1 Variation in Medicare Part D Prescription Drug Plan Benefits, 2006 Leslie M. Greenwald, Ph.D. Principal Scientist RTI, International

2 RTI co-authors for this work John Kautter Nathan West Gregory Pope

3 Purpose To understand how the multitude of Medicare Part D benefits and premiums differ on key elements. Compare Part D options available through stand alone prescription drug plans (PDPs) and Medicare Advantage plans (MA-PDs).

4 Methods Compared premiums and selected benefits of stand alone prescription drug plans (PDPs) and Medicare Advantage plans (MA-PDs) Used data available on the CMS Website and Health Plan Management System (HPMS) for 2006

5 Methods Part D plan types examined: Basic Plans (Defined Standard, Actuarial Equivalent and Basic Alternative) Enhanced Plans (Non-Demonstration Enhanced, Flexible Capitation Demonstration Enhanced, and Fixed Captiation Demonstration Enhanced)  Demonstration = plans offered under the Medicare Part D Reinsurance Demonstration which capitated reinsurance payments to participating plans offering enhanced benefits. MA-PD plan types examined: HMOs and HMO/POS Local PPOs Regional PPOs Private FFS

6 Distribution of Plans by Plan Type, 2006

7 Average Monthly Part D Premiums, 2006

8 Monthly premiums are a key benefit element used by beneficiaries to choose among plan options. Obtaining coverage through a Medicare Advantage plan, on average, is the least expensive option for obtaining Part D coverage. MA-PD enrollees are often able to obtain enhanced Part D coverage for about the same (or lower) monthly premiums than basic coverage offered by stand alone PDPs. But this choice comes only with enrollment in an MA plan, a decision that has implications beyond Part D. Use of Medicare Part C “rebates” are commonly used by MA plans to reduce monthly premiums, an option not available to stand alone PDPs.

9 Average Monthly Part D Premiums by MA Plan Type, 2006

10 Average Monthly Part D Premiums by MA Plan Type, 2006 Regional PPOs offered the lowest Part D premiums for Basic Alternative plans ($16.79), followed closely by HMO plans ($17.74). Premiums for basic alternative options offered by PFFS plans were much more costly (at $29.56). Among non-demonstration enhanced plans, HMOs ($12.44) and Regional PPOs ($13.69) offered the lowest premiums. Premiums for PFFS plans ($26.51) were again the highest. Among demonstration enhanced plans, Local PPO Part D premiums were the highest. There is wide variation among MA plans geographically for Part C and D premiums. This variation is dependent on the level of market competition among plans and Medicare county payment rates.

11 Percentage of Plans Applying Co-Payments Through Drug Tiers, 2006

12 Percentage of Plans Applying Co-payments Through Drug Tiers, 2006 Tiers are used by plans to define categories of drugs with different cost sharing amounts. Plans apply different out-of- pocket costs to different tiers of drugs to encourage the use of either generic or other preferred products. Use of of only co-payments (as opposed to co-insurance) generally translates to lower costs for beneficiaries. All plan types favored co-payments over coinsurance in applying cost sharing to their drug tiers. No clear pattern of difference between PDPs and MA-PDs. Among most prevalent plan type (basic alternative and non- demonstration enhanced plans) MA-PD plans were more likely than PDPs to apply co-payments rather than co-insurance.

13 Coverage of Drugs in the “Donut Hole” Gap, 2006

14 Coverage of Drugs in the “Donut Hole” Gap, 2006 Availability of coverage in the “donut hole” gap is a key source of difference among Part D plan benefit options. By definition, only enhanced plan offer coverage in the gap. Among non-demonstration enhanced plans, MA-PDs are more likely to offer either generic, or generic and brand, coverage in the coverage gap. MA-PDs may use Part C rebate funds to support gap coverage. Among the flexible capitation demonstration plans, PDPs are more likely to offer gap coverage. The percentage of demonstration plans offering gap coverage is generally higher compared to non-demonstration plans. The capitated reinsurance dollars available under the demonstration may be a factor in supporting gap coverage.

15 Other Benefit Comparisons, 2006 For both basic and enhanced products, MA-PDs divided their covered drugs into a larger number of drug tiers than PDPs. PDPs tend to have slightly large pharmacy networks, though network size is generally very large among all plans and is therefore not a likely source of meaningful differences among plans. Regarding formularies, MA-PDs report more extensive coverage of drugs compared to PDPs. MA-PDs were less likely than PDPs to apply common formulary management techniques (such as prior authorization, step therapy and quantity limits).

16 Discussion and Conclusions MA-PDs often subsidize Part D benefits using Part C rebates – an option not available to PDPs. As a result, Medicare Advantage drug benefits can be less costly for somewhat better benefits. But there are significant variations geographically. Benefits available to beneficiaries through MA-PDs are highly sensitive to the competitiveness of the market and Part C payment rates. Medicare Advantage plans have the ability to influence and manage all health care services for beneficiaries, including physician prescribing patterns – an option not available to PDPs. This may also influence the richness of benefits offered. MA-PDs on average are more likely to offer enhanced benefits than PDPs, and often at a lower price. But enrollment in an MA- PD, even open network options such as Private Fee For Service plans, is a major decision for beneficiaries.