The Medicare Part D Benefit, Payment,

1
The Medicare Part D Benefit, Payment,
Coordination of Benefits

• Rebecca Paul
• Medicare Plan Policy Group
• Center for Beneficiary Choices
• CMS Union Forum Conference Call
• May 26, 2005
• Note AFSCME has reorganized these slides from
  the original
• presentation to include a separate section for
  union plan sponsors.

2
MMA overview

• Signed by the President December 8,2003
• Legislation addresses a number of areas
• Adds prescription drug benefit
• Creates drug discount card
• Authorizes changes to Medigap
• Establishes Health Savings Accounts
• Includes FFS provider payment reforms
• Addresses many other issues

3
MMA Overview (cont)

• Title I of the Medicare Prescription Drug,
  Improvement, and Modernization Act of 2003
  creates the new Medicare Drug Benefit (Part D)
• Participation in Part D is voluntary and optional
• Generally, coverage will be provided by
• Private prescription drug plans (PDPs)
• Medicare Advantage plans that offer both
  prescription drug and health coverage (MA-PD
  plans)
• Title II of MMA establishes the Medicare
  Advantage program

4
Eligibility and Enrollment

• Must be entitles to Medicare Part A and/or
  enrolled in Part B
• Reside in plans service area
• Enroll in Part D, higher premium for delay in
  enrollment
• Initial enrollment Nov 15, 2005 - May 15, 2006
• Enrollment 2006 and beyond Nov 15 Dec 31

5
Options for Employers and Unions That Currently
Offer Retiree Coverage of Prescription Drugs

• Tax-free retiree drug subsidy that pays 28 of
  certain retiree drug costs, if coverage is at
  least as good as Part D defined standard
  prescription drug benefit.
• Set up their own separate supplemental plans
• Obtain customized coverage for their retirees
  through special arrangements with Part D
  sponsors.
• Become Part D plans through direct contracting
  with CMS

6
What is a Part D Drug? (423.100)

• A Part D drug includes any of the following if
  used for a medically accepted indication
• A drug dispensed only by prescription and
  approved by the FDA
• A biological product dispensed only by a
  prescription, licensed under the Public Health
  Service Act (PHSA), and produced at establishment
  licensed under PHSA
• Medical supplies associated with the injection of
  insulin (e.g., syringes, needles, alcohol swabs,
  swabs)
• A vaccine licensed under the PHSA

7
What is a Part D Drug? (423.100)

• What is excluded as a Part D drug?
• Drugs for which payment as so prescribed and
  dispensed or administered to an individual is
  available under Parts A and B
• Drugs/classes of drugs which may be excluded
  under Medicaid, except for smoking cessation
  agents
• (1) Agents when used for anorexia, weight loss,
  or weight gain (2) agents when used for cosmetic
  purposes/hair growth (3) agents when used for
  symptomatic relief of cough colds (4)
  prescription vitamins mineral products (except
  prenatal vitamins fluoride preparations) (5)
  nonprescription drugs (6) covered outpatient
  drugs when manufacturer seeks to require
  associated tests or monitoring as a condition of
  sale (7) barbiturates and (8) benzodiazepines

8
What is a Covered Part D Drug? (423.100)

• Refers to the subset of Part D drugs that
• Are included on a Part D plans formulary
• Are treated as being included on a Part D plans
  formulary as a result of a coverage determination
  or appeal

9
Dispensing Fees (423.100)

• Dispensing fees will be limited to only those
  costs associated with the transfer of possession
  of a drug, including
• Checking computer for coverage information,
  performing quality assurance activities, filling
  the container, providing completed prescription
  to customer, delivery, special packaging, and
  overhead
• Dispensing fees will not include fees for
  administration, professional services, or
  supplies and equipment

10
Benefit Design (423.104(d))

• Defined standard benefit in 2006
• 37 estimated monthly premium
• 250 beneficiary deductible
• Beneficiary cost-sharing of 25 between 251 and
  2,250 in total drug expenditures
• Beneficiary cost-sharing of 100 of drug costs
  between 2,250 and 5,100 in total drug
  expenditures (the coverage gap)
• After 3,600 in true out-of-pocket (TrOOP)
  spending, or 5100 in total drug expenditures,
  beneficiary must pay only the greater of 2/5
  copays or 5 coinsurance
• Actuarially equivalent standard coverage varying
  defined standard benefit cost-sharing (e.g., by
  using tiered cost-sharing designs) may also be
  offered

