The Impact of Enrollment in the Medicare Prescription Drug Benefit on Premiums November 1, 2005

Avalere Health LLC | The intersection of business strategy and public policy

The Impact of Enrollment in the Medicare Prescription Drug Benefit on Premiums

November 1, 2005

Jon Blum and Jennifer BowmanAvalere Health LLC

© Avalere Health LLC

Page 2

Overview of the Study

Conducted by Avalere Health LLC on behalf of the Kaiser Family Foundation Study, released October 28, 2005

» http://www.kff.org/medicare/7423.cfm

Examine the effects of participation assumptions on monthly premiums and federal costs of the Medicare prescription drug benefit, particularly if beneficiaries with relatively low drug spending do not enroll

The analysis solely focuses on the impact of various enrollment scenarios, based on beneficiaries prescription drug costs

» The analysis holds constant other factors that could affect average Part D premiums, including drug prices, utilization, and other market forces

http://www.kff.org/medicare/7423.cfm


Page 3

Key Findings of the Study

1. Average premiums for the Medicare prescription drug benefit could be significantly higher in 2007 than current federal projections if enrollment is significantly concentrated among beneficiaries who have high expected drug spending

2. If enrollment is limited to the highest spending 20 percent of beneficiaries in three important groups, the average Part D premium could be as much as 42 percent higher than expected

3. Enrollment levels do not significantly alter the federal costs of offering the Medicare prescription drug benefit

Background

The intersection of business

strategy and public policy


Page 5

CBO Assumptions about Part D Enrollment (1)

Small group of beneficiaries do not enroll in Part D

6% of Medicare beneficiaries who do not participate in Part B

7% of beneficiaries enrolled in Part B who are either:

» Active workers receiving drug coverage through employers, or

» Beneficiaries receiving coverage through federal programs (veterans, federal retirees, and military retirees)


Page 6

All retirees either receive drug coverage through an employer, or enroll in a Part D plan

30% of beneficiaries enrolled in Part B receive coverage through a former employer

» Two-thirds of those beneficiaries will see their employers take the retiree drug subsidy and receive drug benefits through the employer

» One-third are expected to enroll in Part D plans



Page 7

All remaining Medicare beneficiaries (25.8 million) are expected to enroll

Dual eligible beneficiaries (6.4 million)

Medicare Advantage enrollees (5.5 million)

Beneficiaries currently receiving Medigap coverage (3.2 million)

Beneficiaries currently without drug coverage (7.7 million)

Overall, CBO assumes 80% of Medicare beneficiaries will enroll in Part D or receive benefits through a former employer that takes the retiree drug subsidy



Page 8

Choosing to Enroll in the Medicare Drug Benefit Is a Complex Decision

Beneficiary decision includes considering:

» Current drug coverage’s formulary, premium and cost-sharing offerings

» Eligibility and application for low-income assistance

» Comparing plans (many more PDP and MA-PD plans than expected)

CMS plan comparison tools will enable beneficiaries to compare:

» Pharmacy networks

» Formulary, including drug list and management tools

» Premiums

» Coinsurance or copayment


Page 9

50,000

37,359

0

10,000

20,000

30,000

40,000

50,000

60,000

Number of Beneficiaries allowed to enroll (cap instituted by Congress)

Beneficiaries Enrolled (as of September 8, 2005)

Experience with MMA Thus Far: Enrollment in the Medicare Replacement Drug Demonstration

* According to Avalere Health email communications with Sharon Cardinale, MRDD Outreach Coordinator, March 29, 2005


Page 10

6.4 million

7.3 million

0

1

2

3

4

5

6

7

8

CMS' Initial Projected Enrolled Beneficiaries byEnd of 2005

Beneficiaries Enrolled in July 2005

Enrollment in the Medicare Drug Discount Card Has Also Been Lower than Expected

Source: CMS Press Office.

Methods




Page 12

Methodology

Model uses some CBO assumptions for enrollment

» Expected to Enroll in Part D: Dual eligibles and Medicare Advantage enrollees

» Expected Not to Enroll in Part D: Active workers receiving employer-sponsored insurance and those receiving drug coverage through a government retiree health insurance program

Enrollment scenarios focused on 3 subgroups of Medicare beneficiaries:

1. Low-income subsidy eligibles

2. Beneficiaries projected to lose retiree health benefits

3. Beneficiaries currently enrolled in the traditional fee-for-service program who do not qualify for the low-income subsidies

Groups were divided into quintiles based on expected drug spending

Estimated premiums and federal program costs based on enrolling the 20%, 40%, 60%, 80%, or 100% of beneficiaries with highest drug spending of all 3 groups


Page 13

Total Population and Average Prescription Drug Spending per Beneficiary for Categories of Beneficiaries with Varying Enrollment

Beneficiary Category Drug Coverage Status Total Beneficiaries (Millions)

Average Prescription Drug Spending Per

Beneficiary

Low Income 4.5 $2,301

With Current Drug Coverage

1.1 $3,222

Without Current Drug Coverage

3.4 $1,999

Dropped Retirees 2.7 $3,803

Non-Low-Income 10.0 $2,145

With Current Drug Coverage

2.7 $3,045

Without Current Drug Coverage

7.3 $1,807

Total Enrollment 17.2

Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the Henry J. Kaiser Family Foundation.

