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Managing Medicare's Costs

Medicare’s open enrollment is a missed opportunity for most seniors with Part D

About this time of year in 2005 it was going badly for the first-ever enrollment in Medicare’s Part D. Michael Leavitt, the secretary of Health and Human Services and a former insurance executive, sounded defensive at times. A reporter asked him why Part D’s numerous rules and plans were so confusing and he replied that lots of things in life are complicated. A CNN Money Magazine headline echoed a common theme, saying it was going to take heavy lifting for people to find the right plan.

Part D’s troubled launch was in the headlines for several months, from time to time providing the lead story for nightly news shows. Editorial cartoons depicted hapless retirees wandering through giant mazes that had no exits. Democrats in particular joined in the pummeling. They had opposed Part D when it was created — 209 of them had voted against it in the House – and they lambasted it again during the chaotic rollout.

If the negative publicity had a silver lining, it was that most seniors knew about Part D. They understood that they would face lifetime penalties if they did not enroll. By the time enrollment ended on May 15, 2006, 21 million people had enrolled, or roughly the same number that the government had projected a year before. This conclusion was generally satisfying and the criticism slowly abated. Earlier this year, Leavitt wrote an op-ed in the Washington Post offering his suggestions for officials planning the Affordable Care Act enrollment.

Today Part D is considered a success. It provides drug coverage for millions of retirees who otherwise would not have it. So far it has cost almost $200 billion less than the Congressional Budget Office estimated it would in 2003. Its complexity, however, hasn’t changed. Several studies show that after seniors enroll in a plan, they lapse into a torpor and awake only when a price shock forces them to.

A large study in Health Affairs last year found that in 2009 only 5 % of people with Part D coverage were in the lowest-cost plans for the drugs that they took. The other 95% overpaid by an average of $368 a person a year, or almost $8 billion total. And a recent working paper puts the amount higher — its analysis indicated that people who were not in the lowest-cost plan for their drugs overpaid by an average of $437 in 2009.

Most people with Part D cannot change plans except during the annual eight-week enrollment period that began October 15 and ends December 7. And by and large they ignore this once-a-year chance. Only 14% of beneficiaries voluntarily switched plans in 2009-2011, according to the Medicare Payment Advisory Commission (MedPAC) report to Congress this year.

The reason seniors should re-evaluate their drug coverage is that plans change their prices annually, sometimes radically. Two of the country’s largest Part D plans will boost their premiums by more than 50% in January, according to an issue brief by the Kaiser Family Foundation, while two other large national plans will have double-digit increases. Some plans, though, will lower their premiums. Next year’s lowest-premium national plan will cost $12.60, which compares favorably to this year’s lowest national plan premium of $15.

Premiums are only one measure of the pricing volatility, of course. They are not a good predictor of a plan’s costs for a specific set of drugs. That’s because co-payments for some drugs are much higher in low-premium plans. In Atlanta, for example, someone who takes only one drug – Abilify — will pay $300 a year too much if he or she is enrolled in the lowest-premium plan. It’s not a farfetched example, since Abilify, an antipsychotic used mainly by seniors, ranks number two among brand-name drugs in sales revenue this year.

These wide cost variations are also present for generic drugs. Chlorthalidone, for instance, is a diuretic used to treat hypertension. It has been a generic since the 1960s, and a 30-day supply of 25mg tablets costs less than $20 a month/$240 a year at Costco without insurance. If you happen to live in Chicago, chlorthalidone will cost almost $90 less than that next year, including premiums, deductible, and co-payments, if you are in the lowest-cost Part D plan.

But if you were in the lowest-cost plan for chlorthalidone in 2013 and decide to remain there in 2014, you will pay $276 more than you should. What’s more, there are 16 Part D plans in Chicago in which you’ll overpay by more than $500. This same kind of variation is found in Medicare Advantage plans that include Part D coverage. In Chicago you will pay only $80 a year for chlorthalidone if you are in the Aetna Medicare Value Plan, but $660 a year in another Aetna Advantage offering – the Medicare Standard PPO Plan. You have no simple way of knowing this unless you compare the various options.

Drug plans’ formulary changes also create sufficient confusion to discourage some seniors from comparing plans. Formulary changes are often positive when insurers include new, more effective drugs and remove older ones. When the patent expires for a brand-name drug and a generic version becomes available, plans will sometimes no longer cover the brand-name versions. In addition if several drugs can be used to treat the same condition, plans will typically choose the ones for which they can get the largest rebates from manufacturers. Few plans will cover more than three statin drugs, for example, even though there are seven statin drugs are on the market.

Last year there were 300 different Part D formularies. The percentage of drugs covered by the seven largest plans ranged from a high of 92% (AARP MedicareRx Preferred Plan) to a low of 69% (WellCare Classic Plan). And it’s increasingly true that even when a drug is on a plan’s formulary, the plan may place restrictions on it that will make it harder to get. The popular Humana Walmart Preferred Rx plan, for example, has restrictions on 48% of its formulary drugs this year, according to MedPAC data.

Sometimes it takes price jolts to persuade people to compare Part D plans and switch. Younger retirees typically take fewer drugs than do the very elderly and so they have less incentive to compare plans. A preliminary study of Medicare records of 250,000 New Jersey residents with Part D coverage, also cited earlier, found that the highest rates of plan switching were in the two groups that would be expected to have the largest drug costs – disabled people younger than 65 and people ages 85 and older.

The only way for seniors to find the lowest-cost plan for a set of drugs is to use the Medicare web site’s Plan Finder or have someone do it for them. Comparing plans requires an understanding of Part D’s basic rules, some computer knowledge, and the patience to sort through the details of preferred pharmacies and restrictions. A majority of seniors do not have these skills and are not interested in acquiring them to do a once-a-year drug plan comparison.

Free counseling is readily available. People can call 800-MEDICARE to request a drug plan comparison or to ask for the number of their local Medicare counseling agency, which may be able to spend more time with them. Other Medicare advocacy groups and senior centers will also help with Part D comparisons.

After you compare prices, you can decide if you want to switch plans. If the current plan will be only a few dollars more expensive next year than the least-cost option, you may not want to go through the extra steps of enrollment and getting the new prescriptions that most plans will need. When they can see comparison pricing, however, many seniors will change plans. One analysis of more than two years of Part D switching records found that 28% of seniors who were given a plan comparison decided to change, vs. 17% for a control group). ◊◊

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