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The Medicare Modernization Act at Midyear


The Medicare prescription drug benefit was a long time coming. It had been our top priority at AARP since the late 1980s, but despite the ever-increasing burden drug costs had become for beneficiaries, it kept eluding us. Finally, two years after the passage of the Medicare Modernization Act, the new Part D benefit is in place. Now that the first enrollment period has closed, it's time for a preliminary assessment and a look ahead.

From AARP's perspective, the Medicare drug benefit is best assessed in relation to the five distinct goals we sought in supporting MMA. These goals were:

  1. Establish a stable and affordable benefit that offers real assistance to most beneficiaries. Despite a bumpy start, and a confounding array of plan choices, overall enrollment numbers are encouraging. On May 16, the Centers for Medicare and Medicaid Services (CMS) announced that over 38 million Medicare beneficiaries now have prescription drug coverage from Medicare, a former employer, or other creditable source. A number of surveys, including our own, indicate widespread satisfaction with the benefit. In the most recent AARP survey, 40 percent said they would have had to cut back on groceries or other necessities absent the new benefit. So Part D is really helping millions of people afford prescription drugs.

    On the question of stability, we'll have to wait and see. Protections against formulary changes instituted by CMS serve this goal. Reducing complexity by simplifying and standardizing plan choices will also help. And, of course, holding plans to high performance standards, which CMS has indicated it intends to do, will be essential.
  2. Provide generous coverage to people with limited incomes. While Part D was designed to achieve this goal, to date it has fallen well short. Almost six million Medicare and Medicaid dual eligibles were automatically enrolled, but the low-income subsidy was intended to reach a much wider population. Although precise figures are not yet available, it appears that some three million beneficiaries who could qualify for "extra help" are not yet enrolled. Extending the enrollment deadline for this population gives more time for education and outreach, in which AARP, along with other organizations, has been deeply engaged. But there are formidable barriers, including an asset test and a long and intrusive enrollment form. Coupled with language and literacy problems, and perhaps a distrust of government programs generally, these barriers could defeat the intent of the law. To achieve this goal, the asset test should be repealed and the application process simplified.
  3. Assure "back-end" protection against high drug costs for all beneficiaries. After a beneficiary has spent $3,600 out of pocket, the Part D plan will pay 95 percent of all drug costs for the remainder of the year. This is strong protection. However, the coverage gap, or "doughnut hole," which precedes this catastrophic threshold—it kicks in after total costs of $2,250—may be the single hardest aspect of Part D for beneficiaries to understand or the rest of us to explain. Because Part D plans' costs and coverage vary—some offer coverage in the gap—estimates of how many beneficiaries will be affected by it are all over the map. It is likely, though, that enough will reach it in the next several months to touch off another round of confusion and complaint. Nonetheless, for beneficiaries with high drug expenses, the program is delivering real protection.
  4. Stabilize employment-based retiree health benefits. To encourage employers to retain retiree health benefits, MMA provided for a direct subsidy of 28 percent of retiree drug spending between $250 and $5,000 per covered retiree. For 2006, at least, the subsidy has achieved its purpose—over 90 percent of employers chose to continue to offer retiree benefits despite the opening Part D gave them for off-loading this obligation. Whether the pattern will continue beyond 2006, again, we can only wait and see.
  5. Put mechanisms in place that will help push down drug prices. Plan premiums and consumer cost-sharing for 2006 came in much lower than initial projections, indicating that drug manufacturers offered deeper discounts than anticipated. Now the test becomes how stable these costs will be in future years. Since consumer cost-sharing is directly tied to the overall cost of the program, this is a critical issue. AARP believes that the Secretary of Health and Human Services should have the authority to negotiate for lower prices on behalf of beneficiaries. We support S.239, now pending in the Senate, which would repeal the non-interference clause that currently prevents this. We also support wider use of generics, more comparative effectiveness research, and limiting overly aggressive drug marketing practices.
While the Part D benefit has gotten most of the attention, MMA made other changes in Medicare that should spell real improvement for the program and for beneficiaries' health. Promotion of prescribing safety through e-scripts, promotion of chronic care, the addition of preventive services—these new features, in particular, should prove especially beneficial.

The act also created new opportunities for HMO and PPO plans in Medicare, with sizable funding. The promise of this approach has always been better coordinated care and thus better health outcomes. Lured by more comprehensive benefits and lower premiums, over one million additional beneficiaries have chosen to enroll in these plans, now called Medicare Advantage. Past experience raises questions about the stability of managed care offerings in Medicare. What will happen when the funding equation changes? It behooves us to watch this "experiment in competition" closely. It is likely to tell us much about the future shape of Medicare and of the entire American health enterprise.

Meanwhile, what will Part D look like in 2007? I anticipate fewer plans, more "high option" plans that fill the doughnut hole, more stable formularies, and a range of "report cards" on plan performance. Generic utilization will increase as several popular brand drugs go off patent, while a number of new drugs will be introduced bearing extremely high prices. I also anticipate real advances in patient safety as the push to e-prescribing gains momentum.

For it to succeed, Part D, like the rest of Medicare, will require careful monitoring and continuing rounds of legislative and regulatory fine-tuning. Its enactment was an historic accomplishment, but its future is still very much in our hands.

Mr. Rother is the group executive officer of policy and strategy for AARP. He is responsible for the federal and state public policies of the association, for international initiatives, and for formulating AARP's overall strategic direction.

The views presented in this commentary are those of the author and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.

Publication Details



J. Rother, The Medicare Modernization Act at Midyear, The Commonwealth Fund, July 2006