Results




Page 15

Impact of Varying Enrollment of Low Income Beneficiaries

Enrollment (Ranked by Drug

Spending)

Number of Low-Income Enrollees

(Millions)

Range of Annual Drug Spending

(Low – High)

Average Monthly Premium

Percent Increase in Premium Relative to Full Enrollment ($34.33 Premium)

100 percent 4.5 $0 - $91 $34.33 0%

80 percent 3.6 $92 - $765 $35.42 3%

60 percent 2.7 $766 - $1,836 $36.50 6%

40 percent 1.8 $1,837 - $3,846 $37.17 8%

20 percent 0.87 $3,847 + $37.42 9%



Page 16

Impact of Varying Enrollment of Dropped Retirees


Spending)

Number of Dropped Retirees

(Millions)


(Low – High)



100 percent 2.7 $0 - $301 $34.33 0%

80 percent 2.1 $302 - $2,154 $35.00 2%

60 percent 1.6 $2,155 - $3,594 $35.33 3%

40 percent 1.1 $3,595 - $6,071 $35.42 3%

20 percent 0.54 $6,072 + $35.42 3%



Page 17

Impact of Varying Enrollment of Non-Low-Income Beneficiaries


Spending)

Number of Non-Low-Income

Enrollees (Millions)


(Low – High)



100 percent 10.0 $0 - $193 $34.33 0%

80 percent 8.0 $194 - $755 $36.83 7%

60 percent 6.0 $756 - $1,733 $39.50 15%

40 percent 4.0 $1,734 - $3,512 $41.58 21%

20 percent 1.98 $3,513 + $42.58 24%



Page 18

Impact of Varying Enrollment of Low Income, Non-Low-Income and Dropped Retirees on Average Monthly Premiums

0%

5%

10%

15%

20%

25%

100% 80% 60% 40% 20%

Percent of Beneficiaries Enrolled

Perc

ent I

ncre

ase

in A

vera

ge M

onth

ly

Prem

ium

, C

ompa

red

to F

ull E

nrol

lmen

t Non Low-Income

Low-Income

Dropped Retirees



Page 19

0

5

10

15

20

25

30

100 80 60 40 20

Percent of Three Subgroups Enrolled, Ranked by Drug Spending

Non Low-Income

Dropped Retirees

Low-Income Subsidy

MA

SPAPs

Dual Eligibles

Tota

l Enr

ollm

ent (

Mill

ions

)Enrollment of Three Sub-Groups Under Five Possible Scenarios



Page 20

Percent Increase in Premiums Relative to 100 Percent Enrollment Under Five Possible Scenarios

42% ($48.67)

34% ($46.17)

24% ($42.50)

11% ($38.08)

0% ($34.33)0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

100 80 60 40 20

Percent of Three Subgroups Enrolled, Ranked by Drug Spending

Perc

ent C

hang

e in

Ave

rage

Pre

miu

m

Com

pare

d to

Ful

l Enr

ollm

ent



Page 21

Estimated Federal Costs Based on Enrollment, Ranked by Drug Spending

Enrollment (Ranked by Drug Spending)

Total Federal Costs (Billions)

Enrollment (Millions) Average Costs per Enrolled Beneficiary

100 percent $60.6 29.1 $2,080

80 percent $60.8 26.3 $2,311

60 percent $60.4 23.4 $2,587

40 percent $58.5 20.4 $2,860

20 percent $54.3 17.5 $3,095



Page 22

Policy Implications

CBO’s monthly premium estimate of about $37 is based upon robust participation

» The average monthly premium for 2007 could be dramatically higher if only those beneficiaries with expected high prescription drug costs enroll in 2006

To keep premiums affordable, enrollment of higher-income beneficiaries with low prescription drug spending is critical

» The success of CMS and other stakeholders’ outreach efforts to this group will keep premiums affordable

Federal costs of the Medicare prescription drug benefit are largely unaffected if enrollment is limited to only the most expensive beneficiaries

Robust enrollment is critical to keep premium and federal costs manageable, and to keep Medicare prescription drug benefit plans participating in the program


Page 23

For a copy of the paper, entitled The Impact of Enrollment in the Medicare Prescription Drug Benefit on Premiums, visit:

www.kff.org

or

www.avalerehealth.net

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The Impact of Enrollment in the Medicare Prescription Drug Benefit on Premiums November 1, 2005

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