• Medicare Prescription Drug Plans

    Medicare’s drug benefit became available in 2006 through a variety of private plans. Some plan types were new (stand alone prescription drug plans (PDPs) and regional PPOs) and some were familiar (local Medicare Advantage (MA) plans). Steve Pizer and I published the first peer-reviewed paper characterizing the forms the drug benefit took under the variaty of plan types: “A First Look at the New Medicare Prescription Drug Plans,” Health Affairs Web Exclusive (May 23, 2006): w252-w261.

    A main finding was that regional PPOs were not that popular (and still aren’t). They participate in Medicare in relatively low numbers and attract relatively few enrollees. Local MA plans, where offered, are much more numerous and popular. Local MA plans also had lower premiums and deductibles on their drug benefit as compared to regional PPOs in 2006. That year, the average drug premium for regional PPO drug plans was $22 per month. About one third had a $250 annual deductible; two thirds had zero deductible. The average drug premium for local MA drug plans was $19 per month. Additionally, compared with regional PPOs, a higher proportion of local MA drug plans (three-quarters) had a zero deductible for drugs. Almost all of the remaining one quarter of local MA drug plans had a $250 annual deductible.

    On average, in 2006 the monthly drug premium for a PDP was $37—well above the averages for local MA drug plans and regional PPOs. A smaller proportion of PDPs (about half) had zero deductible for drugs, relative to local MA plans and regional PPOs. About 34 percent of stand-alone PDPs had a $250 annual deductible, approximately the same as for regional PPOs but a higher percentage than for local MA drug plans. Seven percent have a $100 deductible, and 1 percent had other deductible levels ($50, $150, or $175).

    The paper goes on to analyze the costs associated with the 15 national PDPs offered by six insurers in 2006. It also describes their coverage of and cost sharing for the 12 most popular brand name drugs. These results are likely be quite different today so I won’t describe them in detail.

    In conclusion, where they exist, local MA plans offer lower premiums and deductibles for outpatient drug coverage relative to PDPs or regional PPO drug plans. Broad PDP characteristics do not vary much from region to region. However, within regions, characteristics vary widely, which has been reported in the media as a source of confusion for beneficiaries. Even when attention is restricted to national PDPs, beneficiaries have meaningful choices, with much variation in cost and generosity.

    I’ve analyzed more recent data, though less thoroughly. Not much has fundamentally changed in the market. Local MA plans still offer the best value for drug benefits (ignoring all the other ways in which local MA plans differ from other plan types).

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    • I believe the price difference is partly subsidization of the drug plan by the MA plan. Acquisition costs for the health plans of MA are very high, and so they are prepared to subsidize drug costs to entice seniors to sign up.