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Managing Medicare's Costs

Rx drug savings can be found, but it isn’t always easy (2 of 2)

Last February when gasoline prices jumped by 20 percent, a newspaper article described how one elderly couple was saving money at the pump. Two years earlier the couple had discovered a discount mart across town that sold nonbranded gas for 20 cents less a gallon than other stations.

Each month they drove their 1994 Buick LeSabre through traffic the 12 miles from their home to the mart. There they filled up for the coming month, which usually took about 15 gallons (the tank held 18). Round trip, it required about an hour. The article calculated that after allowing for the gas they used driving back and forth, the couple saved about $3.25 a month, or roughly $40 a year.

Of course gasoline prices are fairly easy to compare, and even nonbranded gas must meet the same federal requirements that the brands do. But if the couple had Part D coverage, as 32 million seniors do, they could have likely saved several times more in an hour than they’d been able to save on gas for a full year or even ten years.

To seek out the lowest-cost plan each year, seniors must use Medicare’s online Plan Finder to compare plans’ prices for their drugs. Or, they can call 800-MEDICARE or one of the state Medicare counseling agencies, which will do the plan search for them. Medicare’s annual open enrollment is the only time most people can switch plans. This year’s enrollment period began last week (October 15) and goes through though December 7.

Part D plans’ pricing can vary greatly from year to year, and more than 90% of enrolled seniors are not in the low-cost plan for their drugs. The 90% figure is the average of three large studies. The dollar amount by which people overpay each year, again using an average of those three studies, is $450. Those in Part D stand-alone plans (20 million people, counting low-income subsidy recipients) are likely to see the most volatility, while the 12 million people in Advantage plans that include Part D benefits may see less.

Here’s an example of the price swings: a retired Denver woman takes only one drug, Celebrex, a popular brand-name drug for arthritis symptoms. Last year she called her local Medicare counseling agency to find the lowest-cost plan for Celebrex in 2012. She was told it was the Humana Enhanced plan, which she enrolled in. But if she sticks with the Humana Enhanced plan in 2013, she will pay $530 more than she’d pay in the Silverscript Choice plan, her least-cost option next year.

How can a plan that’s the lowest-cost choice for Celebrex in 2012 suddenly cost $530 more than the lowest-cost choice in 2013? For one thing, the Humana Enhanced plan’s cost for a Celebrex-only enrollee rose by 34% in 2013 (from $960 to $1,288). And Silverscript Choice is a new plan trying to attract enrollees with bargain-basic prices for popular drugs. If the plan’s costs, which are artificially low in 2013, rise sharply within the next couple of years, the woman in Denver will need to switch plans again to avoid overpaying.

Possibly Silverscript negotiated low prices with Pfizer, which manufactures Celebrex. But those low prices don’t show up in Silverscript’s two other Denver area plans. The Silverscript Basic plan costs $652 more than the Choice plan for someone who takes only Celebrex, and the Silverscript Plus plan costs $910 more.

Moreover, if someone is currently enrolled in either of the more expensive Silverscript plans for Celebrex, the insurer doesn’t automatically transfer that person to the least-cost Silverscript Choice plan. Insurance companies gladly retain the profits when someone’s in an overpriced plan for the drugs they take, even when the companies have lower-cost options for those drugs.

Sometimes price is not the only criterion in choosing a plan. Quality ratings may factor in, especially when two plans’ costs are fairly close. In some cases the restrictions a plan has on one or more drugs can also be a consideration. It’s not unusual for a person who takes five prescription drugs to see that one plan has restrictions on four of them while another has a restriction on only one. That person may decide to pay slightly more and choose the plan with fewer restrictions.

Also, when someone takes expensive drugs that require the plan’s prior approval or step therapy, he or she may decide to enroll in a higher-priced plan that has five-star ratings from its present members on the speed and fairness of the plan’s appeals process (information that is available on the Quality Ratings page of the Plan Finder).

Is the Part D market really competitive? It’s not only a challenge for seniors to make informed choices, but then they must revisit those choices yearly or else risk paying too much. Still, there are some ways in which competition in the Part D program may be working. Before the program started in 2006, the Congressional Budget Office projected that its costs would increase by 9 percent a year. But the Part D per-capita costs have grown at only 4 percent annually since 2006.

Those who believe competition is working point out that as Part D plans contend for market share, they encourage the use of less costly substitute drugs and generic equivalents. There’s evidence to support their position. On the other hand, some policy analysts argue that costs have dropped because enrollment is 14% lower than projected, which reduces the government expenditures, and because patents have expired on hundreds of expensive brand-name drugs, opening the door for generic drugs that cost one-tenth as much.

Whichever position is correct, or even if both are partly right, the Part D market is not truly competitive if consumers aren’t making informed choices. Plans currently compete for new enrollees by keeping premiums low, but low premiums have little to do with a plan’s cost-effectiveness. One in six Part D plans is not increasing premiums in 2013, according to the Kaiser Family Foundation’s 2013 Part D Data Spotlight, but this probably means only that companies have re-aligned their benefit structures, not necessarily that they have reduced their costs.

As an example, UnitedHealthcare is introducing its AARP Medicare Saver plan, which will have the lowest monthly premium ($15) of any national plan in 2013 and will attract some incoming beneficiaries away from the low-premium choice the last two years, the Humana-Walmart Preferred Rx plan. Advantage plans have shown a similar inclination to attract enrollees with low- (and often zero-) premium plans.

Yet overall, premiums will rise by seven percent in 2013. The Kaiser Family Foundation has explained that most of the larger increases are in the enhanced plans that insurers offer. Humana-Walmart, for instance, not only sponsors the low-premium Preferred Plan, but also the Humana Enhanced plan, whose premium increased by almost 10% this year. Enhanced plans offer additional benefits, typically some form of expanded coverage in the doughnut hole. For people in certain situations, they are the lowest-cost choices in spite of their higher premiums.

In a competitive marketplace, plans gain market share with low prices and/or high quality. But it can be difficult to know which Part D plan has low costs and can be done only by using Medicare’s Plan Finder, which meshes together premiums, deductibles, and cost-sharing to discern the plan that costs the least for the coming year. Since a plan’s actual costs are not readily visible, seniors use on its premium as a proxy. Thus insurance companies have an incentive to keep premiums low and transfer costs to deductibles and co-payments. And studies have shown that seniors rarely consider plans’ quality ratings when making their choices.

One way that the Denver woman can reduce her costs is to buy an over-the-counter drug to treat her arthritis symptoms. The Consumer Reports Best Buy Drugs site says that all non-steroidal anti-inflammatory drugs (NSAID’s) are equally effective, including over-the-counter ones. Because Celebrex belongs to the NSAID class of drugs, it could perhaps be replaced by OTC ibuprofen or naproxen (Aleve), both of them recommended by Consumer Reports.

In 2013, there’ll be an average of 31 Part D stand-alone plans per county, which on the surface looks like competition. But since Medicare says that only six percent of all Part D beneficiaries switch plans each year, it’s not competition in the best sense. If you give seniors a choice of 31 complex financial products such as derivatives, most of them won’t know how to choose the best one. Unfortunately, the same goes for Part D. ◊◊

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