers will drop future benefits anyway due
  to spiraling costs.

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Employer-provided Retiree Health Coverage

• Allocates 71b in direct subsidies now tax free
  for employers who offer retirees Rx drug
  coverage equivalent to Medicare

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Employer-provided Retiree Health Coverage

• Typical employer Expected to retain benefits
  for present near-retirees -- limit for future
  retirees
• Large employers most likely to wrap-around
  Medicare Rx, surveys in 2002 indicated

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Medicare Structural Changes
Strengthening Medicare for all beneficiaries

• Adds chronic care management
• New prevention benefits, includes Welcome to
  Medicare physical
• Electronic prescribing for doctors and pharmacies

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Enrollment

• Voluntary, can choose either
• Stand-alone plans sponsored by PBMs
• PPO/HMO plans (Medicare Advantage)
• No plan, pay no premium
• Annual open-season
• Late sign-up penalties 1 per month, or as HHS
  Sec determines

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Private Insurance Plans

• Their benefit design could differ but based on
  same actuarial value as Medicare Rx and could
  offer supplemental coverage
• Federal fallback if plans withdraw, etc.,
  would provide Standard Benefit only

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Federal Fallback

• HHS Secretary contracts with PBM to deliver
  benefits on reduced-risk basis if not 1 private
  stand-alone plan 1 other private plan in area
• HHS Sec will have authority to vary risk
  private plans incur (to encourage
  entrance into market)

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Private Insurance Plans

• Overpaid 7 on average (Can that last?)
• Slush Fund of 12 billion
• Non-negotiable item for GOP
• (A faith-based initiative)

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Medicare Income-Relating

• No Medicare means-testing
• All beneficiaries eligible for same benefit
• 2004 Part B premium
• 66.60/mo 25 of cost of program
• 2006 will Income-relate Part B
• 80 -100,000 pay 35 of cost
• 100 -150,000 pay 50
• 150 -200,000 pay 65
• 200,000 pay 80
• Income is per person, not per couple

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Medicare Cost-sharing

• Current Part B deductible
• 100 (unchanged for 13 years)
• Deductible increased to 110
• Indexed to the increase in
  total Medicare Part B costs

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Potential Threats to Medicare Premium Support

• Turned into a demo that will never happen
• Demo in up to 6 cities, begin 2010
• Puts traditional Medicare in competition with
  Medicare private plans, if implemented
• Risks higher Part B premiums as result of
  risk-selection, other factors
• Low-income are exempt, others in traditional
  Medicare cannot have premiums raised more than 5
  per year

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Potential Threats to MedicareBudget Limit

• General Revenues capped at 45 of total program
  costs
• Turned into a requirement that President only
  submit remedies
• No requirement on Congress to act
• Nonsensical standard
• - Unlike Part A Trust Fund

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Potential Threats to Medicare Structural Changes
Health savings accounts begin in 2004

• New tax-preferred savings accounts linked to
  individual high-deductible health insurance
• Issue Do these accounts undermine group
  coverage?

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Drug cost-containment measures not enough

• Current increase over 13 per year
• Relies on PBMs to negotiate with huge buying
  power ( 30 cost)
• Speeds approval of generics
• Funds research on effectiveness
• Allows preferred drug lists and
  formularies

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Key AARP Judgments

• What is real vs what is symbolic
• What is an opportunity for the future vs what is
  a risk
• The price of further delay
• Coverage always precedes cost containment

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Why AARP SUPPORTED new law

• Locks in a drug benefit in Medicare that we can
  build upon
• 13-14 million poor near-poor elders get
  generous, seamless benefit
• Everyone who joins will be protected by 95
  coverage after 3600 out-of-pckt
• Critical to start effort to get Rx drug costs
  under control NOW
• 400 billion that may not come again

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Prescription Drugsand Medicare