Medicare Part D – An Overview

From the most recent NAELA eNewsletter:

By Terri Tersteeg

Overview

After the conclusion of World War II, employer provided health care benefits had become commonplace and employees had come to expect the benefit as part of their overall employment package. By the mid-1950’s, almost seventy percent of Americans had health insurance through their employer.2 This phenomenon helped to create the impetus for Medicare for retirees. In 1965, the United States enacted Medicare which provided coverage for Americans aged sixty-five and older.

When Medicare was enacted, outpatient prescription drugs played a much less significant role in health care costs and treatment plans than they do now. Medicare provided only very limited coverage for prescription drugs – typically physician administered drugs in the inpatient setting.3 At that time, most other health insurance plans – employer and individual – did not cover outpatient prescription drugs. Over the years, that has changed and prescription drugs have come to play an important part in improving treatment outcomes as well as overall patient quality of life.

By the late 1990’s, spending for prescription drugs was becoming the fastest growing segment of U.S. health care costs. According to a 2002 Congressional Budget Office (CBO) report, Medicare beneficiaries accounted for almost 40 percent of the increase in costs.5 As prescription drug spending by the elderly continued to increase, pressure grew for the addition of a prescription drug benefit to Medicare.

After an extended debate, Congress narrowly passed the Medicare Prescription Drug, Improvement and Modernization Act (MMA), Public Law No. 108-173, which President Bush signed into law in December 2003.6 The Medicare Modernization Act of 2003 (MMA) established a voluntary outpatient prescription drug benefit for Medicare participants. The Medicare Prescription Drug Benefit went into effect on January 1, 2006.

The Medicare Prescription Drug Benefit, known as Part D Plans, is administered by private health plans that have been approved by the Centers for Medicare and Medicaid Services (CMS). Medicare and Medicaid beneficiaries in most states have access to the drug benefit through stand-alone prescription drug plans (PDPs) or multiple Medicare Advantage prescription drug (MA-PD) plans (similar to HMOs that cover all Medicare benefits including drugs). Scope of Benefit Part D Plans must offer a plan with a defined standard benefit (DSB). CMS has defined the minimum benefit levels for the DSB. A plan offering a DSB can also offer other plan options with enhanced benefits (EB).8 Plans vary in benefit design, covered drugs and utilization management tools. As with most plan designs, the premiums, deductibles and out of pocket (TrOOP) maximums shift annually based on spending growth. For example, a plan that eliminates deductibles and provides “doughnut hole” coverage (referred to as “gap coverage”), would have a higher premium. Approximately 30% of the PDPs offer gap coverage. Additionally, a plan that provides gap coverage generally only provides coverage for generic drugs (no gap coverage for brand-name drugs).

In 2009, the initial, maximum deductible is $295 with a 25% coinsurance up to a limit of $2,700 in covered drug costs. At this point the coverage gap or “doughnut hole” kicks-in (enrollee pays 100% of outpatient prescription drug expenses) until the enrollee has $4,350 in total OOP drug expenses. Once the enrollee has met the TrOOP maximum annual limit, they revert back to paying a percentage of their drug costs with Medicare and the Plan paying the remaining portion. The enrollee pays $2.15 for a generic drug, $5.35 for other drugs or a flat 5% coinsurance, whichever is greater.9 The table below is a visualization of the DSB for 2009.

DEFINED STANDARD BENEFIT (DSB) FOR 2009

The monthly Part D premium (2009) can range from a low of approximately $10.30 to a high of $136.80 (*depending on where you live and plans available).10

Covered Drugs and Formularies

If a drug is covered under Medicare Part A or B, then it is typically excluded under Part D.11  This distinction usually arises in how the drug is prescribed and dispensed or administered. For example, if the drug would only be prescribed and administered in a hospital or clinic setting, it would generally not be covered under Part D.

Part D Plans define “covered drugs” as those that are: (1) available only by prescription, (2) approved by the Food and Drug Administration (FDA), (3) used and sold in the United States, and (4) used for a specific medically accepted indication. This includes insulin as well as the medical supplies associated with the injection of insulin.13

Within the benefit design restrictions stated above, each plan has flexibility in the design and management of the Part D benefit. However, each plan must use formularies to secure lower drug prices for their Part D enrollees. The Plan’s formulary contains the names of the drugs the plan will cover. CMS established requirements for the formularies (lists of covered drugs) used by the plans to discourage enrollment discrimination against potentially undesirable plan enrollees.14  CMS also requires that the plan formularies include at least two drugs in each therapeutic category or class – unless there is only one drug that falls within the category or class.15

Eligibility and Enrollment

Individuals become eligible for Part D Plans at the time they become eligible for Medicare Part A and Part B.16 Enrollment in Part D Plans is voluntary. The exception is dual eligibles that must select a PDP or be automatically enrolled by CMS. However, individuals with existing “credible” drug coverage (such as an employer plan) must provide verification of that coverage and defer their enrollment in Part D. Failure to do so will result in a permanent penalty equal to 1% multiplied by each month they delayed enrollment if they later decide to enroll in Part D. This is similar to the requirement for deferring Part B enrollment.

The Annual Open Enrollment Period runs from November 15 through December 31 of each year. All Part D enrollees, with the exception of dual eligibles, must wait for the annual open enrollment period. However, a Part D eligible who involuntarily looses credible coverage may elect coverage outside the open enrollment period.17

As with any benefit open enrollment, it is a good idea to compare plans before making a selection for the upcoming plan year. This is because plans can change from year to year making them more – or less — expensive for the enrollee. Listed below is a general checklist, including web sites, which may be of assistance.

ENROLLMENT CHECKLIST

Notes

1.  See http://www.bcbs.com/about/history/1940s.html
2.  See http://www.bcbs.com/about/history/1950s.html
3.  See http://www.allhealth.org/sourcebook2006/pdfs/Chapter_5.pdf, at 63.
4.  See http://www.allhealth.org/Publications/pub_13.pdf, at 51.
5.  See http://www.cbo.gov/ftpdocs/39xx/doc3960/10-30-PrescriptionDrug.pdf, at Summary.
6.  See http://ustreas.gov/offices/public-affairs/hsa/pdf/pl108-173.pdf
7.  See http://frwebgate4.access.gpo.gov/cgi-bin/PDFgate.cgi?WAISdocID=48018492414+13+2+0&WAISaction=retrieve
8.  See SSA § 1860D-2(1)(A),(B)
9.  See http://www.medicare.com/drug-coverage/part-d-prescription-drug-coverage.html
10.  See http://www.medicare.gov/MPDPF/Public/Include/DataSection/Questions/SearchOptions.aspand http://www.cms.hhs.gov/PrescriptionDrugCovGenIn/   
11.  See SSA § 1860D
12.  See SSA § 1860D-2(e)
13.  See SSA § 1860D-11(e)(2)(D)(i)
14.  See 42 CFR § 423.120(b)(2)(i)
15.  See SSA § 1860D-1(a)(3)(A)
16.  See 42 CFR § 423.38(b),(c)