June 18, 2018 at 5:00 am ET
Medicare’s Part D prescription drug benefit has been a huge benefit for seniors, expanding access to much-needed medicine by reducing what patients pay for those drugs. The program is overwhelmingly popular, and one study suggests people are living longer since the benefit went into effect.
That record of success is a big reason why Congress should reverse the dangerous changes made during negotiations to strike a budget deal earlier this year and soften the blow from an impending cliff in catastrophic drug coverage.
The eleventh-hour changes disrupted the payment formula for patients who fall in the so-called “Doughnut Hole,” a coverage gap for Medicare beneficiaries. Congress limited the number of seniors exposed to the sometimes-ruinous cost of the doughnut hole, but the last-minute change upended the fundamental balance in the law that requires patients, insurers and drug companies to all share in the costs of this drug benefit. The revision dramatically shifts the burden of paying for this benefit away from insurance companies and onto drugmakers, while seniors are forced to pay what they would under the old system.
In a recent rule, the Centers for Medicare and Medicaid Services expressed “significant concerns about the impact these changes will have on drug costs” in future years. Congress needs to be aware of how damaging these changes are, both for patients and for the system as a whole.
For example, the decision to reduce insurance companies’ exposure to the benefit gives them far less incentive to keep costs under control. That could trigger other negative repercussions for seniors who depend on this program. Health plans using fee-for-service reimbursement are a major driver of health care cost increases, and this most recent change essentially absolves them from footing the bill.
The disruption for seniors will be compounded by a looming cliff that could force seniors to pay much higher out-of-pocket costs under Part D’s catastrophic coverage program, unless Congress steps in to fix the problem. The threshold for catastrophic coverage is set to jump by roughly $1,500 in 2020, and Congress needs to act to shield seniors from paying dramatically more for the prescription drugs they need, particularly those on a fixed income.
Since its inception, there has been a coverage gap in Medicare’s prescription drug benefit. Seniors who fall into this gap have had to pay a larger share of their drug costs. In 2018, patients will trigger the doughnut hole once the total cost of their medicine exceeds $3,750, and it phases out once they spend $5,000 on prescription drugs. At that point, they will qualify for catastrophic care.
Under the old rules, seniors who fell into the doughnut hole paid 25 percent of the total costs of their medicine, while insurance plans picked up another 25 percent and drug companies covered the remaining 50 percent. But Congress changed that formula without warning in early February as part of a last-minute budget deal to keep the government running.
The new formula requires drug companies to pay 70 percent of the costs of medicine for seniors who fall into the doughnut hole, while insurance companies now pay just 5 percent. Seniors, meanwhile, still pay 25 percent. This is a perplexing result. They didn’t take that additional 20 percent off Medicare beneficiaries; they took it off the insurance plans.
That may sound like a good idea to critics of the pharmaceutical industry. After all, these days, it’s hard to find an industry more maligned than drug companies. But the Congressional budget deal formula now removes the incentive for insurance companies to help lower drug costs by essentially taking them out of the equation. Because health plans are only on the hook for 5 percent of a patient’s total pharmaceutical spending, they will be less motivated to control costs. Congress needs to reverse those changes.
Before congressional negotiators made this eleventh-hour change, CMS and Medicare’s nonpartisan advisory commission (MedPac) both criticized the insurance industry for failing to manage costs properly. This change will only exacerbate an existing concern, at a time when drugmakers are offering greater rebates and other price concessions.
Medicare’s prescription drug plan is enormously popular. According to a 2017 survey by Morning Consult of about 2,000 seniors, 87 percent of seniors in Part D drug plans are satisfied with their coverage, and 84 percent said it was a good value. Nine out of every 10 seniors thought they would pay more for their prescription drugs without this coverage. More importantly, a University of Illinois study found a noticeable drop in mortality rates since seniors gained more access to prescription drugs, meaning people are living longer since the benefit went into effect.
Why Congress fundamentally changed the program without publicly debating the merits is perplexing. This was a last-minute change that almost no one saw coming. Congress needs to reverse these changes and shield seniors from the out-of-pocket cliff to spare them from two detrimental changes to one of the federal government’s most successful programs. This is the response seniors deserve.
Howard Dean is a physician, the former governor of Vermont and an adviser to Dentons, and the views expressed are his own and do not necessarily reflect the firm or its clients.
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