Medicare Part D and consumer purchase decisions

Medicare Part D was a remarkable development, not only for establishing a prescription drug benefit but also for giving consumers more responsibility for their insurance and Rx purchase decisions. The large number of plans presented a wide variety of premiums and deductibles, whereas the coverage gap provided strong incentives for careful decision-making. Enrollees also encountered formulary choices that impacted on their out-of-pocket expenses for particular drugs.

As a result of the financial incentives associated with formularies, the use of unbranded generics rose to 58% of Medicare Rxs by the end of 2006. Part D enrollees with no low-income subsidy faced sharp increases in their out-of-pocket expenses when they entered the coverage gap with expenditures in excess of $2,250. By the end of 2006, only 3% of beneficiaries without a payment subsidy entered the gap. Approximately half of them entered the gap in the fourth quarter of the year, possibly a sign that they were carefully managing their expenses. Those who reached the gap earlier in the year maintained or increased their expenditures to quickly qualify for catastrophic coverage.

Medicare plans were not alone in shifting more incentives to consumers. The use of deductibles increased across all plan sponsors and third-party administrators, including the plans offered by large employers and labor unions. More than 20% of prescription drug plans (PDPs) included a deductible as part of the benefit design in 2006, a threefold increase in the proportion of plans with a deductible.

Of course, high-deductible plans run the risk that treatment adherence will drop for asymptomatic conditions and that preventive care will be neglected. Thus, like Medicare, many PDPs limit out-of-pocket spending and provide full coverage for those with catastrophic expenses. Still, estimates are that 14% to 25% of Medicare enrollees who entered the coverage gap no longer obtained brand drugs for chronic conditions. Some may have been able to obtain the medications from alternative sources, although others likely stopped taking the more expensive therapies.

The extent to which consumers embrace the opportunity for choice will shape the overall design of Medicare. As consumer confidence in making appropriate choices increases, Medicare Advantage plans are likely to offer consumers even more flexibility in selecting a plan that meets their budget and healthcare needs. Variations on these managed care plans already include HMOs, preferred provider organizations, private fee-for-service plans, special needs plans, and other options.

Medical Savings Accounts

In 2007, several plans began to offer Medicare Medical Savings Account (MSA) plans to Medicare beneficiaries. For beneficiaries who select this option, CMS will make an annual deposit into an interest-bearing savings account that beneficiaries can use to pay their healthcare costs. Initial interest in MSAs has been very low and will grow if people gain familiarity and experience with plans that offer more consumer choice.

Plan payments under Part D were initially set at levels designed to ensure adequate participation by plan sponsors. CMS is likely to reduce these payments as it gains experience with the program. This, in turn, will give rise to methods to manage access that will include consumer incentives and utilization management. Plans may have to further adjust their designs to cover the cost of preventive care. These trends could drive a call for more comparative effectiveness data as both plans and individual consumers seek to ensure value for their dollars spent.

THE AUTHOR is associate professor, Department of Pharmacy Health Care Administration, University of Florida College of Pharmacy.