MEDICARE PRESCRIPTION DRUG BENEFIT Presented by Juliette Cubanski, Ph.D. Principal Policy Analyst Medicare Policy Project The Henry J. Kaiser Family Foundation June 2009 Return to tutorials Exhibit 1

Major source of coverage for seniors and younger people with permanent disabilities Medicare beneficiaries tend to be sicker and use more health services than the general population Entitlement program – provides coverage without regard to income or heath status Original Medicare – fee-for-service program Part A – Hospital Insurance Program –Inpatient hospital, skilled nursing facility, home health, and hospice care Part B – Supplementary Medical Insurance –Physician visits, outpatient hospital, preventive services, home health Part C – Medicare Advantage plans –An alternative to Original Medicare; beneficiaries can enroll in a private plan to receive all Medicare-covered benefits and (often) extra benefits –Private plans include HMOs, PPOs, and Private Fee-for-Service plans Medicare Part A, Part B, and Part C Exhibit 2 Return to tutorials

Exhibit 3 The Need for a Medicare Drug Benefit Prior to 2006, Medicare beneficiaries did not have access to a government- subsidized drug benefit through Medicare Existing sources of drug coverage included: –Employer-sponsored retiree health benefits –Individually-purchased Medigap supplemental policies –State Medicaid programs for low-income Medicare beneficiaries –Medicare managed care plans –Veterans Administration, state pharmacy assistance programs, pharmaceutical company assistance programs One-third had no drug coverage in 2004 –Those without coverage used fewer drugs but spent more out-of-pocket than those with coverage –Cost-related non-adherence (skipping/splitting doses, not filling prescriptions) was more common among those without coverage Return to tutorials

Medicare Part D – Prescription Drug Benefit Medicare Part D, enacted as part of the Medicare Modernization Act of 2003, took effect in 2006 –Part D is provided exclusively through private plans; benefits are not offered directly through the traditional fee-for-service program –Enrollment in a Part D prescription drug plan is voluntary Beneficiaries may enroll in one of two types of private plans to get the Part D benefit –Stand-alone prescription drug plans to supplement Original Medicare –Medicare-Advantage prescription drug plans Additional subsidies available for people with low incomes and modest assets to help pay for premiums and cost-sharing –Below 150% poverty ($16,245/individual, $21,855/couple in 2009) –Assets less than $12,510/individual, $25,010/couple in 2009 Exhibit 4 Return to tutorials

19% 4% 23% 5% 28% 11% 9% 3% Total Benefit Payments, 2009 = $484 billion NOTE: Does not include administrative expenses such as spending for implementation of the Medicare drug benefit and the Medicare Advantage program. Total is net of $9.4 billion in recoveries for SOURCE: Congressional Budget Office, Medicare Baseline, March Part D Financing and Benefit Payments Part A Part B Part A and B Part D Exhibit 5 Part D is funded by premiums, general revenues, and state payments Plans are paid a fixed amount for each enrollee “Reinsurance” payments from the government protect plans from unexpectedly high costs Return to tutorials Prescription Drug Benefit Hospital Outpatient/ Other Part B Benefits Physicians and Other Suppliers Home Health Medicare Advantage (Part C) Hospice Skilled Nursing Facilities Hospital Inpatient

NOTE: Percentages do not sum to 100% due to rounding. 1 Includes Veterans Affairs, retiree coverage without RDS, Indian Health Service, state pharmacy assistance programs, employer plans for active workers, Medigap, multiple sources, and other sources. 2 Includes Retiree Drug Subsidy (RDS) coverage and FEHBP and TRICARE retiree coverage. SOURCE: Centers for Medicare & Medicaid Services, 2009 Enrollment Information (as of February 1, 2009). Total Number of Medicare Beneficiaries = 45.2 Million Total in Part D Plans: 26.7 Million (59%) Medicare Advantage Drug Plan Retiree Drug Coverage 2 No Drug Coverage Other Drug Coverage million 10% 7.9 million 18% 6.2 million 14% Prescription Drug Coverage Among Medicare Beneficiaries, 2009 Exhibit 6 Return to tutorials 9.2 million 20% Stand-Alone Prescription Drug Plan 17.5 million 39%

Beneficiaries Eligible for Low-Income Subsidies = 12.5 million Medicare Drug Benefit Low-Income Subsidy Eligibility and Participation, 2009 Eligible but estimated to have other drug coverage 0.5 million (4%) 1 NOTE: 1 Includes Veterans Affairs, Indian Health Service, and Retiree Drug Subsidy (RDS) coverage. SOURCE: Centers for Medicare & Medicaid Services, 2009 Enrollment Information (as of February 1, 2009). Eligible but not receiving subsidy 2.3 million 19% Low-income Medicare beneficiaries receiving additional Part D subsidies Exhibit million 77% Return to tutorials

