Lower Medicare Part D Costs Than Expected In 2009, USA

Main Category: Medicare / Medicaid / SCHIP
Article Date: 18 Aug 2008 - 3:00 PDT

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As Medicare's Part D prescription drug program enters its fourth year, beneficiary satisfaction rates remain high, program costs remain lower than originally expected, and Medicare prescription drug plan bids reflect nationwide drug price trends, the Centers for Medicare & Medicaid Services (CMS) announced.

Based on the bids submitted by Part D plans, CMS estimates that the average monthly premium that beneficiaries will pay for standard Part D coverage in 2009 will be $28. This is about 37 percent lower than originally projected when the benefit was established in 2003.

"Measured by enrollment, lower costs than originally expected and persistently high satisfaction rates, the Part D drug benefit program has in a short time become a stable, familiar, and vital part of Medicare" said CMS Acting Administrator Kerry Weems. "Of course, individual plans' premiums and benefits may change. Given their past record of making smart choices, I expect beneficiaries will continue to compare their plan options in the upcoming enrollment period based on cost, coverage and convenience."

The estimated average monthly premium for 2009 of roughly $28 for basic coverage is far below the original estimate for 2009 of $44.12, which was made at the time the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) was enacted in 2003. The average expected premium for basic coverage in 2009 is about $3 higher than the actual average for 2008. The $3 premium increase is due to general trends in drug costs, the phase-out of a CMS demonstration project, and higher plan estimates for catastrophic coverage based on prior experience.

"Average plan bids have increased at roughly the same rate as drug costs," said Paul Spitalnic, director of the Parts C and D Actuarial Group in the Office of the Actuary at CMS. The basic premiums paid by Part D enrollees cover about one-fourth of the cost of the standard Part D drug benefit. Enrollees with low incomes qualify for subsidies that typically cover the full amount of these premiums.

For 2009, beneficiaries will continue to have access to plans that offer enhanced coverage. While all Medicare beneficiaries, no matter where they live, will continue to have access to plans that offer gap coverage of generic drugs, the cost of such enhanced coverage is paid by enrollees through additional premiums. Eligible low-income enrollees receive coverage during the coverage gap at minimal or no cost. In addition, approximately 97 percent of beneficiaries enrolled in a stand-alone prescription drug plan (PDP) will have access to other Medicare drug plans that would cost them the same or less than their coverage in 2008. The vast majority of PDP enrollees could thus avoid any premium increase in 2009 by enrolling in a lower-cost stand alone PDP in their region. Moreover, many beneficiaries have access to a Medicare Advantage (MA) plan with lower prescription drug premiums.

The MA-PD premiums continue to be lower than PDP premiums. On average, in 2008, the MA-PD premiums prior to rebates are about $9 per month lower than those for PDPs. In 2009, they will average an estimated $11 lower. Many MA-PD plans keep premiums low by applying a portion of their rebates to reduce their Part D premiums, in many cases to zero, as well as by using care coordination and drug management techniques.

Under Part D, beneficiaries with low incomes can receive valuable extra assistance with their drug plan premiums and cost-sharing. Nearly 10 million beneficiaries are currently receiving drug coverage for little or no cost through the Low-Income Subsidy (LIS) benefit. The average value of the Part D benefit, premium subsidy, and cost-sharing subsidy for low-income enrollees is estimated to be about $3,900 in 2009.

Low-income beneficiaries who are determined to be eligible to receive a full premium subsidy are randomly auto-enrolled in a Part D plan that has a premium at or below the premium subsidy amount if they do not choose a plan. As a result, these beneficiaries do not have to pay any Part D premium. In some cases, the premium for the plan in which an LIS beneficiary is enrolled during 2008 may increase above the premium subsidy amount in 2009. In such cases, if the beneficiary does not affirmatively choose to stay in that plan, or choose another plan, the beneficiary will be assigned by CMS to a new plan sponsor in their coverage area effective January 1, 2009, where the beneficiary can continue to receive prescription drug benefits at no cost.

The number of low income beneficiaries reassigned to a new plan in this manner would have been significantly higher if CMS had not issued a final rule this past April designed to reduce such reassignments by revising the methodology for calculating the subsidy amount.

In addition, eligible low-income beneficiaries are not required to pay a late enrollment penalty. Finally, beneficiaries that are auto-enrolled in a plan always remain free to switch to another plan if they choose.

"Beneficiary experience in Part D continues to be good, with millions of people getting the prescription drugs they need," said Weems. "CMS will continue to provide up-to-date information about their plan benefits at http://www.medicare.gov and 1-800-MEDICARE (1-800-633-4227) and beneficiaries will receive their annual Medicare & You 2009 handbook in October."

In addition to average premiums for 2009, CMS has announced: the 2009 national average monthly bid; the base beneficiary premium; the regional low-income subsidy premium amounts for 2009; and the 2009 Medicare Advantage regional preferred provider organization benchmarks. These data can be found here.

Centers for Medicare & Medicaid Services