MEDICARE PART D July 2011

MEDICARE PART D: OVERVIEW Part D provides prescription drug coverage for Medicare beneficiaries. Prescription drug plans compete to deliver coverage for beneficiaries and value for taxpayers. Part D differs from other public drug programs in that prices are not set administratively, but through a competitive bidding system.

PART D EXPANDED COVERAGE FOR SENIORS In 2011, 90% of people with Medicare had comprehensive drug coverage. Medicare Beneficiaries 24M(59%) 42M(90%)

SOURCES OF DRUG COVERAGE FOR THE ELDERLY AND DISABLED In 2010, about 28 million Medicare beneficiaries were enrolled in Part D plans. No Drug Coverage VA, Indian Health Service, Medigap, Other 1 Employer/Union Retiree Coverage 2 Medicare Advantage Part D Stand-Alone Part D Prescription Drug Coverage Among Medicare Beneficiaries, 2010

PART D IMPROVES ACCESS, SAVES MONEY Peer-reviewed and academic literature confirms Medicare Part D substantially reduced out-of-pocket costs and increased access to medicine for seniors. “…Part D was associated with a 16% annual decrease in out-of-pocket spending and a 7% increase in the number of prescriptions.” American Journal of Managed Care “…an enrollee who moves from paying cash to buying through Medicare Part D pays 24% less for branded prescriptions...” National Bureau of Economic Research “We estimate that Medicare Part D reduced user cost among the elderly by 18.4%, [and] increased their use of prescription drugs by about 12.8%…” Health Affairs “Our results indicate that from , Part D reduced elderly OOP [out-of- pocket] costs per day’s supply of medication by 21.7% and increased elderly use of prescription drugs by 4.7%...” National Bureau of Economic Research “[Our] estimates of the overall effect of Part D—an approximate 13.1% decrease in expenditures and an approximate 5.9% increase in prescription utilization—are remarkably similar to other predictors of these estimated based on economic theory.” Annals of Internal Medicine

PART D HELPS LOW INCOME ENROLLEES The average low income subsidy enrollee saves $4,000/year on prescription drugs. Part D Average Savings per Enrollee, 2007 and 2011

COVERAGE GAP WILL CLOSE BY 2020 Under the Affordable Care Act, beneficiaries are eligible for a 50% discount on branded drugs while in the coverage gap. The gap begins phasing out in “Cost-sharing in the coverage gap will be reduced each year until beneficiaries are required to pay only 25 percent of the costs of covered Part D drugs in 2020 and beyond.” - HHS

STEADY SATISFACTION WITH PART D Eighty-four percent of Part D enrollees are satisfied with their Part D coverage. Somewhat Satisfied Very Satisfied 78% 81% 83% 89% 84% 90% 88% “Overall, how satisfied are you with your prescription drug coverage?”

SATISFACTION WITH PART D IS MOST HIGH AMONG THE VULNERABLE Compared to other subgroups, dual eligibles exhibit the highest satisfaction rate with their drug coverage – 93% compared with 84% among all Part D enrollees.

PART D IS COSTING FAR LESS THAN INITIALLY EXPECTED $322.2B Less CBO Projections and Tallies of Total Part D Spending for , in Billions Total Part D costs are 41 percent lower than the initial 10-year cost estimate, in part due to better negotiations by plans.

Average Beneficiary Premiums Far Below Original Estimates According to the CMS Administrator, “[t]hese very modest increases in premiums … are going to make medications more affordable to Medicare beneficiaries.”

Part D Is The Smallest Share of Medicare Expenditures Medicare Part D will make up 11.4% of estimated Medicare expenditures in Part A 48.3% Part D 11.4% Part B 40.3%

Proposed Policy Changes Threaten Success of Part D Recently, a number of policy changes proposed by both Congress and the Administration have suggested imposing price controls in the form of Medicaid-style rebates on prescriptions in Part D. Such policies would be a step toward turning Medicare into Medicaid and could undue a highly successful program for beneficiaries.

Imposing Medicaid-like price controls on Medicare Part D could restrict access to medicines. Currently, all Medicare beneficiaries have the same access to Medicare benefits. Treating dual eligible beneficiaries (those who qualify for both Medicare and Medicaid) differently for the purpose of drug pricing, would undermine this principle and open the door for Medicaid-like restrictions that can be harmful to beneficiaries. Unlike Medicare, under Medicaid, states have full authority to determine the “amount, duration, and scope” of benefits. Many states currently impose limits on the number of allowed prescriptions per month. All Part D enrollees may change plans on an annual basis in order to maintain prescription drug coverage that fits their cost and coverage needs, and those who are dually eligible may change plans at any time, unlike Medicaid where enrollees are typically restricted to the state’s preferred drug list (PDL).

Setting Medicaid as the benchmark for Medicare could open the door to cuts in Medicare payment for other health services. Medicaid’s hospital reimbursement rates reportedly have been below costs for many years. Benchmarking Medicare hospital rates to Medicaid’s would exert additional financial pressure on hospitals to shift costs to other (this slide may be cut by policy)

Imposing Medicaid Rebates on Part D Would Chill Research on Diseases Disproportionately Affecting Medicare Beneficiaries According to CBO, price controls on Part D prescription drugs “would reduce manufacturers’ incentives to invest in R&D on products that would be expected to have significant Medicare sales.”

Imposing Price Controls on Medicare would stifle economic growth in the biopharmaceutical sector and supporting businesses America’s biopharmaceutical research companies invested a record $67.4 billion last year in R&D of new life-changing medicines and vaccines – an increase of $1.5 billion from If R&D incentives diminish, so will the investment and with it the jobs created by that investment.