Healthcare Reform and Medicare Part D

1. Healthcare Reform and Medicare Part D Dsih-lang Liu, FSA, MAAA Centers for Medicare & Medicaid Services

2. Medicare Part D Benefits • Prescription drug benefit in Medicare in Medicare Modernization Act passed on Dec. 8, 2003 • Optional coverage with subsidized premiums started on Jan. 1, 2006 • Eligibility: entitled to A or enrolled in B

3. CY 2006 Benefit Structure • $250 deductible • 25% coinsurance up to $2,250 initial coverage limit (ICL) • Coverage gap (donut hole) • $3,600 true out-of-pocket (TrOOP) catastrophic limit (=$5,100 incurred costs/threshold) • Beneficiary pays greater of $2 generic/$5 brand or 5% coinsurance above catastrophic threshold • TrOOP excludes reimbursement by insurance, employers etc.

4. Out - of Initial Coverage - Threshold Limit Total Catastrophic Pocket Coverage Spending $250 $ 2,250 $ 5,100 75% Plan Pays Coverage Gap 80% Reinsurance $ + Deductible 95% ? 25% Coinsurance $3,600 TrOOP 15% Plan Pays 5% Coinsurance Medicare Pays Reinsurance Beneficiary Liability Direct Subsidy Beneficiary Premium

5. CY 2011 Benefit Structure • $310 deductible • $2,840 ICL • $4,550 OOP catastrophic limit • Threshold varies by beneficiary • $6,447.50 if 100% brand in gap • $6,719.03 if 100% generic in gap

6. Part D Coverage • Individual plans • Prescription drug plans (PDPs) • Medicare Advantage prescription drug plans (MA-PDs) • Employer group waiver plans (EGWPs) • Retiree drug subsidy (RDS) plans • Creditable coverage

7. Benefit Options (PDPs & PDs) • Standard • Actuarial equivalent • Basic alternative • Enhanced alternative

8. Payments to Plans • Direct subsidy: risk adjusted • Beneficiary premiums per plan bids • Reinsurance advance payments • Low-income cost sharing (LICS) advance payments • Low-income premium subsidy (LIPS) • Year end reconciliation: reinsurance, LICS and risk corridor adjustments

9. Employer Group Waiver Plans • Encourage Part D participation • Do not submit bids • Benefits must be at least as generous as standard Part D benefit

10. Retiree Drug Subsidy Plans • 28% subsidy between $310 and $6,300 in 2011 • Updated similarly to the Part D benefit parameters • Tax exempt through 2012 • Plans must pass gross and net tests • 6.6 million enrollees in 2009

11. Creditable Coverage • Other qualifying prescription drug coverage • Working aged • VA/DOD • Indian Health Services (IHS) • Not subject to late enrollment penalty

12. Healthcare Reform:Patient Protection and Affordable Care Act (ACA) • Enacted Mar. 2010

13. ACA Effects on Part D • Closing the coverage gap • Income related premiums (IRP) • Eliminate tax exemption for RDS in 2013 • LIS benchmark calculation methodology • De minimis • Protected drug classes • Waste reduction in long term care (LTC) facilities • TrOOP for IHS and AIDS Drug Assistance Program (ADAP) • Pathway for follow-on biologics (FOBs) • Independent Payment Advisory Board (IPAB)

14. Closing the Coverage Gap • $250 rebate in 2010 if exceeds ICL • 50% brand discount starting Jan. 2011 • Not applied to dispensing fee • Discount is considered TrOOP • Slower growth in catastrophic threshold • Transitioning in 2020 to • Brand: plan 25%, bene 25%, PhRma 50% • Generic: plan 75%, bene 25%

15. Closing the Coverage Gap (cont.)

16. Closing the Coverage Gap (cont.) • No 50% brand discount for • RDS beneficiaries • LIS beneficiaries

17. Income Related Premiums • Same income threshold as Part B IRP • Beneficiaries will pay higher premiums; i.e. lower direct subsidies • Expect some portion of beneficiaries to drop coverage • Threshold is frozen through 2019 • EGWPs subject to IRP

18. Income Related Monthly Adjustment Amount (IRMAA)

19. RDS Greatly Disadvantaged • No tax exemption for subsidy • No brand discount • Expenses eligible for 28% subsidy do not increase as donut hole disappears

20. LIS Benchmark Methodology • 2006-2009: calculated after MA rebate re-allocation • 2010 Demonstration calculated before MA rebate re-allocation • ACA: calculates before MA rebate re-allocation for 2011 and later • Increase the LIPS for most regions

21. De Minimis • Plans can waive the de minimis premiums to keep LIS beneficiaries • Cannot get new LIS auto-assignees • For 2011, the de minimis amount is $2 • A minor cost for Part D by not re-assigning LIS beneficiaries to lower premium plans • Re-assignments reduced from 1.1 to 0.5 million

22. Protected Drug Classes • Include all covered Part D drugs in 6 classes: • Anticonvulsants • Antidepressants • Antineoplastics • Antipsychotics • Antiretrovirals • Immunosuppressants for transplant rejection

23. Protected Drug Classes (cont.) • All drugs in the protected classes must be in formulary • ACA • Codifies the authority for protected classes • Allows for new considerations

24. Wasteful Reduction in LTC Facilities • 7-day or less dispensing • Applied to brand drugs only • Expect savings on brand drugs • More dispensing fees

25. TrOOP for ADAP/IHS • Currently, ADAP/IHS not considered TrOOP • ACA: ADAP/IHS will be TrOOP • Beneficiaries will reach catastrophic coverage sooner

26. Follow-on Biologics • “Generic” version of biologics • Currently there is no approval pathway for FOBs • ACA provides an approval pathway for biologics

27. Follow-on Biologics (cont.) • Insulin is among the top categories in spending • No impact expected on insulin because it is governed by a different pathway

28. IPAB to Control Growth • Independent Payment Advisory Board • Starting in 2014 • Recommend spending reduction measures affecting providers and suppliers, including Part D plans • If projected Medicare per capita spending growth exceeds target rate

29. Questions? dsihlang.liu@cms.hhs.gov