11
Standard Benefit in 2006
Out-of-pocket Threshold
Catastrophic Coverage
Total Spending
250
2250
5100
75 Plan Pays
Coverage Gap
80 Reinsurance

Deductible
95
25 Coinsurance
Total Beneficiary Out-Of-Pocket
750
3600 TrOOP
250
15 Plan Pays
5 Coinsurance
Direct Subsidy/ Beneficiary Premium
Beneficiary Liability
Medicare Pays Reinsurance
12
Benefit Design (423.104(e) and (f))

• Alternative coverage
• Basic alternative coverage is actuarially
  equivalent to the defined standard benefit
• Enhanced alternative coverage has an actuarial
  value greater than the defined standard benefit
• Enhanced alternative coverage includes
  supplemental benefits, which are limited to
• Further cost-sharing reductions (e.g., filling in
  the coverage gap, lowering the deductible)
• Coverage of drugs excluded as Part D drugs

13
TrOOP/Incurred Costs (423.100)

• TrOOP (true out-of-pocket costs)/incurred costs
  is the amount a beneficiary must spend on covered
  Part D drugs to reach catastrophic coverage. It
  is based on the standard benefit design
• 250 deductible
• 500 beneficiary coinsurance during initial
  coverage
• 2,850 coverage gap
• 3,600
• The above numbers are for 2006 and will increase
  by law in subsequent years
• Part D premium is not part of TrOOP

14
TrOOP/Incurred Costs (423.100)

• Payments count toward TrOOP if
• They are made for covered Part D drugs (or drugs
  treated as covered Part D drugs through a
  coverage determination or appeal)
• They are made by
• The beneficiary
• Another person on behalf of a beneficiary
• CMS as part of the low-income subsidies
• A State Pharmaceutical Assistance Program (SPAP)

15
TrOOP/Incurred Costs (423.100)

• Payments DO NOT count toward TrOOP if they are
  made by
• A group health plan
• Insurance or otherwise
• Another third-party payment arrangement
• Examples of entities whose wraparound coverage
  does not count toward TrOOP
• MA plans
• PACE organization
• SCHIP program
• Medicaid, including 1115 waiver programs
• VA or TRICARE
• Indian Health Service
• AIDS Drug Assistance Programs (ADAPs)
• Federally Qualified Health Centers (FQHCs)

16
TrOOP/Incurred Costs (423.100)

• Part D plans are required to ask beneficiaries
  what third-party coverage they have (if any)
  because this information is necessary for proper
  TrOOP calculation
• Material misrepresentation of the supplemental
  coverage that a beneficiary has may constitute
  grounds for termination of coverage from Part D

17
Implementing TrOOP

• CMS will implement new electronic COB system for
  tracking of TrOOP expenditures
• Solution CMS will use was developed with
  technical input from a variety of experts and
  builds on existing technologies providing
  electronic support for pharmacy transactions
  nationwide
• CMS recently issued RFP describing specifications
  and features for tested technologies for this
  system

18
Todays Online Claims Adjudication Process
2) Pharmacist queries health plans computer to
communicate prescription and verify eligibility,
coverage, and cost-sharing terms.
1) Beneficiary presents prescription and health
plan card to pharmacist.
4) Pharmacist dispenses drug and collects co-pay.
3) Health plan performs drug utilization review
(e.g. safety checks) and verifies eligibility,
coverage, and applicable co-pay.
19
Claims Adjudication Process With TrOOP COB
2) Pharmacist queries Medicare plans (primary
payer) computer to communicate prescription and
verify eligibility, coverage and cost-sharing
terms.
4) Pharmacist queries secondary payers computer
(e.g. employer or SPAP).
1) Beneficiary presents prescription and health
plan card(s) to pharmacist.
5) Secondary payer identifies share of remaining
beneficiary cost it will pay. Record of
contribution goes to Medicare plan for TrOOP
calculation and to CMS for audit purposes.
3) Medicare Plan performs drug utilization review
(e.g. safety checks) and verifies eligibility,
coverage, and applicable co-pay. Plan alerts
pharmacy to presence of secondary payer.
6) Pharmacist dispenses drug and collects any
co-pay that remains after all payers have paid.
20
Low Income Subsidy Two General Categories

• Full Subsidy Individuals are eligible for full
  premium subsidy and cost sharing subsidy (for
  deductibles and coinsurance).
• Other low-income subsidy Individuals are
  eligible for a partial premium subsidy and a
  reduced cost sharing subsidy.

