The growing popularity of Medicare Part D (the Medicare Drug program) among health plans pharmacy benefit managers (PBMs), is a mystery. As I have noted before, the program as presently conceived is guaranteed to drive adverse selection with only the seniors who will get more from the program than they will pay in likely to subscribe.
I asked national health policy expert Bob Laszewski of Health Policy and Strategy Associates (not affiliated with my firm) if I’m missing something, if there is a good reason why PBMs and health plans are jumping into this business. Bob pointed to a Brandeis University study that indicated those seniors who purchased the drug discount card tended to he high users of drugs. No surprise there – what is revealing is the underlying statistics. Drug card purchasers saved 20% (on average) but used the card twice as often as seniors who received a card automatically from their health plan.
Defenders of the Part D program cite PBMs’ expertise in formulary management, bulk pricing arrangements, cost-sharing with seniors (co-pays etc.) as evidence of their ability to control costs.
Perhaps most telling is the Federal government’s announcement that they will protect PBMs and health plans from excessive losses incurred as a result of their Part D drug programs.
The net – this is one of those “if everyone else is doing it, we better too” businesses. It is reminiscent of the pricing cycles in property and casualty insurance, where as soon as carriers start losing money they raise prices, and as soon as they start making money they cut prices to capture volume. This pattern has been as consistent as the tides, and likely as inevitable.
What does this mean for you?
For those of us on the sidelines, observing the outcome of the rush into Medicare Part D drug cards will be instructive. It is possible that I am missing something here, that PBM programs actually can address utilization (although I have never seen evidence that they do, and because they traditionally make money only when prescriptions are filled, utilization management is not in their DNA).
But I doubt it.
May
17
Seniors without retiree insurance will be given a choice come January 2006: either buy a free standing Medicare D, or join a Medicare “Advantage” HMO. If they don’t there are penalties like the penalty if you fail to sign up for Part B, only 10 times greater; and believe the penaty compounds. THAT is why PBMs and insurers signed up for this plan – there is a government guaranteed and subsidized market!
not exactly. seniors will be able to stick with regular Medicare, or go to one of the HMO plans. the penalty for those who fail to sign for the drug card is a very small monthly premium that does compound, but does so quite slowly and stays quite low for 18-24 months.
the government has said it will cover losses below certain levels, but that is scant reason to go into a new business, especially one that is rife with potential adverse selection.