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Managing Medicare's Costs

Part D's open enrollment period is a neglected rite of autumn (1 of 2)

Almost four years ago Don Magnuson celebrated his 65th birthday and his Medicare eligibility. He had been paying $1,180 a month for a COBRA continuation policy that covered him and his wife. When he enrolled in Medicare, he trimmed that payment by almost 40%. He considered it his best birthday gift. His wife plans to keep the continuation coverage until 2014 when she will become eligible for Medicare.

At the time Don took only one drug, a generic prescription (amlodipine) for hypertension. He decided to purchase a Medigap Plan F policy and enroll in an AARP stand-alone Part D plan to supplement his Part A and Part B benefits.

In September 2010 as Don was recovering from a second extended bout of bronchitis, his doctor prescribed Advair, a dry powder aerosol inhalant. The doctor told Don, who’d had asthma as a boy, that he should inhale two puffs of Advair daily throughout the year to protect his impaired lungs from recurring episodes of bronchitis.

During Medicare’s annual open enrollment two years ago, Don switched his Part D coverage to the new Humana-Walmart Preferred Rx plan starting in 2011. He knew that Advair was a brand-name drug and would increase his drug costs, so he tried to save money by switching to the new Humana-Walmart plan. He’d read an article about the new plan, which not only the lowest premiums in his county but also had $4 co-payments for more than 400 drugs when they were refilled at the local Wal-Mart pharmacy. He didn’t use Medicare’s Plan Finder to compare costs and didn’t realize that he was increasing his annual drug expenses by more than $200 when he switched from the AARP plan.

He remained in the Humana-Walmart Preferred Rx plan for 2011 and 2012, paying almost $500 more during those two years than he should have. If he remains in the Walmart-Preferred Rx plan again in 2013, he will overpay by about $320 vs. the lowest-cost plan in his area – the Wellcare Classic PDP. He knows that now is the only time during the year when he can switch plans, but he has not yet decided whether to go to the trouble involved in getting new prescriptions and changing over to Wellcare Classic plan. Don has a limited time to decide because Medicare’s annual open enrollment started October 15 and will end December 7.

If Don’s current inertia, not unusual among retirees, continues throughout his retirement, he will probably pay several thousand dollars too much for his drugs. And if he is prescribed additional brand-name drugs in the future and doesn’t change plans, by the time he reaches his mid-80s he may well have spent tens of thousands more than he needs to for prescription drugs (Don’s is a true story, but his name has been changed).

Stand-alone Part D plans are often time bombs that are set to go off in a few years. As people age, they not only need additional prescription drugs but it’s more likely they’ll require one or more brand-name drugs, raising the financial stakes and the probability that they need to switch plans occasionally. Unfortunately, they are less likely to change plans as they age. A survey released earlier this month by the Kaiser Family Foundation indicated that 23% of people 65 and older and 38% of those 85 and older aren’t even aware of the open enrollment period.

According to a widely held Congressional theory, the vast majority of seniors in Part D stand-alone plans don’t mind shopping around and relish the chance to enter the marketplace and save money each year during open enrollment. The reality, as a number of studies have shown, is that seniors continue to lose money year after year because it’s too difficult to compare plans and change, even when there are meaningful savings.

The most recent analysis of seniors’ tendency to bypass potential savings was a University of Pittsburgh study issued last month that analyzed Part D data for more than 400,000 people whose average age was 75. It found that in 2009 only 5.2% of beneficiaries chose the lowest-cost plan, and that the remainder paid an average of $368 a year too much.

A 2009 Kaiser Family Foundation analysis that examined 55,000 Part D records found that only six percent of seniors were in the lowest-cost plans for the drugs that they took, and that the other 94% averaged paying $520 too much. Five percent of those averaged paying $1,360 too much. The study relied on data from 2006, the first year of the Part D benefit and presumably the year when people would have paid the most attention since they were making their initial selections.

Knowing that seniors rarely change plans, insurance companies focus on attracting new enrollees. In most cases that means that insurers offer at least one low-premium plan among their options. Lower premium plans include the maximum deductible ($325 next year), so if someone takes even a single drug the premium savings are partly or entirely eroded by cost-sharing. Higher premium plans, on the other hand, sometimes have no deductible, and may turn out to be the lowest-priced option for the full year once all costs are taken into account.

Seniors are likewise more willing to stay put in their current plans when they see headlines saying Medicare announces that prescription drug premiums will remain steady for third straight year, as occurred in August. This Department of Health & Human Services press release is misleading, at best, and it seems to make credible the claim that Part D premium growth is slow or non-existent.

Second is the point made earlier, that premiums are not reliable indicators of the cost of drug coverage for the 80% of Medicare beneficiaries who take one or more prescription drugs. Low premiums, in fact, are sometimes contrary indicators for people who take several drugs or even one brand-name drug, i.e., a higher premium plan is often the most affordable option.

But most important, the government’s annual announcements about Part D premiums mix together two kinds of Part D plans – stand-alone and Medicare Advantage. As the Medicare Payment Advisory Commission has pointed out, Advantage plans not only have healthier enrollees who take fewer drugs on average, but these plans use Part C subsidies and bonuses while taking money from their health coverage to keep drug premiums low and sometimes at zero.

Since the Department of Health and Human Services first started using this blended approach for its premium announcements in 2007, advocates have been critical, believing it to be done more for political purposes than to inform. Medicare’s politically good news is usually reported by the more visible Department of Health and Human Services, while the routine and not-as-good news is released by the subdued Centers for Medicare & Medicaid Services, which perhaps gives some credibility to the criticism by various Medicare advocacy groups.

A more accurate assessment of premium increases for 2013 comes from a report from Avalere Health, which found that seven of the ten most popular stand-alone plans will have double-digit premium hikes next year, with four of those plans raising premiums by more than 15%. The Humana-Walmart Preferred plan that Don is currently enrolled in is increasing premiums by 23% to $18.50 a month, surrendering its lowest-premium rank to the new UnitedHealthcare AARP Rx Saver plan, which will charge $15 a month.

For those who take brand-name drugs, the price hikes can be hefty, and they show up not as much in premiums but in higher co-payments for those drugs. Advair, which Don started taking two years ago, is an example. The retail price for a one-year supply of Advair Diskus 250 mg-50 mg rose by almost $660 over a five-year period. At the end of 2004, the retail price for a one-year supply of Advair Diskus 250 mg-50 mg was $1,768; by the end of 2009 the retail price had jumped to $2,427, as detailed two years ago in the AARP Public Policy Institute’s 2010 Price Watch Report.

A final reason seniors don’t often change plans is that they understand it will be a minor hassle, as Don believes. They must use Medicare’s Plan Finder to perform a drug plan search and see a comparison of the annual costs of the Part D plans in their area for the drugs they take. They must clarify whether a plan has restrictions on one or more drugs they are taking, and try to determine whether those restrictions are trivial or may turn out to be hurdles they have to get over before their drugs are covered. And they should check out a plan’s quality ratings, which are shown on the Plan Finder’s Results page.

They can call 800-Medicare or their local Medicare counseling agency and ask those agencies to do the Plan Finder search for them and walk them through the steps needed to change. If they do change plans, as Don understand, they will likely need new prescriptions from their physicians. On the positive side, they don’t have to dis-enroll from the plan they’re leaving, though. Medicare does that for them.

As long as people take two or fewer generic drugs, they will likely not be far off the mark with a low-premium plan, in which case their annual costs including premiums, deductibles, and cost-sharing should be less than $600. But if they take even one brand-name drug or more than two generics, they may be paying far too much in their current plans, particularly if they haven’t compared plans and prices within the last two years. ◊◊

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