Assessing the Medicare Prescription Drug Benefit Impact on Medicaid

1
Assessing the Medicare Prescription Drug
Benefit Impact on Medicaid

• Vernon K. Smith, Ph.D.
• HEALTH MANGEMENT ASSOCIATES
• For
• Invitational Summit for State Policy Makers
• Medicare Part D Implementation Issues
• Conducted by
• AcademyHealth and
• The Rutgers Center for State Health Policy
• Philadelphia
• October 7, 2004
• vsmith_at_healthmanagement.com

2
Medicaid in 2004 The Nations Largest Public
Health Care Program

• Medicaid Spending in FY 2004 300 billion
  (Compared to Medicare 290 billion)
• 130 billion state and local funds
• 170 billion federal (44 of all federal funds to
  states)
• Health coverage for over 52 million in U.S.
  (Compared to Medicare 42 million)

Sources CMS, CBO Medicaid Baseline March 2004
3
Medicaids Role in the Health System, 2002
Medicaid as a share of national personal health
care spending
Total National Spending (billions)
1,340
486.5
501.5
103
162
SOURCE Levit, et al, 2004. Based on National
Health Care Expenditure Data, Centers for
Medicare and Medicaid Services, Office of the
Actuary.
4
Medicaid Pharmacy Costs A Major Share of State
Spending

• The total cost of the pharmacy benefit alone in
  TennCare has become greater than the total cost
  of Tennessees higher education system. Just two
  drugs in TennCare Zyprexa and Zocor cost our
  state more than we appropriate to run the
  University of Tennessee medical school. That is a
  fire bell in the night.
• Tennessee Governor Phil Bredesen, in address to
  General Assembly, February 17, 2004

5
Average Annual Growth Rates of Total Medicaid
Spending
Annual growth rate
SOURCE For 1992-2002 Urban Institute estimates
based on data from Medicaid Financial Management
Reports (HCFA/CMS Form 64) For 2003 and 2004
Health Management Associates estimates based on
information provided by state officials.
6
Medicaid Medicare Dual Eligibles Key Factor in
Medicaid Spending

• Medicaid covers over 6.2 million low-income
  elderly and disabled persons also on Medicare for
  Rx, nursing home care, other services, premiums,
  coinsurance and deductibles
• Duals account for 42 of all Medicaid spending
• Duals account for slightly more than half of all
  Medicaid spending for prescription drugs.

7
States Undertaking New Medicaid Cost Containment
Strategies FY 2002 FY 2005
SOURCE KCMU survey of Medicaid officials in 50
states and DC conducted by Health Management
Associates, September and December 2003 and
October 2004.
8
Medicaid Prescription Drug Policy Changes FY 2004
and FY 2005
SOURCE KCMU survey of Medicaid officials in 50
states and DC conducted by Health Management
Associates. See October 2004.
9
Growth in U.S. Health Care Per Capita Spending,
by Service 1991-2003
Prescription Drugs
All Services
Hospital Outpatient
Physician
Hospital Inpatient
Source Bradley Strunk and Paul Ginsburg,
Tracking Health Care Costs Trends Turn
Downward in 2003, Health Affairs, Web
Exclusive, 9 June 2004.
10
Part D Drug Benefit The Basics

• Coverage is to begin Jan. 1, 2006
• Enrollment .... Voluntary
• Initial enrollment period ... Nov. 15, 2005 for
  6 mos.
• Annual enrollment periods Nov. 15 to Dec. 31
• Premiums Est. 35/month in 2006
• Those who dont enroll initially, or who dont
  maintain
• continuous coverage, will pay higher premiums
• Employers Incentive subsidy to
  maintain retiree Rx benefit 28 between
  250 5,000

11
Administration of Part D Benefit

• The Part D benefit will be administered by
• PDPs Prescription Drug Plans
• MA-PDs Medicare Advantage Prescription Drug
  plans
• Federal fall-back plan
• PDPs MA-PDs will be risk-bearing private plans.
• Beneficiaries will be able to choose from at
  least 2 plans, if available, or the fall-back.
• A fall-back non-risk bearing plan will be
  available if other plans are not offered in an
  area.
• HHS is prohibited from controlling or negotiating
  prices for PDPs MA-PDs.

