Variation in Medicare Part D Prescription
Drug Plan Benefits, 2006
Leslie M. Greenwald, