Monthly Premiums Up 16% on 10 Medicare Drug Plans in 2008, Study Finds

Avalere Study

A study conducted by consultancy firm Avalere Health using the latest figures released by the Centres for Medicare and Medicaid Services (CMS) in May 2008 found that there has been a rise in the average monthly premiums of drug plans under Medicare Part D. The period under scrutiny was June 2007 to April 2008, and the 10 most popular drug plans were assessed to ascertain the beneficiary behavioural trend. The 10 most popular prescription drug plans (PDPs) evaluated were AARP Medicare Rx Preferred (United Health Group), Humana PDP Standard, Humana PDP Enhanced, Community CCRx Basic, AARP Medicare RxSaver, Wellcare Classic, Medicare Rx Rewards value, SilverScript, Prescription Pathway Bronze, and Health Net Orange Option 1. The study outlined the following findings from the CMS data:

• A 16% average premium price rise was observed for 2008 enrolment. The top-three drug plans showed an average increase of 25%. Of the 10 plans, six increased their premiums while 4 reduced them, by 14% (Community CCRx basic), 30% (SilverScript), 7% (Prescription Pathway Bronze), and 13% (Health Net Orange Option 1).
• The largest PDP, AARP Medicare Rx Preferred, with 2.7 million beneficiaries, raised its premium by 15% from US$27.93 (2007 average premium) to US$32.08 (2008 average premium). Other major rises occurred at AARP Medicare Rx Saver (84%), Humana PDP Standard (69%), and Wellcare Classic (56%).
• Interestingly, the study found that the top-10 PDPs’ market share fell by three percentage points from 75% in June 2007 to 72% in April 2008. United and Humana were found to have lost a large share of dual eligibles for Medicare and Medicaid. This signals a change in beneficiary behaviour as competition has increased in the market.
• The number of people enrolled for private fee for service plans was up 30%, and the lifting of the two-year moratorium on preferred provider organizations (PPOs) on new local contracts resulted in higher enrolment levels for local PPOs (64%) and regional PPOs (80%).

Source: Kaiser Network, Avalere Health, and Los Angeles Times

Outlook and Implications

The figures reflect certain aspects of enrolments and beneficiaries’ behaviour. The average monthly premium increase is significant for the beneficiary but is less than the anticipated rise of 21%. The trend depicts that beneficiaries have become far more cautious in their PDP expenses, shopping around for lower premiums and a generous formulary using the CMS provision of the November-December window to switch plans. Smaller drug plans have thus benefited, with higher enrolments increasing the competitive nature of the market among PDPs. However, although the higher premiums have affected numbers, large PDPs have also gained from several factors affecting the market. Most notable is the ending of the two-year ban on local PPO contracts by the Medicare Modernisation Act. This is reflected in the invigoration of the local and regional PPO market, with large health-plan firms such as United and Wellpoint benefiting. A shift in market dynamics away from individual beneficiaries has also been witnessed, as the Avalere Health study noted, with the private for fee plans benefiting from increasing enrolments. In the short term though, the competition in the PDP market is expected to become even more intense as the CMS attempts to widen the base of beneficiaries. The CMS has embarked on a US$12-million campaign to include low-income families in its service plans, which is likely to further affect the market. Although subsidised, PDPs may need to focus on strategies involving premiums given the apparently low income threshold of future enrollees.

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