The Market is Working in Part D (Just Like it Will in ObamaCare)

We’ve always maintained that Medicare Part D is one of the most successful market-based experiments this country has ever attempted, and that it provides the playbook for ObamaCare’s health insurance exchanges.  There’s further evidence out today of the FACT that the government is capable of creating an insurance market from a green field, regulating the hell out of it, and achieving an enormously popular social good.

WaPo reported today that the average monthly premium for Medicare prescription drug plans will creep up by $1 next year, to $31.  Average Part D premiums have held steady at around $30 a month for the past 3 years.  We’d agree with CMS’s assessment that the negligible increase means competition among drug plans is holding down costs, even as benefits have improved for seniors with high prescription bills.  It’s a dynamic that will become familiar in the exchanges in a few years.

But there’s more: last year 7 out of the top 10 plans raised their 2013 premiums by double-digit percentages — which means that by aggressively shopping, and by some 5,000-6,000 Baby Boomers aging into Medicare daily with low drug utilization, seniors helped keep the average premium from going up more than a buck.  That speaks to the growing maturity of the Part D market now 7 years in operation (such as the shift coming in 2014 to “preferred” pharmacy networks), the availability of real consumer information to make good choices, and the improving sophistication of beneficiaries in making them.

Seniors have learned in these seven years some important but subtle tenets of plan selection, many of which are transferable to the exchanges.  First is, the monthly premium isn’t the whole story.  Many seniors, especially those who take several drugs for chronic conditions, have learned that the best values for them often aren’t the low-premium plans but rather those with drug formularies and benefit designs that don’t penalize them for their health status in out-of-pocket costs.

Example:

• XYZ Health Plan offers a $20/month Part D program, but with a very tight “Tier 1” formulary with few drugs at lowest cost sharing (say, a $5 copay here) and the most common drugs for seniors on Tier 2 with a $25 copay.
• ABC Health Plan charges $40/month for its drug plan, but its Tier 1 covers most oral insulins, statins and cardiac therapies for a $5 copay.
• Therefore, the typical Medicare beneficiary taking one or more of those drugs gets a much better deal from ABC when total out-of-pocket costs are considered.
• Sure, XYZ plan’s monthly premium is a fraction of ABC’s ($240/year vs. $480/year), but that “savings” is wiped out by higher copays: three drugs on XYZ’s Tier 2 gets you copays of $75/month or $900/year.  At ABC, those same three drugs are $15/month or $180/year. So, interestingly, the 3-drug senior saves $480/year by joining the higher-premium plan.

I’m willing to bet that we’re seeing mid-60’s Boomers skew toward the low-premium plans as many aren’t yet using multiple drug therapies and are unconcerned by tighter pharmacy networks; and older, sicker beneficiaries beginning to look to higher-premium plans with more generous formularies and cost-sharing.  This kind of consumer sophistication takes a few years to take hold in a new insurance market.  But it’s exactly the kind of purchasing behavior we’ll be seeing in the exchanges in 2014 and beyond.

The Part D experience shows how important it will be to bring the “bro’s” and the “young invincibles” into the exchanges early to spread risk and help suppress premium growth, and how tight provider networks of high performers impact pricing.  It also shows how wildly popular ObamaCare will be after what promises to be a rough first year of implementation and consumers finding their way through the confusion and white noise from the opposition.

Resources

In 2013, GHG Forum attendees went on a detailed walk-through of Part D rejected claims including frequency, sampling, data validation and documentation.

GHG Founder and Executive Chairman John Gorman addressed the critical issues issuers must address before the launch of the Exchanges at the 2013 GHG Forum. Click here to download the recording.

Join us on August 13 and hear GHG’s Chief Development Officer, Aaron Eaton, and Independence Blue Cross’ Senior Vice President of Health Care Reform Implementation, John Janney, walk through an operational readiness checklist to help make sure your health plan is ready to go live on October. 1.