Plans gearing up for bidding for 2008

CMS set three program goals for 2008: (1) a full range of plan options, (2) significant variations in benefits across plans that generate a wide range of choices, and (3) an increased number of plans that offer at least some coverage for brand-name and generic drugs in the coverage gap. Already it seems that at least one of the announced goals is in jeopardy-specifically, the desire for gap coverage.

Consequently in 2007 not every Medicare region had a plan that offered an option covering all prescriptions in the gap. Those plans that did offer some gap coverage, including Humana, generally limited the benefit to generic drugs only. Sierra Health Services was the exception, offering complete gap coverage in a number of states, with premiums on the order of $100 per month. Approximately 42,000 persons enrolled in Sierra's Plus Plan, which the company now says it underpriced by at least 30%. The firm announced that it would not offer a similar plan in 2008.

The result is that other plan sponsors are likely to be deterred from offering both brand and generic benefits across the gap. If offered, such a plan could face a downward spiral of ever-increasing premiums rising to levels that attract fewer and ever more costly beneficiaries.

The American Academy of Actuaries has suggested the possibility of eliminating the coverage gap as a way to deal with the situation. The actuaries concluded that eliminating the gap would require: (1) doubling the standard deductible of $256, (2) increasing the co-pay from 25% to 50% on the first $2,400 of prescription expenditures, and (3) raising the threshold for catastrophic coverage to $7,500.

CMS has addressed the situation by encouraging plans to offer a limited number of brand-name drugs as a way to keep some gap options available. Senior advocates are afraid that covering some drugs but not others will only confuse frail seniors who already find it a struggle to make plan comparisons on an annual basis.

Medicare Advantage (MA) is another option for beneficiaries who are seeking some relief from the changing array of plans, swings in coverage, and unstable premiums from year to year. The subsidy for MA plans was set at a higher level than that for the stand-alone plans, with the intent of attracting a greater percentage of Medicare beneficiaries to these managed care options. On average, MA prescription drug plans receive 115% of what Medicare would have spent for a comparable population served in the traditional fee-for-service option. With the additional funds, the MA Rx plan has been able to offer lower premiums and more generous coverage than the stand-alone plans.

At some point in the future, CMS is to phase out all risk-sharing arrangements and the Medicare plans are to be driven entirely by the market for these insurance products. In the interim, there is a complicated interplay among the decisions made by enrollees, the plans, and employers, with CMS poised to tweak the process in the name of equity and long-range stability.