21
Full Subsidy Who are we talking about?

• Full benefit dual eligible individuals
• Individuals enrolled in Medicare Savings Programs
• Supplemental Security Income
• Individuals with income below 135 FPL and assets
  at or below 6,000 (individual) or 9,000 (couple)

22
Full-Subsidy Coverage

• Full premium assistance up to the premium subsidy
  amount
• Only required to pay a 1 or 2 co-payment for
  generic/preferred or a 3 or 5 co-payment for
  non-preferred, depending on income.
• Cost sharing up to an out-of-pocket threshold.
  At that point catastrophic takes effect and they
  have no cost sharing.
• No coverage gap.

23
Other Low-Income Subsidy Who Are We Talking
About?

• Income below 150 FPL
• Resources do not exceed 10,000 (individual) or
  20,000 (couple)
• Do not meet the requirements for the full subsidy.

24
Other Low-Income Subsidy Coverage

• 50 deductible
• 15 coinsurance
• No coverage gap
• Catastrophic coverage after 3,600 in
  out-of-pocket drug expenditures. 2/5
  co-payment after out-of-pocket threshold is
  reached.
• Premiums subsidy of 100 or sliding scale,
  depending on income.

25
ReinsuranceGovernment pays 80 of costs in the
catastrophic coverage
Deductible
25 co-insurance
Catastrophic Coverage
Total Spending
250
2250
5100

80
95
15
CMS Pays (reinsurance)
Beneficiary Pays
Plan Pays
26
The Standard Benefit

• Organization projects cost for standard benefit
  based on population assumed to enroll
• Standard benefit excludes beneficiary cost
  sharing, reinsurance and low-income cost-sharing
  subsidies

27
Coordination of Benefits (423.464(a) and (f))

• Plans must permit the following entities to
  coordinate benefits
• State Pharmaceutical Assistance Programs (SPAPs)
• Medicaid programs (including 1115 waiver
  programs)
• Group health plans
• FEHBP plans
• TRICARE and VA
• IHS
• Rural Health Centers
• Federally Qualified Health Centers
• Other entities as CMS determines

28
End of Main Presentation
This presentation is now continued

• The following slides will be most useful for
  Union Plan Sponsors. They detail specifically
  the ways in which plans are paid by CMS.
• These slides have a level of detail that is not
  needed for most union representatives and
  bargainers to understand the new Medicare law.

29
Payment overview

• Four components of payment
• Direct subsidy
• Reinsurance
• Low income cost sharing
• Risk corridors
• Direct subsidy determined in bid
• Reinsurance and low income cost sharing
• Interim prospective payment based on bid
• Final payment based on actual costs
• Risk corridors determined based on actual costs

30
Plan Standardized Bid

• Organization projects cost for standard benefit
  based on population assumed to enroll
• Standard benefit excludes beneficiary cost
  sharing, reinsurance and low-income cost-sharing
  subsidies
• Projected costs adjusted by the projected risk
  score of population to get standardized bid

31
Drug Bid Mechanics
Step 1 Compilation of the National Weighted
Average (benchmark)
Supplemental (if any)
Reinsured
Basic Bid
At Risk Bid
32
Bidding / Premium Overview
Drug plans and Medicare Advantage plans submit
bids for the drug benefit.
Beneficiaries pay 25.5 of the benchmark /- the
difference between the bid and the benchmark.
On average, Medicare pays 74.5 of the benchmark.
The bids form a national weighted average bid
Plan 1 Premium 25
Plan 1 Bid 125
Plan 2 Premium 30
Plan 2 Bid 130
Plan 3 Premium 35
Plan 3 Bid 135
Fed Share 100
Natl Avg. 135

Plan 4 Premium 40
Plan 4 Bid 140
Plan 5 Premium 45
Plan 5 Bid 145
33
Drug Bid Mechanics
Step 2 Calculation of the Beneficiary Premium
-
/-
Bene Premium
25.5 X
Standardized Bid
Adjustments (if applicable)
Low-income subsidy Late enrollment
penalty Supplemental Premium MA rebate (if any)
Supplemental (if any)
Adjusted to factor the reinsurance back in.
34
National Average Monthly Bid Amount

• Bids will be aggregated to generate a single
  national average monthly bid amount
• Weights will be based on prior enrollment
• For 2006 plan years,
• MA plan bids weights will be based on prior year
  enrollment
• PDP weights will be based on an allocation of
  those not in the MA weights across all PDPs in
  the region

35
Basic premium calculation

• Basic beneficiary premium amounts to 25.5 of the
  national average bid amount adjusted for
  reinsurance
• Plan specific premiums will equal the basic
  beneficiary premium adjusted for 100 of the
  variation between the plans standardized bid and
  the national average bid amount

