1. Healthcare Reform and Medicare Part D
Dsih-lang Liu, FSA, MAAA
Centers for Medicare & Medicaid Services

2. Medicare Part D Benefits
Prescription drug benefit in Medicare in Medicare Modernization Act passed on Dec. 8, 2003
Optional coverage with subsidized premiums started on Jan. 1, 2006
Eligibility: entitled to A or enrolled in B

3. CY 2006 Benefit Structure $250 deductible
25% coinsurance up to $2,250 initial coverage limit (ICL)
Coverage gap (donut hole)
$3,600 true out-of-pocket (TrOOP) catastrophic limit (=$5,100 incurred costs/threshold)
Beneficiary pays greater of $2 generic/$5 brand or 5% coinsurance above catastrophic threshold
TrOOP excludes reimbursement by insurance, employers etc.

4. Beneficiary Liability Total Spending Catastrophic Coverage
$250 $
2,250
5,100
$ +
Beneficiary Liability
Deductible
Coverage Gap
Total
Spending ?
95%
80% Reinsurance
15% Plan Pays
Catastrophic
Coverage
5% Coinsurance
Medicare Pays Reinsurance
75% Plan Pays
25%
Coinsurance
Out - of
Pocket
Threshold
Direct Subsidy
Beneficiary Premium
Initial Coverage
Limit
$3,600 TrOOP

5. CY 2011 Benefit Structure $310 deductible $2,840 ICL
$4,550 OOP catastrophic limit
Threshold varies by beneficiary
$6, if 100% brand in gap
$6, if 100% generic in gap

6. Part D Coverage Individual plans Prescription drug plans (PDPs)
Medicare Advantage prescription drug plans (MA-PDs)
Employer group waiver plans (EGWPs)
Retiree drug subsidy (RDS) plans
Creditable coverage

7. Benefit Options (PDPs & PDs)
Standard
Actuarial equivalent
Basic alternative
Enhanced alternative

8. Payments to Plans Direct subsidy: risk adjusted
Beneficiary premiums per plan bids
Reinsurance advance payments
Low-income cost sharing (LICS) advance payments
Low-income premium subsidy (LIPS)
Year end reconciliation: reinsurance, LICS and risk corridor adjustments

9. Employer Group Waiver Plans
Encourage Part D participation
Do not submit bids
Benefits must be at least as generous as standard Part D benefit

10. Retiree Drug Subsidy Plans
28% subsidy between $310 and $6,300 in 2011
Updated similarly to the Part D benefit parameters
Tax exempt through 2012
Plans must pass gross and net tests
6.6 million enrollees in 2009

11. Creditable Coverage Other qualifying prescription drug coverage
Working aged
VA/DOD
Indian Health Services (IHS)
Not subject to late enrollment penalty

12. Healthcare Reform: Patient Protection and Affordable Care Act (ACA)
Enacted Mar. 2010

13. ACA Effects on Part D Closing the coverage gap
Income related premiums (IRP)
Eliminate tax exemption for RDS in 2013
LIS benchmark calculation methodology
De minimis
Protected drug classes
Waste reduction in long term care (LTC) facilities
TrOOP for IHS and AIDS Drug Assistance Program (ADAP)
Pathway for follow-on biologics (FOBs)
Independent Payment Advisory Board (IPAB)

14. Closing the Coverage Gap
$250 rebate in 2010 if exceeds ICL
50% brand discount starting Jan. 2011
Not applied to dispensing fee
Discount is considered TrOOP
Slower growth in catastrophic threshold
Transitioning in 2020 to
Brand: plan 25%, bene 25%, PhRma 50%
Generic: plan 75%, bene 25%

15. Closing the Coverage Gap (cont.)
Calendar Year
Generic Coverage
Brand Coverage
Brand Discount
2011 7%
0.0%
50%
2012 14
0.0 50
2013 21
2.5
2014 28
2015 35
5.0
2016 42
2017 49
10.0
2018 56
15.0
2019 63
20.0
2020 75
25.0

16. Closing the Coverage Gap (cont.)
No 50% brand discount for
RDS beneficiaries
LIS beneficiaries

17. Income Related Premiums
Same income threshold as Part B IRP
Beneficiaries will pay higher premiums; i.e. lower direct subsidies
Expect some portion of beneficiaries to drop coverage
Threshold is frozen through 2019
EGWPs subject to IRP

18. Income Related Monthly Adjustment Amount (IRMAA)
Individual Income
Joint Income
Premium Rate
IRMAA
<= $85,000
<= $170,000
25.5%
85,000 – 107,000
170,000 – 214,000
35%
107,000 – 160,000
214,000 – 320,000
50%
160,000 – 214,000
320,000 – 428,000
65%
> 214,000
> 428,000
80%

19. RDS Greatly Disadvantaged
No tax exemption for subsidy
No brand discount
Expenses eligible for 28% subsidy do not increase as donut hole disappears

20. LIS Benchmark Methodology
: calculated after MA rebate re-allocation
2010 Demonstration calculated before MA rebate re-allocation
ACA: calculates before MA rebate re-allocation for 2011 and later
Increase the LIPS for most regions

21. De Minimis
Plans can waive the de minimis premiums to keep LIS beneficiaries
Cannot get new LIS auto-assignees
For 2011, the de minimis amount is $2
A minor cost for Part D by not re-assigning LIS beneficiaries to lower premium plans
Re-assignments reduced from 1.1 to 0.5 million

22. Protected Drug Classes
Include all covered Part D drugs in 6 classes:
Anticonvulsants
Antidepressants
Antineoplastics
Antipsychotics
Antiretrovirals
Immunosuppressants for transplant rejection

23. Protected Drug Classes (cont.)
All drugs in the protected classes must be in formulary
ACA
Codifies the authority for protected classes
Allows for new considerations

24. Wasteful Reduction in LTC Facilities
7-day or less dispensing
Applied to brand drugs only
Expect savings on brand drugs
More dispensing fees

25. TrOOP for ADAP/IHS Currently, ADAP/IHS not considered TrOOP
ACA: ADAP/IHS will be TrOOP
Beneficiaries will reach catastrophic coverage sooner

26. Follow-on Biologics “Generic” version of biologics
Currently there is no approval pathway for FOBs
ACA provides an approval pathway for biologics

27. Follow-on Biologics (cont.)
Insulin is among the top categories in spending
No impact expected on insulin because it is governed by a different pathway

28. IPAB to Control Growth Independent Payment Advisory Board
Starting in 2014
Recommend spending reduction measures affecting providers and suppliers, including Part D plans
If projected Medicare per capita spending growth exceeds target rate

29. Questions?