Part D brings more drug coverage to seniors

October 1, 2007

There has been a lot of good news about the Medicare drug benefit lately. Surveys show a substantial increase in coverage, particularly among low-income seniors. Costs are less than expected; employers continue to offer retiree benefits; major insurers are sticking with the program; and product coverage remains fairly broad. Beneficiaries seem generally satisfied with the program, and the much-feared "donut hole" appears less lethal than anticipated.

As Medicare officials prepare for fall 2008 open enrollment, they are highlighting continued access to relatively low-cost plans. The Centers for Medicare and Medicaid Services (CMS) announced that the average plan premium in 2008 will be about $25, up only slightly over this year and way below original estimates of $40 or more. And premiums for Medicare Advantage plan drug benefits are even lower, an average $11 less.

These low rates have prompted most seniors to sign up for the program. By the beginning of 2007, almost 40 million Medicare beneficiaries had prescription drug coverage, up from 27 million in 2005, CMS reported. More than half (24 million) are enrolled in Part D, including about 6 million receiving drug benefits from MA plans. Private employers continue to provide benefits for 7 million retirees; and 5 million federal government and military retirees have coverage through government health programs.

Seniors enrolled in Part D plans filled approximately 486 million prescriptions in 2006-almost 15% of the total retail prescription market, according to IMS Health.

CONTROLLING COSTS

But as participation increases, program spending is sure to rise. Program critics already claim that Part D drug plans pay too much for medicines, and that the government could negotiate lower prices from manufacturers. Insurers hope to avoid a government takeover with more aggressive formulary management and tougher negotiating for discounts on listed drug prices. Three-fourths of plans have formularies with four or more tiers that provide a framework for ramping up copays and imposing restrictions on costly brand products.

A key cost-saving strategy for plans is to encourage physicians and patients to use less-expensive generic drugs. CMS reports that about 60% of Part D prescribing is for generics, slightly higher than for the total retail market.

Further consolidation among Part D plans also is likely to give major insurers considerable clout in negotiating lower drug prices. Although there are some 70 plan sponsors, the top two, UnitedHealth and Humana, have more than half the market, and the top eight plans represent more than two-thirds of enrolled beneficiaries.

As Congress scrutinizes drug benefits and costs more intensely, the bigger and stronger plans hope to stake out tough negotiating positions. Even without federal price controls or a national formulary, Medicare Part D will set the tone for coverage and payment decisions throughout the U.S. market.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.