TAYLOR MELANSON Providing Prescription Drug Coverage to the Elderly: America’s Experiment with Medicare Part D By Mark Duggan, Patrick Healy, and Fiona Scott Morton
History of Medicare Part D Medicare did not cover drugs ( ) % of healthcare costs accounted for by drugs 4.5% – 1982 5.6% – 1994 10.1 – 2005 Prior to Part D, 30% of 44 million beneficiaries lacked coverage for drugs (Neuman et al., 2007) Medicare Prescription Drug, Improvement, and Modernization Act of 2003 Took effect in > Established Part D 2007 – covered 24 million people, cost $39 billion
Why Study Part D? Impact on health and economic well-being Increase in government spending “Attempt to use market mechanisms in the delivery of a large-scale entitlement program” (70) Competition Price negotiation Preference matching
Coverage Plans Stand-alone plans Basic plans Government defined standard “actuarially equivalent” Many options 4% of plans cover more than half of enrollees
Standard Cost Sharing Scheme Monthly premium Deductible = $275 Low cost coverage Donut hole Catastrophic coverage Only 17% of plans
Coverage of Medications Basic Plan coverage - $ catastrophic coverage Formularies Tier system Prior authorization Step therapy Off formulary drugs
Choice of Plan Out-of-pocket cost Formulary status of current drugs Maintenance vs acute need drugs Reputation Incentive to enroll early Incentivizes alternative plans % of eligible people did not enroll
Influence on Drug Prices Formulary placement Incentives for patients and pharmacies Average price of drugs declined Treatments without substitutes CMS required coverage Protected Classes
Incentives for Sponsors Firms make bid to CMS Base beneficiary premium Incentives to make bid accurate Risk factor adjustment Offsets approximately ¼ of variance in drug spending Plans have better data than government Catastrophic coverage Risk absorption
Issues Enrollees without financial incentives Catastrophic coverage Formulary manipulation Inefficient treatment patterns Impact on budget
Conclusions Successes Drug prices Drug utilization Costs Failures Suboptimal choices Treatments without substitutes Administrative costs Unsuccessful incentives
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