Title: The Impact of Enrollment in the Medicare Prescription Drug Benefit on Premiums November 1, 2005
1The Impact of Enrollment in the Medicare
Prescription Drug Benefit on PremiumsNovember
1, 2005
- Jon Blum and Jennifer Bowman
- Avalere Health LLC
2Overview of the Study
- Conducted by Avalere Health LLC on behalf of the
Kaiser Family Foundation Study, released October
28, 2005 - http//www.kff.org/medicare/7423.cfm
- Examine the effects of participation assumptions
on monthly premiums and federal costs of the
Medicare prescription drug benefit, particularly
if beneficiaries with relatively low drug
spending do not enroll - The analysis solely focuses on the impact of
various enrollment scenarios, based on
beneficiaries prescription drug costs - The analysis holds constant other factors that
could affect average Part D premiums, including
drug prices, utilization, and other market forces
3Key Findings of the Study
- Average premiums for the Medicare prescription
drug benefit could be significantly higher in
2007 than current federal projections if
enrollment is significantly concentrated among
beneficiaries who have high expected drug
spending - If enrollment is limited to the highest spending
20 percent of beneficiaries in three important
groups, the average Part D premium could be as
much as 42 percent higher than expected - Enrollment levels do not significantly alter the
federal costs of offering the Medicare
prescription drug benefit
4Background
5CBO Assumptions about Part D Enrollment (1)
- Small group of beneficiaries do not enroll in
Part D - 6 of Medicare beneficiaries who do not
participate in Part B - 7 of beneficiaries enrolled in Part B who are
either - Active workers receiving drug coverage through
employers, or - Beneficiaries receiving coverage through federal
programs (veterans, federal retirees, and
military retirees)
6CBO Assumptions about Part D Enrollment (2)
- All retirees either receive drug coverage through
an employer, or enroll in a Part D plan - 30 of beneficiaries enrolled in Part B receive
coverage through a former employer - Two-thirds of those beneficiaries will see their
employers take the retiree drug subsidy and
receive drug benefits through the employer - One-third are expected to enroll in Part D plans
7CBO Assumptions about Part D Enrollment (3)
- All remaining Medicare beneficiaries (25.8
million) are expected to enroll - Dual eligible beneficiaries (6.4 million)
- Medicare Advantage enrollees (5.5 million)
- Beneficiaries currently receiving Medigap
coverage (3.2 million) - Beneficiaries currently without drug coverage
(7.7 million) - Overall, CBO assumes 80 of Medicare
beneficiaries will enroll in Part D or receive
benefits through a former employer that takes the
retiree drug subsidy
8Choosing to Enroll in the Medicare Drug Benefit
Is a Complex Decision
- Beneficiary decision includes considering
- Current drug coverages formulary, premium and
cost-sharing offerings - Eligibility and application for low-income
assistance - Comparing plans (many more PDP and MA-PD plans
than expected) - CMS plan comparison tools will enable
beneficiaries to compare - Pharmacy networks
- Formulary, including drug list and management
tools - Premiums
- Coinsurance or copayment
9Experience with MMA Thus Far Enrollment in the
Medicare Replacement Drug Demonstration
According to Avalere Health email
communications with Sharon Cardinale, MRDD
Outreach Coordinator, March 29, 2005
10Enrollment in the Medicare Drug Discount Card Has
Also Been Lower than Expected
Source CMS Press Office.
