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
Funding for this work was provided by
The Commonwealth Fund
Background
• 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 cost-sharing
subsidies provided to lower income
beneficiaries.
Premium and
Cost-Sharing Subsidies
• Premium and cost-sharing subsidies in
Medicare Part D depend on:
– Medicaid status
– Institutional status
– Income
– Assets
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
Policy Issue
• Limitations and rapid phase-out 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?
Prescription Drugs and
Lower Income Medicare
Beneficiaries
• 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
Elements of the
Microsimulation
• 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
Estimating Take-Up
• 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
• 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
Enrollment by Income Level
80%
70%
60%
50%
40%
30%
20%
10%
0%
Below 100%
100-135%
135-150%
150-200%
Income as a Percent of Poverty
Enrolled in Medicare Part D
Over 200%
Enrollment by Income Level and Age
Enrolled in Part D
80%
70%
60%
50%
40%
30%
20%
10%
0%
Under 45
45-64
65-69
70-74
75-79
80+
Age
Below 100%
100-135%
135-150%
150-200%
Over 200%
Enrollment by Income Level and
Health
Enrolled in Part D
100%
80%
60%
40%
20%
0%
None
1
2
3
4 or more
Number of Health Conditions
Below 100%
100-135%
135-150%
150-200%
Over 200%
Total and Out-of-Pocket
Spending by Income
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Under
100-135%
135-150%
150-200%
100%
Above
200%
Income as a Percent of Poverty Line
Total Spending
Out-of-Pocket Spending
Reduction in Out-of-Pocket Drug
Costs by Income
100%
80%
60%
40%
20%
0%
Under 100%
100-135%
135-150%
150-200%
Above
200%
Income as a Percent of Poverty Line
Percent Reduction in Out-of-pocket Costs
Mean Out-of-Pocket Drug and
Premium Costs as a Percent of
Income by Income and Health
10%
8%
6%
4%
2%
0%
None
1
2
3
Number of Health Conditions
100-135%
135-150%
150-200%
4 or more
Marginal Impact of Subsidy Phaseout
on Out-of-Pocket Costs
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Change in Income
Change in Premium and Outof-Pocket Costs
Estimated for two persons at 130 and 155% of poverty with 4 or more
health conditions
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
pharmaceutical assistance plans