Medicare Part D: Time for Re-Modernization?

Area of Science:

• Health economics
• Pharmaceutical policy
• Medicare Part D analysis

Background:

• Medicare Part D provides prescription drug coverage to beneficiaries.
• Federal reinsurance subsidies aim to limit plan liability for high drug costs.
• Beneficiary premiums have remained surprisingly stable despite rising subsidies.

Purpose of the Study:

• Investigate the mechanisms stabilizing Medicare Part D beneficiary premiums.
• Analyze the impact of increasing reinsurance subsidies on premium stability.
• Identify factors contributing to the divergence between plan bids and actual spending.

Main Methods:

• Utilized secondary data from 2007-2015 on Part D plan bids, subsidies, and claims.
• Compared standardized, enrollment-weighted average plan and reinsurance bids with calculated liabilities from claims data.
• Merged Part D payment and premium data to derive plan bids, linked with claims-based spending.

Main Results:

• Plan and reinsurance bids significantly diverged from actual claims spending between 2007 and 2015.
• Growth in rebates and systematic under-bidding of reinsurance payments drove this divergence.
• Plans collected approximately 3% of total Part D spending in excess federal subsidies by 2015.

Conclusions:

• Rebate revenue and excess federal subsidies from reinsurance reconciliation stabilized Part D premiums.
• Policy reforms are needed to address program misincentives.
• Reforms may lead to unavoidable premium increases reflecting actual net spending.