11Methods
12Methodology
- Model uses some CBO assumptions for enrollment
- Expected to Enroll in Part D Dual eligibles and
Medicare Advantage enrollees - Expected Not to Enroll in Part D Active workers
receiving employer-sponsored insurance and those
receiving drug coverage through a government
retiree health insurance program - Enrollment scenarios focused on 3 subgroups of
Medicare beneficiaries - Low-income subsidy eligibles
- Beneficiaries projected to lose retiree health
benefits - Beneficiaries currently enrolled in the
traditional fee-for-service program who do not
qualify for the low-income subsidies - Groups were divided into quintiles based on
expected drug spending - Estimated premiums and federal program costs
based on enrolling the 20, 40, 60, 80, or
100 of beneficiaries with highest drug spending
of all 3 groups
13Total Population and Average Prescription Drug
Spending per Beneficiary for Categories of
Beneficiaries with Varying Enrollment
Beneficiary Category Drug Coverage Status Total Beneficiaries (Millions) Average Prescription Drug Spending Per Beneficiary
Low Income 4.5 2,301
With Current Drug Coverage 1.1 3,222
Without Current Drug Coverage 3.4 1,999
Dropped Retirees 2.7 3,803
Non-Low-Income 10.0 2,145
With Current Drug Coverage 2.7 3,045
Without Current Drug Coverage 7.3 1,807
Total Enrollment 17.2
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
14Results
15Impact of Varying Enrollment of Low Income
Beneficiaries
Enrollment (Ranked by Drug Spending) Number of Low-Income Enrollees (Millions) Range of Annual Drug Spending (Low High) Average Monthly Premium Percent Increase in Premium Relative to Full Enrollment (34.33 Premium)
100 percent 4.5 0 - 91 34.33 0
80 percent 3.6 92 - 765 35.42 3
60 percent 2.7 766 - 1,836 36.50 6
40 percent 1.8 1,837 - 3,846 37.17 8
20 percent 0.87 3,847 37.42 9
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
16Impact of Varying Enrollment of Dropped Retirees
Enrollment (Ranked by Drug Spending) Number of Dropped Retirees (Millions) Range of Annual Drug Spending (Low High) Average Monthly Premium Percent Increase in Premium Relative to Full Enrollment (34.33 Premium)
100 percent 2.7 0 - 301 34.33 0
80 percent 2.1 302 - 2,154 35.00 2
60 percent 1.6 2,155 - 3,594 35.33 3
40 percent 1.1 3,595 - 6,071 35.42 3
20 percent 0.54 6,072 35.42 3
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
17Impact of Varying Enrollment of Non-Low-Income
Beneficiaries
Enrollment (Ranked by Drug Spending) Number of Non-Low-Income Enrollees (Millions) Range of Annual Drug Spending (Low High) Average Monthly Premium Percent Increase in Premium Relative to Full Enrollment (34.33 Premium)
100 percent 10.0 0 - 193 34.33 0
80 percent 8.0 194 - 755 36.83 7
60 percent 6.0 756 - 1,733 39.50 15
40 percent 4.0 1,734 - 3,512 41.58 21
20 percent 1.98 3,513 42.58 24
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
18Impact of Varying Enrollment of Low Income,
Non-Low-Income and Dropped Retirees on Average
Monthly Premiums
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
19Enrollment of Three Sub-Groups Under Five
Possible Scenarios
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
20Percent Increase in Premiums Relative to 100
Percent Enrollment Under Five Possible Scenarios
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
21Estimated Federal Costs Based on Enrollment,
Ranked by Drug Spending
Enrollment (Ranked by Drug Spending) Total Federal Costs (Billions) Enrollment (Millions) Average Costs per Enrolled Beneficiary
100 percent 60.6 29.1 2,080
80 percent 60.8 26.3 2,311
60 percent 60.4 23.4 2,587
40 percent 58.5 20.4 2,860
20 percent 54.3 17.5 3,095
Source Avalere Health LLC estimates using a
model developed by the Actuarial Research
Corporation for the Henry J. Kaiser Family
Foundation.
22Policy Implications
- CBOs monthly premium estimate of about 37 is
based upon robust participation - The average monthly premium for 2007 could be
dramatically higher if only those beneficiaries
with expected high prescription drug costs enroll
in 2006 - To keep premiums affordable, enrollment of
higher-income beneficiaries with low prescription
drug spending is critical - The success of CMS and other stakeholders
outreach efforts to this group will keep premiums
affordable - Federal costs of the Medicare prescription drug
benefit are largely unaffected if enrollment is
limited to only the most expensive beneficiaries - Robust enrollment is critical to keep premium and
federal costs manageable, and to keep Medicare
prescription drug benefit plans participating in
the program
23- For a copy of the paper, entitled The Impact of
Enrollment in the Medicare Prescription Drug
Benefit on Premiums, visit - www.kff.org
- or
- www.avalerehealth.net