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Medicare Part D Update: Premium Hikes and Drug Plan Changes Mean Seniors Should Consider Options for 2009

In January 2009, Medicare Part D premiums will increase by the largest amount since the program was implemented, according to data from the Medicare Trustees and the Centers for Medicare and Medicaid Services (CMS). ¹ Alarmingly, for the 10 most popular prescription drug plans, premiums will jump by 30 percent, according to an analysis by the Avalere Health data group. This premium spike highlights the need for seniors to take a second look at their Part D coverage to make sure they are getting the best value from their drug plan and will not be surprised by increasing costs.

During the annual open enrollment period for the program - which runs from November 15 th to December 31 st 2008 - seniors should be aware that drug plans can change the drugs they cover, the co-payments charged, and the coverage rules they use. In choosing a plan for 2009, it is important to examine these changes in coverage in addition to the cost of premiums and deductibles.

Low-income beneficiaries who participate in the Part D "extra help" program have a particular concern during open enrollment. More than 1.6 million of these beneficiaries will be automatically reassigned to new drug plans by CMS ² unless they choose one themselves by December 31. This reassignment will be random as CMS will not try to match beneficiaries with the plans that best meet their needs. In addition, many of these beneficiaries will have fewer options available to them. It is important that these seniors consider their options carefully.

All beneficiaries should be aware of new federal marketing rules that have been put in place to curb recent abuses in sales practices by agents working with private Medicare Advantage managed care plans and stand-alone prescription drug plans in a number of states. A list of banned practices is provided below. In general, in evaluating information about the plans, beneficiaries should be wary of any sales solicitation that they did not request.

It is urgent that Congress act in 2009 to address the challenges faced by beneficiaries during open enrollment. Drug prices that are driving steep premium increases must be reduced by allowing Medicare to negotiate in bulk for lower prices. The difficulties seniors face in comparing plans must be reduced by simplifying the program, such as providing a coverage option under original Medicare.

It is important that beneficiaries go beyond finding plans with the lowest premiums and deductibles. In choosing a Part D drug plan for 2009, seniors should look at all aspects of the coverage offered by each plan. In particular, plan comparisons should focus on a number of major questions:

• Will the drugs you need be covered? Are they included on the plan formulary?

• What will you have to pay at the pharmacy - either as co-payments or coinsurance - for each prescription?

• Does the plan have a coverage gap, or "donut hole," where you will be required to cover the full cost of your drugs?

• What will your monthly premiums and annual deductible cost?

• What coverage rules (like prior authorization requirements) does the plan have for the drugs you take?

The National Committee offers a free booklet, Medicare Part D: From A - Z , that provides in-depth information on these and other issues. The booklet is available on the Committee's web site or can be obtained by calling 1-800-966-1935.

In 2009, 2.9 million Part D beneficiaries will experience annual premium increases of $178 or more ³ - and many covered benefits will change from 2008 to 2009 - so it is crucial that seniors examine their current coverage to see if it still provides the best value. Comparing plans' formularies, co-payments, and coverage rules is important to get to the true "bottom line" for each beneficiary.

Formularies and the required co-payments for commonly used drugs differ substantially from plan to plan. For example, in 2008, a person with high cholesterol would pay $19 for a month's supply of Lipitor under one of the available plans, $74 under another, or $95 under one of the plans that did not include the drug on its formulary. Similarly, a person taking Protonix would pay copayments ranging from $20 to $107 under plans that cover this drug, or $146 under one of the plans that does not include this drug on the formulary. ⁴ Because of this variation, determining which plan offers the best deal means that the beneficiary will have to calculate the costs that apply for each of the drugs he/she is taking. CMS's web-based Medicare Prescription Drug Plan Finder offers a tool to help beneficiaries make this comparison.

Comparing plans' coverage rules will be easier in 2009 since CMS now requires Part D sponsors to post their prior authorization, step therapy, and quantity limit rules on plan web sites.

Unfortunately, plans are allowed to change their formularies, co-payments, and coverage rules throughout the coverage year, while beneficiaries are typically locked into their plans until the next annual enrollment period. In deciding whether or not to stay with their 2008 plans, beneficiaries should consider how stable their coverage has been throughout the previous year.

Reassignment of Beneficiaries Receiving "Extra Help"

More than 1.6 million low-income beneficiaries who benefit from "extra help" will be reassigned by CMS to new drug plans in 2009 unless they choose one themselves by December 31 st . The "extra help" program reduces or eliminates premiums and co-payments for beneficiaries who meet low-income requirements. These beneficiaries usually obtain coverage from plans with monthly premiums that meet (or are no more than a dollar above) regional benchmark premiums. Coverage can be obtained from more expensive plans if a beneficiary is willing to make up the difference between the higher premium and the benchmark premium.

Because many plans that met the benchmark premiums in 2008 have raised their 2009 premiums above these limits, beneficiaries will need to move to new plans in order to avoid paying higher premiums. Beneficiaries who receive blue letters from CMS notifying them that they will be reassigned can instead choose a plan themselves that meets the premium benchmark, or they can stay in their current plan and pay extra premiums. It is helpful to compare the available options, since CMS's reassignment process is random, and it does not match beneficiaries with plans that offer coverage matching their drug needs. The Medicare Prescription Drug Plan Finder web tool can help identify plans that meet the benchmark premiums.

Approximately 133,000 beneficiaries will also face reassignment or will need to choose a new plan because their plans have been terminated for 2009.

New Marketing Rules for Part D Drug Plans

In response to widespread reports of marketing abuses, Congress included new marketing protections for seniors in the Medicare Improvements for Patients and Providers Act which it passed in July 2008. In states such as Alabama, California, Illinois, Mississippi, and West Virginia, reports of deceptive and high-pressure marketing tactics were common. Seniors were exposed to intense sales pitches; information in plan materials was inaccurate; free meals were offered to entice beneficiaries to sales sessions; people with Alzheimer's or psychiatric disorders were targeted; and brokers alarmed seniors by saying that the original Medicare program would be eliminated. In October, CMS issued regulations which made many of these practices illegal.

It is important for beneficiaries to know what practices are illegal and to avoid doing business with anyone that engages in them:

• It is illegal for salespeople marketing Medicare drug plans to come to your door uninvited, to call you about a plan unless you request it, or to send you unsolicited e-mails.

• Salespeople are also prohibited from distributing plan applications at educational events, and they may not serve meals at promotional events.

• Insurance salespeople are prohibited from selling you non-healthcare related insurance products if the reason they contacted you was to discuss a Medicare Part D plan.

• It is illegal to require anyone to join a drug plan in order to get a prize or gift.

In general, beneficiaries should be suspicious of any unsolicited offer. Also, because many of these sales appeals attempt to get seniors to switch from stand-alone prescription drug plans to Medicare Advantage (MA) plans, it is important that beneficiaries know the difference between these two kinds of plans and that joining an MA plan will mean they must leave traditional Medicare.

Congress Must Act to Improve the Part D Program for Seniors

The privatized Medicare Part D prescription drug benefit is complex and confusing and fails to deliver good value for seniors. Presented with a multitude of choices during each enrollment period, only 6 - 7 percent of beneficiaries change plans each year, ⁵ undermining the intended effect that market competition between plans was supposed to have on drug prices. The law that enacted the Part D program specifically prohibits the government from negotiating drug prices, and as a result, drug prices have increased significantly, driving up premiums for seniors.

In addition, under Part D, seniors face a coverage gap - the "donut hole"- where they must continue to pay premiums but receive no coverage for their drugs. More than three quarters of seniors in Part D plans have plans with a donut hole, and 26 percent of these beneficiaries fell into the hole in 2007. ⁶ This feature of Part D coverage helped keep the overall value of the benefit substantially lower than the value received by people with drug coverage under a typical large employer health plan or the health plan that most federal employees have. The standard Part D benefit covers 51 percent of drug costs on average, while the typical large employer plan covers 73 percent and the largest federal employee plan covers 80 percent.

Seniors deserve the same value in their drug coverage that is available to others with health insurance, and the government should not waste taxpayer dollars by allowing drug manufacturers to set prices for the Part D program without negotiation. Congress must act to require CMS to negotiate drugs prices, and the savings should be used to fill in the donut hole. In addition, program improvements are needed so that a simpler array of drug coverage options will be offered and seniors will have access to the drugs they need to stay healthy. Offering a drug benefit under the traditional Medicare program is one straightforward improvement that would achieve these goals.

¹2008 Annual Report of the Medicare Trustees and CMS memo to Medicare Advantage Organizations, Medicare Prescription Drug Plan Sponsors, and Other Interested Parties, August 14, 2008.

² CMS notification to congressional committees, November 3, 2008.

³ Calculations based on data from October, 2008 Avalere Health analysis.

⁴ Kaiser Family Foundation, April 2008.

⁵ Commonwealth Fund, May 2008.

⁶ Kaiser Family Foundation, August 2008.

⁷ Kaiser Family Foundation, September 2008.

Government Relations and Policy, November 2008