Helping People Find the Best Medicare Insurance
A fee-only financial advisor


Contact us by e-mail

Managing Medicare's Costs

Medicare's Part D costs are not managed well by most retirees (1 of 3)

When Medicare’s Part D was rolled out in 2006, almost everyone found it confusing. Medicare printed millions of booklets explaining the new program, but then stopped mailing them to retirees after numerous inaccuracies were discovered. The Medicare hotline did not fare much better – it provided incorrect information about Part D coverage almost one-third of the time, according to a study by the Government Accountability Office (GAO) in May, 2006.

Amid this confusion, Congressional Democrats and some healthcare advocates recommended that the new drug benefit be rewritten or at least delayed until it could be better understood and communicated. And HHS Secretary Michael Leavitt, perhaps weary of questions about Part D’s complexity, attempted to defend the new program by saying, “Lots of things in life are complicated.”

Five years later, Part D has been embraced by retirees because, with the government paying 75% of the program’s costs, they save money even if they happen to be enrolled in expensive plans for the drugs that they take. And after they’re enrolled in plans, even costly ones, retirees tend to remain in them, frequently paying hundreds or thousands of dollars too much each year for their prescription drugs.

Part D’s complexity is one factor that prevents retirees from comparison shopping and changing plans. According to the Medicare Payment Advisory Commission, a miniscule six percent of beneficiaries voluntarily change plans each year. In part, that’s because the only way to identify the lowest-cost plans for a specific drug regimen is to conduct a plan search on Medicare’s web site. But an estimated 45 percent of retirees have never used a computer.

So, they must contact an agency – typically the Medicare hotline or a state counseling office – to request a plan search. Few retirees actually do this. The others respond with willful neglect, perhaps assuming that if they are in a plan that has reasonable premiums, it’s a good plan. But except for people who do not take prescription drugs, plans’ premiums are unrelated to their cost-effectiveness.

A 2009 paper by the Kaiser Family Foundation analyzed the prescription drug records of 54,000 seniors enrolled in stand-alone Part D plans and found that 94 percent of them were not in the lowest-cost plans for the drugs that they took. On average, those seniors spent $520 more for the year than if they’d been in the lowest-cost plans.

Although the Kaiser analysis was published in 2009, it was based on 2006 data. Since 2006, though, retirees’ overspending for prescription drugs has doubtless increased. For one thing, according to Kaiser’s Part D Spotlight (page 6), stand-alone plan monthly premiums have grown at an annual 9.4% rate (from $25.93 per month in 2006 to $40.72 in 2011), which has the effect of raising the stakes for retirees who are choosing plans or who remain in too-expensive plans.

Thus it is likely that the 94% of retirees who averaged paying $520 too much in 2006 are overpaying by even greater amounts today. This is particularly true if they take one or more brand-name drugs, whose prices have climbed rapidly even as generic prices have fallen.

A GAO analysis released last month found that prices for 55 commonly used brand-name drugs increased at an annual 8.3% rate from 2006 through the first quarter of last year (while prices for generic drugs declined by 2.6% a year over the same period). More and more, the dividing line between moderate and prohibitive prescription drug costs is the line between generic and brand-name drugs. Consequently retirees who take brand-name drugs have the most to gain by choosing plans that are low-cost options for the drugs that they take.

On the positive side, there are two developments that will help at least some retirees who take brand-name drugs. First, in 2011 they will receive a 50% discount on brand-name drug purchases that are made after they reach the Part D doughnut hole. That will help an estimated 14 percent of Medicare beneficiaries.

Second, as a recent New York Times article pointed out, patents for many widely prescribed brand-name drugs will expire over the next few years, a period when relatively few new drugs are scheduled to come online. In 2011 alone, patents will expire for ten brand-name drugs that have combined sales of $50 billion, and the generic versions that replace them will cost approximately one-fourth as much. As the article explains, while this is good news for drug costs, the downside is that the dearth of new drugs may signal fewer health advances.

Retirees willing to become informed consumers can often reduce their drug costs by paying attention to the details of their coverage. For the 18 million people currently in stand-alone drug plans, the most important step is to review their plans during each year’s annual open enrollment period, which this year runs from October 15 through December 7.

Other simple steps that can cut costs are: choosing the least-expensive refill schedule (30 days vs. 90 days), using a preferred pharmacy for retail purchases, and switching from brand-name to therapeutically equivalent drugs when practical. Retirees with high drug costs may want to consider other tactics as well, particularly if they take several drugs or one or more brand-name drugs. (continued next week)

© 2010-2018 Dover Healthcare Planning, LLC | Contact Us