1. TAYLOR MELANSON Providing Prescription Drug Coverage to the Elderly: America’s Experiment with Medicare Part D By Mark Duggan, Patrick Healy, and Fiona Scott Morton

2. History of Medicare Part D Medicare did not cover drugs (1966-2006) % of healthcare costs accounted for by drugs  4.5% – 1982  5.6% – 1994  10.1 – 2005 Prior to Part D, 30% of 44 million beneficiaries lacked coverage for drugs (Neuman et al., 2007) Medicare Prescription Drug, Improvement, and Modernization Act of 2003  Took effect in 2006 -> Established Part D  2007 – covered 24 million people, cost $39 billion

3. Why Study Part D? Impact on health and economic well-being Increase in government spending “Attempt to use market mechanisms in the delivery of a large-scale entitlement program” (70)  Competition  Price negotiation  Preference matching

4. Coverage Plans Stand-alone plans Basic plans  Government defined standard  “actuarially equivalent” Many options  4% of plans cover more than half of enrollees

5. Standard Cost Sharing Scheme Monthly premium Deductible = $275 Low cost coverage Donut hole Catastrophic coverage Only 17% of plans

6. Coverage of Medications Basic Plan coverage - $1676 + catastrophic coverage Formularies  Tier system  Prior authorization  Step therapy  Off formulary drugs

7. Choice of Plan Out-of-pocket cost Formulary status of current drugs  Maintenance vs acute need drugs Reputation Incentive to enroll early  Incentivizes alternative plans 2008 - 10% of eligible people did not enroll

8. Influence on Drug Prices Formulary placement Incentives for patients and pharmacies Average price of drugs declined Treatments without substitutes  CMS required coverage Protected Classes

9. Incentives for Sponsors Firms make bid to CMS Base beneficiary premium  Incentives to make bid accurate Risk factor adjustment  Offsets approximately ¼ of variance in drug spending  Plans have better data than government Catastrophic coverage Risk absorption

10. Issues Enrollees without financial incentives Catastrophic coverage Formulary manipulation Inefficient treatment patterns Impact on budget

11. Conclusions Successes  Drug prices  Drug utilization  Costs Failures  Suboptimal choices  Treatments without substitutes  Administrative costs  Unsuccessful incentives

12. Citations Images  http://www.epsilonregistration.com/ERImages/378/CMS%2 0log%20blue.jpg http://www.epsilonregistration.com/ERImages/378/CMS%2 0log%20blue.jpg  http://www.alan.com/wp- content/uploads/2012/04/doughnut_21023028-300x286.jpg http://www.alan.com/wp- content/uploads/2012/04/doughnut_21023028-300x286.jpg  http://www.mymedicarematters.org/images/copayGraphic.gif http://www.mymedicarematters.org/images/copayGraphic.gif