DATA DEMONSTRATES UNEXPECTED COSTS OF DRUG PLANS

The premium and deductible charged by a Part D prescription drug plan and the number of drugs covered in the plans formulary are not reliable indicators of annual out-of-pocket costs or the coverage offered for plan enrollees, according to recent research for MedPAC on the Medicare drug benefit (“Part D”).

According to study findings presented by Jack Hoadley of Georgetown University, drug plans with broader formularies cover more drugs, but often contain more coverage restrictions and require enrollees to pay more cost-sharing than plans with limited formularies.

After reviewing the formulary data from Medicare Advantage Prescription Drug (MA-PDs) plans and stand-alone Prescription Drug Plans (PDPs) offered in 2007, Hoadley found that the vast majority of MA-PD plans and PDPs use a "three-tier" cost system, where drugs are placed into one of three price categories. Hoadley noted that most additional drugs covered by PDP formularies are in nonpreferred, or higher-costing tiers, which on average require copayments of $60 per drug.

Hoadley's review found that on average Part D plans used utilization management tools, or various types of coverage restrictions, on 18 percent of Part D drugs. Twelve percent of drugs were subject to quantity limits attached to certain drugs, eight percent required prior authorization and one percent were subject to "step therapy," where enrollees had to try a cheaper alternative to their prescription prior to receiving coverage to their drug of choice.

While the Part D plans with the highest enrollment figures, offered by Humana and AARP, often listed the greatest number of covered drugs, they also maintained high rates of restricted coverage. Kaiser Permanente, which offered the least number of drugs, had the largest proportion of unrestricted coverage. Hoadley suggested that enrollees in plans such as Kaiser's can benefit from broader coverage through the Part D exceptions process (request for coverage based on special circumstances).

MedPAC staffer Rachel Schmidt also noted that Part D enrollees who choose to remain in their current plans will experience a noticeable increase in their Part D premium—up to $60 per year, on average.

-Adapted from Medicare Watch, Vol. 10, No. 23, From the Medicare Rights Center, November 13, 2007.

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