Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Medicare Drug Plans' Safety Net Proving Costly, MedPAC Says

By Kerry Young, CQ Roll Call

September 10, 2015 -- The substantial safety-net protections for insurance plans that cover prescriptions may be dulling the insurers' incentive to negotiate the best deals for Medicare at a time of rising pharmaceutical costs, advisers to Congress said.

The Medicare Payment Advisory Commission (MedPAC) will delve Friday into how the federal health plan for the elderly and disabled manages pharmaceutical spending, including the approximately $78 billion Part D prescription drug plan program. The plans cover the routine prescriptions people purchase in pharmacies. Medicare pays for drugs given in doctors' offices and hospitals through the separate outpatient care part of the program.

Ahead of the meeting, MedPAC staff highlighted their concerns regarding the exploding cost of reinsurance payments. The funds are meant to soften the financial blow for insurers when a customer's drug costs hit an annual cap, set this year at $7,000. Medicare is responsible for most of the additional spending over the limit. Reinsurance was included to attract insurers to the drug program, which has been operating since 2006 and now serves more than 40 million Americans.

"Now that the market is established, it may be time to reevaluate policy goals for sharing risks in Part D," the MedPAC staff said in a Sept. 1 blog post about reinsurance.

Growth in reinsurance payments is outstripping increases in all of the other major expenses in the Part D drug program, including monthly payments to plans for patients' routine drug costs and subsidies that help low-income people afford medicine. The ballooning reinsurance costs are due in part to the introduction of costly hepatitis drugs and the increasing number of Americans with chronic diseases.

The growth raises concerns that the program is evolving into a relatively uncontained reimbursement, a payment approach that lawmakers and federal officials have been trying to abandon for the rest of the Medicare program.

"If this trend continues, Medicare's payments for Part D become closer to cost-based reimbursement that relies on open-ended reinsurance payments than one that relies on capitated payments, or ones that are more tightly controlled," MedPAC said in the blog post. "This is a particular concern going forward because launch prices for new drugs have reached levels that may push more beneficiaries over Part D's out-of-pocket threshold."

Last year, reinsurance payments topped the more tightly-controlled routine monthly payments to plans for the first time, according to the most recent Medicare trustees' report.

Annual reinsurance costs jumped by 363 percent since the start of the program, to $27.8 billion last year from $6 billion in 2006.

In the same period, regular payments to plans for patients' care rose only 6 percent. Funds for the subsidy for low-income people increased by 62 percent.

MedPAC has offered several ideas for changing Part D's risk management, including requiring insurers to include more of the costs of catastrophic spending in their covered benefits.

America's Health Insurance Plans argues that the key issue is to instead tackle the rising prices charged by drug companies.

"Any solutions addressing the rising costs of the Part D program should therefore get at their root cause, the increased use of high cost drugs," the trade group said in a statement to CQ HealthBeat, calling for increased transparency into drug companies' prices.


Publication Details