12
Part D Standard Benefit in 2006 Beneficiary
Coverage and Out-of-Pocket Drug Costs
Beneficiary Out-of-Pocket Spending
420 in annual premiums
SOURCE Adapted from The Henry J. Kaiser Family
Foundation, Medicare Fact Sheet The Medicare
Prescription Drug Law, March 2004.
13
Part D Beneficiary Out-Of-Pocket Costs Indexed

• Projected Increases from 2006 to 2013
• Deductible from 250 to 445
• Donut hole from 2,850 to 5,066
• Catastrophic threshold from 5,100 to 9,600

6,400
3,600
SOURCE Congressional Budget Office letter to the
Honorable Don Nickles, November 20, 2003.
14
2004 Federal Poverty Levels (FPL)
HHS Poverty Guidelines for 2004 HHS Poverty Guidelines for 2004 HHS Poverty Guidelines for 2004 HHS Poverty Guidelines for 2004
Family Size 100 FPL 135 FPL 150 FPL
1 9,310 12,568 13,965
2 12,490 16,862 18,735
3 15,670 21,155 23,505
SOURCE Federal Register, Vol. 69, No.30,
February 13, 2004, pp. 7336-7338.
15
Part D Partial Low-Income Subsidies
Non-Medicaid BeneficiariesIndividuals w/
Incomes Up to 150 FPL
FPL in 2004 13,965 (individual) 18,735
(couple) Asset Test 10,000 (individual)
20,000 (couple) Premium Sliding Scale,
based on income Deductible 50
Coinsurance 15 before catastrophic threshold
Donut Hole None Catastrophic 2 for
generics and 5 for brands
16
Part D Full Low-Income Subsidy Non-Medicaid
BeneficiariesIndividuals w/ Incomes Up to 135
FPL
FPL in 2004 12,568 (individual) 16,862
(couple) Asset Test 6,000 (individual)
9,000 (couple) Premium 0 up to Low-Income
Benchmark Deductible 0 Copayment 2 for
generics and 5 for brands before
catastrophic threshold Donut Hole None
Catastrophic No copayments
17
Part D Low-Income Subsidy Beneficiaries on
Medicaid (the Duals)
Premium 0 up to Low-Income Benchmark
Deductible 0 Copayments 1 for generics
3 for brands up to 100 FPL 2 for
generics and 5 for brands at above 100
FPL 0 copay, if institutionalized
Donut Hole None Catastrophic 0 copay
Beyond 2006, copays For persons below 100
FPL, copays indexed to growth in CPI. For
persons above 100 FPL, copays indexed to Part D
growth.
18
Part D Benefit Covered Drugs

• Part D coverages include
• Drugs biologicals required for Medicaid
• Insulin supplies for its administration
• Smoking cessation products
• Plans can create closed formularies (i.e.,
  exclude specific drugs within classes)
• Formularies must include at least two drugs in
  each therapeutic category

19
Part D Benefit Excludes Coverage for Some Drugs

• Weight loss/gain
• Fertility
• Cosmetic or hair growth
• Cough or cold relief
• Vitamins and minerals
• Over-the-counter (OTC) drugs, normally available
  without a prescription
• Barbiturates
• Benzodiazepines
• Drugs covered under Medicare Parts A or B

20
Implications of Part D for Medicaid

• Medicaid pharmacy coverage for duals ends on
  January 1, 2006
• MMA prohibits federal Medicaid matching funds to
  states for Part D drugs
• Part D drugs are only from Medicare plans (PDPs,
  MA-PDs or federal Fall-Back plans)
• States continue to pay deductible coinsurance
  amounts for Part B drugs