36
Government Payment to Plans
1) Direct Subsidy
Risk Adjustment Factor
At Risk Bid
Direct Subsidy
-
Bene Premium
X

2) Reinsurance
3) Low-income premium and cost-sharing assistance
37
Direct subsidy payments

• Monthly direct subsidy made at the individual
  level
• Direct subsidy (Standardized Bid x
• Individual Risk score) Beneficiary
  Basic Premium
• Sum for all beneficiaries enrolled equals monthly
  organizational payment

38
Risk Adjuster Basics

• Capitated payment is adjusted according to the
  expected cost of the enrollee.
• Expected cost is derived from enrollee
  characteristics
• Enrollees characteristics are assigned risk
  factors that are added to produce a total risk
  factor
• Model includes over 80 disease coefficients,
  age-sex adjustments, and interactions between age
  and disease interactions and sex-age-originally
  disabled statuses

39
Risk Adjustment Implementation

• Low income long term care factors are
  multipliers (derive risk score, then multiply by
  one of these factors if they apply for the
  payment month)
• Diagnoses from either MA or from Medicare FFS
• New Enrollee model used for people new to
  Medicare with insufficient data for risk
  adjustment. This model is based solely on
  demographics
• Payment notice from information on 45 day notice

40
ReinsuranceGovernment pays 80 of costs in the
catastrophic coverage
Deductible
25 co-insurance
Catastrophic Coverage
Total Spending
250
2250
5100

80
95
15
CMS Pays (reinsurance)
Bene Pays
Plan Pays
41
Interim Reinsurance Payments

• Final reinsurance payment will be based on 80 of
  allowable reinsurance costs after beneficiary has
  3,600 of true out-of-pocket spending
• Amounts estimated in the bidding process will be
  used as an interim payment
• Reconciliation will occur after the plan year

42
Calculating Reinsurance Subsidy

• Plans identify beneficiaries that reach or exceed
  out-of-pocket threshold on claims
• CMS identifies allowable reinsurance costs from
  claims
• Sum by plan
• Multiply by 0.80
• Subtract rebate savings attributed to reinsurance
  costs
• Part of reconciliation in 2007

43
Low Income Subsidy Two General Categories

• Full Subsidy Individuals are eligible for full
  premium subsidy and cost sharing subsidy (for
  deductibles and coinsurance).
• Other low-income subsidy Individuals are
  eligible for a partial premium subsidy and a
  reduced cost sharing subsidy.

44
Reconciliations

• Enrollment
• Risk Adjustment
• Low-Income Cost Sharing
• Reinsurance

45
Risk Corridors
5
2.5
Plan Pays 100
Spending Target
Plan Keeps 100
- 2.5
- 5
46
Calculating Risk Corridor Payment

• Calculate target Amount
• Direct Subsidy
• Negative Premium
• Beneficiary Basic Premium
• A/B Rebate Allocated to Part D Basic Premium
• Administrative Costs ( from Bid)
• Calculate risk corridor thresholds
• Calculate adjusted allowable risk corridor costs
• Determine where costs fall with respect to risk
  corridor thresholds
• Calculate payment adjustment

47
Adjusted Allowable Risk Corridor Costs

• Add
• Covered Part D drugs from claims (Ingredient
  Cost, Dispensing Fee, and any Sales Tax)
• Then Subtract
• From claims - patient cost-sharing liabilities,
  LICS, and enhanced alternative benefits (drug
  costs and cost-sharing)
• From bid - induced utilization (enhanced
  alternative plans)
• Reinsurance subsidy
• From rebate report - Part D covered rebate
  dollars

48
Coordination of Benefits (423.464(a))

• COB must ensure effective coordination with
  regard to
• Payment of premiums and coverage
• Payment for supplemental prescription drug
  benefits
• Coordination elements include (1) enrollment
  file sharing (2) claims processing, payment, and
  reconciliation reports and (3) application of
  protection again high out-of-pocket expenditures
• CMS will establish COB requirements before the
  statutory deadline of July 1, 2005

49
Coordination of Benefits (423.464(a) and (f))

• Plans must permit the following entities to
  coordinate benefits
• State Pharmaceutical Assistance Programs (SPAPs)
• Medicaid programs (including 1115 waiver
  programs)
• Group health plans
• FEHBP plans
• TRICARE and VA
• IHS
• Rural Health Centers
• Federally Qualified Health Centers
• Other entities as CMS determines