Transcript Enrollment (Ranked by Drug Spending)

The Impact of Enrollment in
the Medicare Prescription Drug
Benefit on Premiums
November 1, 2005
Jon Blum and Jennifer Bowman
Avalere Health LLC
Avalere Health LLC | The intersection of business strategy and public policy
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
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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
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Background
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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)
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CBO Assumptions about Part D Enrollment (2)
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
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CBO Assumptions about Part D Enrollment (3)
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
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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
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Experience with MMA Thus Far: Enrollment in the Medicare
Replacement Drug Demonstration
60,000
50,000
50,000
37,359
40,000
30,000
20,000
10,000
0
Number of Beneficiaries allowed to enroll
(cap instituted by Congress)
Beneficiaries Enrolled (as of September 8, 2005)
* According to Avalere Health email communications with Sharon Cardinale, MRDD Outreach
Coordinator, March 29, 2005
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Enrollment in the Medicare Drug Discount Card Has Also Been
Lower than Expected
8
7.3 million
7
6.4 million
6
5
4
3
2
1
0
CMS' Initial Projected Enrolled Beneficiaries by
End of 2005
Source: CMS Press Office.
Beneficiaries Enrolled in July 2005
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Methods
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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
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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
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
Low Income
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.
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Results
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Impact of Varying Enrollment of Low Income Beneficiaries
Enrollment
(Ranked by Drug
Spending)
Number of LowIncome 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%
Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the
Henry J. Kaiser Family Foundation.
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Impact of Varying Enrollment of Dropped Retirees
Enrollment
(Ranked by Drug
Spending)
Number of
Dropped Retirees
(Millions)
Range of Annual
Drug Spending
(Low – High)
Average Monthly
Premium
Percent Increase in
Premium Relative
to Full Enrollment
($34.33 Premium)
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%
Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the
Henry J. Kaiser Family Foundation.
© Avalere Health LLC
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Impact of Varying Enrollment of Non-Low-Income Beneficiaries
Enrollment
(Ranked by Drug
Spending)
Number of NonLow-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
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%
Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the
Henry J. Kaiser Family Foundation.
© Avalere Health LLC
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Impact of Varying Enrollment of Low Income, Non-LowIncome and Dropped Retirees on Average Monthly Premiums
Percent Increase in Average Monthly
Premium, Compared to Full Enrollment
25%
Non Low-Income
20%
15%
10%
Low-Income
5%
Dropped Retirees
0%
100%
80%
60%
40%
20%
Percent of Beneficiaries Enrolled
Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the
Henry J. Kaiser Family Foundation.
© Avalere Health LLC
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Enrollment of Three Sub-Groups Under Five Possible
Scenarios
Total Enrollment (Millions)
30
25
Non Low-Income
20
Dropped Retirees
15
Low-Income Subsidy
MA
10
SPAPs
Dual Eligibles
5
0
100
80
60
40
20
Percent of Three Subgroups Enrolled, Ranked by Drug Spending
Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the
Henry J. Kaiser Family Foundation.
© Avalere Health LLC
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Percent Increase in Premiums Relative to 100 Percent
Enrollment Under Five Possible Scenarios
Percent Change in Average Premium
Compared to Full Enrollment
45%
40%
42% ($48.67)
35%
34% ($46.17)
30%
25%
24% ($42.50)
20%
15%
10%
11% ($38.08)
5%
0% ($34.33)
0%
100
80
60
40
20
Percent of Three Subgroups Enrolled, Ranked by Drug Spending
Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the
Henry J. Kaiser Family Foundation.
© Avalere Health LLC
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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
Source: Avalere Health LLC estimates using a model developed by the Actuarial Research Corporation for the
Henry J. Kaiser Family Foundation.
© Avalere Health LLC
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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
© Avalere Health LLC
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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
© Avalere Health LLC
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