Part D private market continues to be an industry hot spot

July 1, 2012

Part D program exceeds industry expectations

Key Points

Market forces have converged to drive savings, from lower-than-expected enrollment and robust plan competition, to increased use of generics and less overall spending on prescription drugs. While monthly premiums for the Standard Benefit Plan have risen 52% since 2006, according to the Centers for Medicare and Medicaid Services (CMS), they leveled out and actually decreased about 1% between 2011 and 2012.

"Part D is the only benefit program designed with first dollar and catastrophic coverage with a hole in the middle," says Juliette Cubanski, associate director, Program on Medicare Policy for Kaiser Family Foundation (KFF). "Many observers were not expecting a drug-benefit-only program to be adopted so readily by plans."

"Part D also helps seniors stay on drugs even though they may pay 100% in the donut hole-that is less costly than an emergency room or hospital visit," he says.

LOWER ENROLLMENT

According to the Kaiser Family Foundation, several factors are contributing to the gap between the $60 billion in actual spending and the $95 billion CBO projected back in 2003.

At the top of the list is enrollment, which the CBO estimated at 87% of beneficiaries, but in 2012, only 73% have enrolled. Lower enrollment reduced total program costs but has not had a large impact on the spending growth rate since the first year.

Cubanski says she is concerned that some beneficiaries might wait until the need for drug coverage arises-which is difficult to predict-before signing up for Part D, and then would have to pay a late enrollment penalty of 1% of average monthly premiums. The penalty is often considered too weak by critics to be a significant disincentive.

Lujing Wang, practice area leader, pricing and market access for the Campbell Alliance, a management consulting firm, points to additional reasons for Part D success:

"To some extent, these restrictions/cost-management measures are the conditions needed for Part D to continue to exist," Wang says.

COMPETITION AND SPENDING