Take-Up Among
the Near Poor:
Challenges for Medicare
Prescription Drug Coverage
Dennis G. Shea, Ph.D.
Joseph Vasey, Ph.D.
Chandra Ganesh, M.B.A.
Department of Health Policy and Administration
and Center for Health Care Policy and Research
Penn State
Bruce C. Stuart, Ph.D.
Peter Lamy Center of Drug Therapy and Aging
University of Maryland School of Pharmacy
Becky Briesacher, Ph.D.
University of Massachusetts Medical School
Division of Geriatric Medicine
Background
Funding for this work was provided by
The Commonwealth Fund
Premium and
Cost-Sharing Subsidies
• Premium and cost- sharing subsidies in
Medicare Part D depend on:
– Medicaid status
– Institutional status
– Income
– Assets
• Achieving President Bush’s stated goal of a
Medicare drug benefit that cost less than
$400 billion required compromises in the
structure of the drug benefit.
• By far the compromise that has received
the most attention has been the “doughnut
hole”
• Another important compromise, however,
is the structure of premium and costsharing subsidies provided to lower income
beneficiaries.
Medicaid Status
Income
Assets
Premium
Subsidy
Cost-sharing subsidy
Full dual eligible
Below 100% of
FPL
Any
Full
No deductible
$1/$3 copay
No doughnut
Full catastrophic
Full dual eligible
Above 100% of
FPL
Any
Full
No deductible
$2/$5 copay
No doughnut
Full catastrophic
Not Full dual
eligible
Below 135% of
FPL
$6,000/$9,000
Full
No deductible
$2/$5 copay
No doughnut
Full catastrophic
Not Full dual
eligible
135-150% of FPL
$10,000/$20,000
Sliding scale
$50 deductible
15% coinsurance
No doughnut
$2/$5 copay after
stoploss
Not full dual
eligible
Above 150% of
FPL
Any
None
None
1
Prescription Drugs and
Lower Income Medicare
Beneficiaries
Policy Issue
• Limitations and rapid phase
- o
ut of
subsidies raise at least 2 important
questions:
– Will lower income Medicare beneficiaries
enroll in Medicare Part D?
– What effect will Medicare Part D have on
the out- of- pocket costs of lower income
Medicare beneficiaries?
Elements of the
Microsimulation
• Over 10 million beneficiaries with incomes
between $10,000 and $20,000
• Spend less in total on prescription drugs, but
more out of pocket than those in other income
groups
• Less likely to have drug coverage and more
likely to rely on Medicare+Choice and private
plans when they do
Estimating Take-Up
• Baseline Data
• Based on 1999 MCBS
• Projected to 2006 population, income, and
costs
• Spending Module
– Estimates effects of insurance on spending
• Take
- Up Module
– Estimates decision to accept Medicare Part D
coverage
• Our Approach
– Estimate net benefit of being in Medicare
Part D plan
– Enroll if
(Third
- party spending – current premium)Baseline
<
(Third
- party spending + net risk premium–
Medicare premium)Simulated Plan
• Risk Premium Estimation
• Medicare premium estimated as risk
- adjusted
premium based on enrolled population
Estimating Spending
Enrollment by Income Level
• Our Approach
– Estimate change in average coinsurance
between old and new plan
– Increase spending based on elasticity of –0.3
and estimated coinsurance change
– Adjust spending for impact of doughnut hole
and stop
- loss
– Allocate spending to Medicare, other third
parties, and individual
80%
70%
60%
50%
40%
30%
20%
10%
0%
Below100% 100-135% 135-150% 150-200% Over 200%
Incom
easaPercent of Poverty
EnrolledinMedicarePart D
2
Enrollment by Income Level and
Age
Enrollment by Income Level and
Health
EnrolledinPartD
EnrolledinPart D
80%
70%
60%
50%
40%
30%
20%
10%
0%
100%
80%
60%
40%
20%
0%
Under45
45-64
65-69
70-74
75-79
80+
None
Age
1
2
3
4or more
Number of HealthConditions
Below100% 100-135% 135-150% 150-200% Over 200%
Total and Out-of-Pocket
Spending by Income
Below100% 100-135% 135-150% 150-200% Over 200%
Reduction in Out-of-Pocket Drug
Costs by Income
100%
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
80%
60%
40%
20%
0%
Under
100%
100-135% 135-150% 150-200%
Under 100% 100-135% 135-150% 150-200%
Above
200%
Incom
easaPercent of PovertyLine
Total Spending
Above
200%
Incom
easaPercent of PovertyLine
Out-of-Pocket Spending
Mean Out-of-Pocket Drug and
Premium Costs as a Percent of
Income by Income and Health
10%
Percent ReductioninOut-of-pocket Costs
Marginal Impact of Subsidy
Phaseout on Out-of-Pocket Costs
$3,000
$2,500
8%
$2,000
6%
$1,500
4%
$1,000
2%
$500
0%
$0
None
1
2
3
Num
ber of HealthConditions
100-135% 135-150% 150-200%
4or m
ore
C
hangeinIncom
e
C
hangeinP
rem
iumandO
utof-P
ocket C
osts
Estimated for two persons at 130 and 155% of poverty with 4 or more
health conditions
3
Lower Income Medicare
Beneficiaries– Out on a
LIMB?
• Drug benefit does reasonably successful
job at achieving universal coverage
• Several potential hurdles for lower income
Medicare beneficiaries
– Enrollment dips = Welfare or
entitlement?
– Selection effects
– Total and marginal costs in phaseout
areas
• Possible role for Medicaid and state
h
ti l
i t
l
4