21
Part D Has Significant Issues for State Medicaid
Programs

• Clawback
• Rebate impacts
• Woodwork effect
• Overall financial impact

22

Clawback Basics
Clawback Formula
Multiply
A1/12th CY 03 Rx Payments Full-Benefit Duals
BStateMatch Rate For Clawback Month

CMfgRebate
D Growth Factor
X
X
X
1 Per Capita Monthly Amount
2 Full-Benefit Duals Enrolled in Month
X
Factor
For a month in
90
2006
2007
88.33
86.67
2008
3 Monthly Factor Adjustment
85
2009
X
83.33
2010
81.67
2011
80
2012
Clawback Total Amount
78.33
2013
76.67
2014
75
2015 After
23
Clawback Base Year Calculation

• The Clawback base-year calculation is complex
• We are calculating the clawback. It is proving
  to be more difficult than anticipated due to the
  spend downs they are in and out of Medicaid.
• I dont think anyones base year will reflect
  the way things will be in 2006.

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured. Report
forthcoming, October 2004.
24
National Health Expenditure Growth Factor for
Pharmacy
25
Clawback Other Issues

• Clawback base does not adjust for Third Party
  pay chase recoveries, post-payment audits, or
  state actions to control drug spending
• The Clawback offsets hoped-for state savings
• The legislature thinks we are going to get 10
  savings. We dont see any savings there.

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured.
Forthcoming, October 2004.
26
Other Financial Impacts for Medicaid

• Rebates Decreased market share erodes States
  ability to negotiate manufacturer supplemental
  rebates
• Enrollment A Woodwork Effect is expected.
• There will be more dual eligibles on Medicaid as
  more low-income Medicare beneficiaries find they
  are eligible for Medicaid.

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured.
Forthcoming, October 2004.
27
States Indicated Concerns about Beneficiary
Impacts of Part D Coverage

• Dual eligibles will almost certainly have less
  coverage under Part D plans
• States cannot receive FMAP if they wrap-around
  to fill the gaps or subsidize copayments
• If we cover four anti-psychotics, and Part D
  covers one, what do we do?
• Part D drug exception process is likely to be
  less responsive than Medicaid

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured,
Forthcoming October 2004.
28
Beneficiary Issues for Medicaid Copayments
Nursing Homes

• Part D copayments are set nationally
• Dual eligibles in our state currently have no
  cost sharing for pharmacy. Under Part D, cost
  sharing will be required.
• Nursing home patients under Part D present a
  difficult challenge

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured,
Forthcoming October 2004.
29
Beneficiary Issues for Medicaid Medical
Management

• Medicaid has invested much effort into Drug
  Utilization Review and Disease Management
• The biggest issue is loss of data. We have duals
  in disease management programs and in nursing
  homes.

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured,
Forthcoming October 2004.
30
Administrative Impacts for Medicaid

• Eligibility determination for benefits for
  low-income beneficiaries
• System change requirements timeframes
• Availability of staff and resources
• Other administrative implications

31
Administrative Issues for MedicaidNew
Eligibility Determinations

• States must determine eligibility for low-income
  subsidies
• Eligibility will be an enormous problem for us.
  There wont be enough time to implement.

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured,
Forthcoming October 2004.
32
Administrative Issues for Medicaid System
Development Operations

• States must make major eligibility system changes
  to implement Part D.
• We are going to have to request more funds to do
  this.

Source Health Management Associates interviews
of State Medicaid Directors, for Kaiser
Commission on Medicaid and the Uninsured,
Forthcoming October 2004.
33
Summary

• All States must be ready for significant Medicaid
  impacts from Part D.
• Clawback.
• Eligibility determinations for low-income
  subsidies.
• Prepare for enrollment of duals into Part D.
• Some new costs, some new savings.
• Net impact still not clear