1. Cost Sharing Under Part D: Impact on Beneficiaries with the Standard Benefit
Bruce Stuart, PhD
Director, Peter Lamy Center on Drug Therapy and Aging
University of Maryland Baltimore
Invitational Summit for State Policy Makers
Medicare Part D Implementation Issues
Philadelphia, October 8, 2004

2. Why States Should be Concerned about Beneficiaries with the Standard Benefit
Part D low income subsidies
Full-benefit dual eligibles or <135% FPL and meets MMA asset tests (no premium, small copays)
136% -150% FPL and meets asset tests (phased out subsidy)
Who won’t qualify for the subsidies…
> 150% of the FPL (varies by household size)
< 150% of FPL but fails to sign up or fails asset tests

3. Assessing the Impact of Gaps in the Part D Standard Benefit
Given the cost sharing features of the standard benefit…
What is the relationship between drug spending and the generosity of the Part D benefit?
How persistent is drug spending over time?
How will beneficiaries respond to benefit gaps in the face of persistent need for medication therapy?

4. Coverage Gaps under the Part D Standard Benefit in 2006
Annual
Drug Spending
Months in Coverage Gap (assuming steady spending)
% of Total Annual Drug Spending Paid Out of Pocket
$1,000
3.0 44
$2,000
1.5 34
$3,000
4.0 50
$4,000
6.0 63
$5,000
7.2 70
$6,000
6.2 61
$7,000
5.3 53

5. Riding the Part D Rollercoaster
Research shows that drug spending is highly persistent
Beneficiaries hit with high cost sharing in one year are likely to be hit year after year
Our study projected Rx spending to for 3 groups of beneficiaries:
Typical Part D enrollee (>150% FPL, without stable Rx coverage from an employer or a public program) with average drug spending
Typical Part D enrollee with Rx spending above $2,250
Typical Part D enrollee with Rx spending above $5,100

6. Estimated Drug Spending (2006-2008) for Typical Enrollee with Average Spending in 2006
Year
Mean Annual Total Prescription Drug Spending
% Out-of-Pocket (OOP) Drug Spending
2006
$2,608
42%
2007
$2,880
46%
2008
$3,230

7. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending

8. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
$250
deductible

9. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
$25%
coinsurance

10. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
hits donut hole

11. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
$275
deductible

12. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
25%
coinsurance

13. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
hits donut hole

14. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
$300 deductible

15. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
25%
coinsurance

16. Estimated Quarterly OOP Drug Spending for Enrollee with Average Spending
hits donut hole

17. Estimated Drug Spending ( ) for Typical “High Spender” in 2006 (38% of enrollees with >$2,250 in 2006)
Year
Mean Annual Total Prescription Drug Spending
% Out-of-Pocket (OOP) Drug Spending
2006
$5,534
65%
2007
$5,289
69%
2008
$5,562
67%

18. Estimated Quarterly OOP Drug Spending for Typical “High Spender”
note change in scale

19. Estimated Quarterly OOP Drug Spending for Typical “High Spender”
enters donut hole

20. Estimated Quarterly OOP Drug Spending for Typical “High Spender”
passes catastrophic
threshold

21. Estimated Quarterly OOP Drug Spending for Typical “High Spender”
higher OOP spending due
to rise in catastrophic
threshold

22. Estimated Drug Spending ( ) for Typical “Catastrophic Spender” in 2006 (14% of enrollees with >$5,100 in 2006)
Year
Mean Annual Total Prescription Drug Spending
% Out-of-Pocket (OOP) Drug Spending
2006
$9,106
42%
2007
$7,663
53%
2008
$7,328
60%

23. Estimated Quarterly OOP Drug Spending for Typical “Catastrophic Spender”
note change in scale

24. Estimated Quarterly OOP Drug Spending for Typical “Catastrophic Spender”
enters donut hole

25. Estimated Quarterly OOP Drug Spending for Typical “Catastrophic Spender”
passes catastrophic
threshold

26. Estimated Quarterly OOP Drug Spending for Typical “Catastrophic Spender”
higher OOP spending due
to rise in catastrophic
threshold

27. How Will Beneficiaries React to Multiple Benefit Gaps of Varying Duration?
Research shows that beneficiaries will cut back on drug use
Cut-backs are proportional to level of spending (higher spending = greater cutbacks)
Beneficiaries with certain chronic conditions will cut back more

28. Estimated Impact of Drug Benefit Gaps on Drug Use by Beneficiaries with Selected Diseases (Impact relative to no gap and 25% coinsurance)
Gap in months
Average beneficiary
Diabetes
COPD
Mental Illness 1
-2%
-3%
-4% 2
-6%
-8%
-9% 3
-12%
-13% 4
-11%
-16%
-17% 5
-10%
-14%
-21% 6
-25%
-26% 7
-20%
-29%
-30%

29. Implications for the States
States need to consider the needs of vulnerable Medicare beneficiaries ineligible for subsidized prescription coverage under Part D. Risk factors are:
Annual drug spending deep in the donut hole (e.g. >$4,000)
Chronic illness (e.g., diabetes, COPD, mental disorders)
Poor with modest assets
Near poor (e.g., 150%-250% FPL)