The Impact of Enrollment in the Medicare Prescription Drug Benefit on Premiums November 1, 2005

1
The Impact of Enrollment in the Medicare
Prescription Drug Benefit on PremiumsNovember
1, 2005

• Jon Blum and Jennifer Bowman
• Avalere Health LLC

2
Overview 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

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Key Findings of the Study

1. 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
2. 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
3. Enrollment levels do not significantly alter the
   federal costs of offering the Medicare
   prescription drug benefit

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Background
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CBO 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)

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CBO 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

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CBO 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

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Choosing 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

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Experience 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
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Enrollment in the Medicare Drug Discount Card Has
Also Been Lower than Expected
Source CMS Press Office.
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Methods
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Methodology

• 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

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Total 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.
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Results
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Impact 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.
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Impact 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.
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Impact 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.
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Impact 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.
19
Enrollment 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.
20
Percent 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.
21
Estimated 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.
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Policy 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

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• 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