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Study: Seniors in Traditional Medicare Offered Much Higher Prescription Drug Premiums

MAY 23, 2005 -- Beneficiaries who choose to remain in the traditional fee-for-service side of Medicare are offered much higher monthly premiums on average for drug coverage than those picking managed care plans, a new study says.

The average monthly premium offered by "PDPs"—the type of drug plans offered to enrollees in traditional Medicare—is $37, compared with $19 offered by local HMOs in Medicare. Regional PPOs meanwhile are offering monthly premiums for drug coverage averaging $22, according to the study posted Tuesday on the Web site of the policy journal Health Affairs.

The finding might provide ammunition to critics who say the Bush administration wrote the Medicare drug law (PL 108-173) in a way that pushes more Medicare enrollees into HMOs and PPOs as part of an alleged effort to eventually phase out traditional Medicare.

However, a spokesman for the Medicare program said the study calculated premium averages not based on the PDPs in which seniors actually enroll, but rather on all the PDPs offered. "The findings in the report appear to be consistent with what we've found of the average price of the bids," said Peter Ashkenaz, a spokesman for the Centers for Medicare and Medicaid Services.

If the monthly average is calculated based on the premiums charged by the PDPs in which Medicare beneficiaries are actually enrolling, the figure is $25, not $37, Ashkenaz said. "There doesn't seem to be a whole lot new here," he added. "Premiums vary along with everything else. Beneficiaries are choosing plans that fit their individual needs."

Conducted by Austin Frakt and Steven Pizer of the Veterans Affairs Boston Healthcare System in Massachusetts, the study also found that relatively few PDPs offer coverage in the "doughnut hole"—the part of the standard Medicare drug benefit for which the beneficiary is responsible for 100 percent of prescription costs.

Fifteen percent of all PDPs—national and regional—offer coverage in that gap. But that's a higher percentage than for local Medicare managed care plans offering drug coverage; 14 percent of those plans offer gap coverage. Of the relatively small number of PDPs that are offered nationally, one-third offered coverage in the gap.

Premiums charged by PDPs offering coverage in the gap are relatively high—"$50 per month on average," the study said. PDPs covering both brand-name and generic drugs in the gap charge $61 on average, the study said.

Only one national PDP—Humana—offers coverage of brand-name drugs in the gap, the study said. That strategy could attract enrollees with relatively high drug costs, but it "also holds the potential to capture substantial market share," the report said. "Whether this strategy will prove to be profitable ought to become evident during 2006."

The study quantifies how much more plentiful PDPs are in Medicare than regional PPOs or local HMOs. Not all beneficiaries have access to PPOs or HMOs, known as Medicare Advantage (MA) plans, it says. The average MA region has 2.4 regional PPOs on its menu of plan choices, while the average county has 3.6 local MA plans with drug coverage and the average PDP region offers 42 PDPs, the study found.

The relatively cheap drug coverage offered by MA plans has been a big draw for beneficiaries, but MA enrollment trails PDP enrollment.

CMS Administrator Mark B. McClellan noted last week that the most recent tally for enrollment in PDPs was about 9 million. But the figure may have crept closer to 10 million in the final days of the Medicare drug benefit enrollment period.

MA enrollment stood at about 6 million at the start of the year when Medicare drug coverage began. It now stands at about 7 million.

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