Number of Medicare Part D Stand-Alone Prescription Drug Plans, by State, 2009 NOTE: Excludes Medicare Advantage Drug Plans (HMOs, PPOs, and Private Fee-for-Service plans). SOURCE: Kaiser Family Foundation analysis of Centers for Medicare & Medicaid Services 2009 PDP landscape file drug plans (34 states and DC) drug plans (14 states) drug plans (3 states) Exhibit 8 Return to tutorials

Medicare’s “Standard” Drug Benefit in 2009 … But most plans do not offer the “standard” benefit, and coverage varies across most dimensions, including: –Monthly premiums –Deductibles –The “doughnut hole” –Covered drugs and utilization management restrictions –Cost sharing for covered drugs $295 Deductible $2,700 in Total Drug Costs $3,454 Coverage Gap (“Doughnut Hole”) Plan Pays 75% Plan Pays 15%; Medicare Pays 80% $6,154 in Total Drug Costs ($4,350 out-of-pocket) Enrollee Pays 25% 5% Exhibit 9 Return to tutorials

Average Monthly Premiums for Stand-Alone PDPs No Gap Coverage Weighted Monthly PDP Premiums, Weighted Average Monthly PDP Premiums, by Gap Coverage, 2009 SOURCE: Georgetown/NORC analysis of data from CMS for the Kaiser Family Foundation : 35% increase Exhibit 10 Return to tutorials

Cost Sharing in Medicare Part D Plans, NOTE: Part D cost-sharing amounts are medians. Part D plan estimates weighted by enrollment in each year; analysis excludes generic/brand plans, plans with coinsurance for regular tiers, and plans with flat copayments for specialty tiers. PDP = Stand Alone Prescription Drug Plan; MA – PD = Medicare Advantage Prescription Drug Plan SOURCE: Georgetown/NORC analysis of data from CMS for MedPAC and the Kaiser Family Foundation. FORMULARY TIER PART D PLAN TYPE PART D COST SHARING % Increase, Generic PDP$5$740% MA-PD$5 -- Preferred brand PDP$28$3732% MA-PD$26.70$3012% Non-preferred brand PDP$55$ % MA-PD$55$609% Specialty PDP25%33%32% MA-PD25%33%32% Exhibit 11 Return to tutorials

Monthly Cost Sharing for Top Brand-Name Drugs in National Stand-Alone Drug Plans, 2009 Maximum Covered Cost Sharing Minimum Cost Sharing SOURCE: Georgetown/NORC analysis of data from CMS for the Kaiser Family Foundation. Exhibit 12 Return to tutorials

Share of Medicare Part D Plans in 2009, By Type of Gap Coverage NOTE: *“Little/No Gap Coverage” includes plans that cover few drugs only. SOURCE: Georgetown/NORC analysis of data from CMS for the Kaiser Family Foundation. Stand-alone Prescription Drug Plans (1,689 plans in 2009) Medicare Advantage Prescription Drug Plans (1,991 plans in 2009) Exhibit 13 Return to tutorials Mostly Generics Only 25% Little/No Gap Coverage* 75% Generics and Brands 2% Little/No Gap Coverage* 61% Mostly Generics Only 38%

Changes in Drug Use By Part D Enrollees Who Reached the Coverage Gap in % 22% 23% 22% 14% NOTE: Estimates based on analysis of retail pharmacy claims for 1.9 million Part D enrollees in SOURCE: Georgetown University/NORC/Kaiser Family Foundation analysis of IMS Health LRx database, Among Part D enrollees who reached the coverage gap, percent who: Exhibit 14 Return to tutorials

Medicare Part D: Adding It Up Coverage Out-of-pocket drug spending, use, and access Program spending Choice 41 million (90%) have drug coverage 9.6 million receiving low-income subsidies Out-of-pocket drug spending is generally lower Drug use is higher and cost- related skipping is generally lower 4.5 million lack drug coverage 2.3 million low-income eligible but without subsidies Some enrollees may pay more – e.g., dual eligibles and those in the coverage gap Lower than initially projected Due partly to lower-than- projected Part D and low-income subsidy enrollment Lots of plans means more options for beneficiaries Lots of plans could lead to confusion and difficulty choosing the best plan Exhibit 15 Drug prices Lower for those who had no drug coverage prior to Part D Higher for dual eligibles and drugs with no competitors

Future Issues and Options for Medicare Part D Increase enrollment in Part D plans Improve access to low-income subsidies; eliminate the asset test Minimize variation in plan offerings by standardizing benefit designs Reduce the number of plans that sponsors can offer Reduce or eliminate the coverage gap Allow the government to negotiate drug prices with pharmaceutical companies Create a public Part D plan option Exhibit 16 Return to tutorials

Kaiser Family Foundation’s Medicare Policy Project: –Medicare Health and Prescription Drug Plan Tracker: –State Facts on Medicare: Medicare (the official government website): Centers for Medicare & Medicaid Services (CMS): Congressional Budget Office (CBO): Medicare Payment Advisory Commission (MedPAC): Medicare Policy Resources Exhibit 17 Return to tutorials