Since the Medicare drug benefit enrollment period began on November 15, 2005, everywhere seniors turn they find newspapers and airwaves filled with warnings that the program is overwhelmingly confusing. Those are certainly discouraging words for seniors who want and need this new benefit.
But seniors should not give up. One reason they are confused is that they have more and better choices than anyone anticipated when the drug benefit was being crafted by Congress.
For example, one prescription drug plan costs as little as $1.87 a month in premiums. Others eliminate the $250 deductible so seniors get first-dollar coverage. Still others provide drug coverage in the dreaded “doughnut hole”–the gap in the standard plan where insurance coverage is interrupted between low and high drug expenses.
Congress expected seniors would have to pay about $35 a month in premiums for their Medicare drug coverage, but the average premium is lower–about $32 a month. And almost every state has a plan with premiums of no more than $20 a month.
The tradeoff for seniors in having choices of drug benefits is in having to make choices. It could have been simple. The government could have told seniors what they would pay and which drugs they would get, and maybe the drugs any particular individual needed would be on the drug list, and maybe not. But as it is, the choices require seniors to figure out which plan is best for them.
The reason for these surprisingly better choices is competition: 65 different sponsors are competing to provide the most attractive benefits at the lowest prices. Every drug plan must cover at least two drugs in every therapeutic class, but seniors will have to make sure the specific drugs they need are covered by the plan they choose.
And, miracle of miracles, seniors with questions can actually find out, through government help lines and local public meetings designed to assist Medicare participants, what their options are in each of the different plans. That’s not what people are accustomed to in our paternalistic health insurance market. Welcome to the future.
Seniors will have to narrow down their decisions to pick the plan that provides them the lowest premium and best selection where they live. And with an average of 42 plans available in each region, it takes some work.
The 1-800-MEDICARE phone lines are swamped with seniors eager to learn more and sign up. The Medicare Web site, http://www.medicare.gov, also has been inundated with visitors (more than a million on the first Sunday alone).
The Medicare division of the Centers for Medicare and Medicaid Services (CMS) is working feverishly to fix problems and expand capacity. But seniors have until May to sign up, so there’s time.
Competition Increasing Appeal
It’s worth it. The plans offering coverage are competing intensely for beneficiaries to sign up, and they are making the drug benefit even more attractive than the one outlined by Congress:
- Zero premiums: Seniors in 44 states can pick a comprehensive “Medicare Advantage” medical/hospital/drug plan that combines Medicare Parts A and B with prescription coverage for which the senior pays no additional drug premium (instead of the $35 monthly fee estimated by Congress). Humana gets the prize for the lowest-priced free-standing drug plan, a privately offered plan to add drug coverage to Medicare, coming in at $1.87 a month for seniors in Iowa.
- No deductibles: 58 percent of plans will have no deductible (instead of the $250 in the standard plan designed by Congress).
- Filling the doughnut hole: One-fourth of the Medicare Advantage plans and one-sixth of all drug plans offer coverage in the dreaded doughnut hole (where the standard plan doesn’t cover drug spending, between $2,250 and $5,100 of annual drug costs).
Lawmakers Called for Delay
During the last two months of 2005, a number of conservative public policy groups and some Republican lawmakers, including Sen. John McCain (R-AZ), proposed postponing implementation of the program for at least a year, in order to save the government money.
“Creating a new insurance product and marketing it takes time and money,” Merrill Matthews, director of the Council for Affordable Health Insurance, points out. “Insurers have been gearing up for the past two years to have their plans in place.”
Cleveland-based MemberHealth, for example, has been providing discount prescription drug cards and other such products for the senior market since 1998. The company’s president, Chuck Hallberg, is hiring 500 new employees to handle the increased demand the new drug benefit is expected to create. The preparation, marketing, and infrastructure (desks, computers, software, etc. for those new employees) have cost the company millions of dollars.
“What would the company and all of those new employees do if the program were postponed for a year?” Matthews asks. “Delaying implementation wouldn’t solve a problem–federal overspending–it would create a new one by placing hundreds of businesses and thousands of employees in jeopardy. Companies like MemberHealth are playing by the rules, and the government can’t change those rules now.”
Firms Driving Hard Bargains
As the plans outlined above show, private-sector competition has come up with better options than the standard benefit plan Congress designed.
How have the plans been able to do this? Tough negotiations over drug prices, for starters. Some major drug companies are very upset because they have been shut out by drug plans because they wouldn’t or couldn’t offer low-enough prices.
And as Chris McFadden at Goldman Sachs pointed out in an October 2005 investors’ report, “As the largest expansion of the Medicare program since its inception in 1965, the implementation of Medicare Part D is expected to significantly increase drug utilization as almost 16 million seniors, who previously had no drug coverage, are provided an outpatient drug benefit. Based on the information released by [the Centers for Medicare and Medicaid Services in October], there will likely be a significant competition by managed care companies and PBMs [pharmacy benefit managers] to capture senior enrollment both for dual eligibles (under auto-enrollment programs) and the general population.”
In all parts of life, choices can be confusing. But all of the drug plans in the mix are approved by the Medicare agency to provide coverage at least as good as that specified by Congress. If seniors don’t like the plan they selected, they can switch again in November.
At this point, the only bad choice is likely to be not making any choice at all.
Grace-Marie Turner ([email protected]) is president of the Galen Institute.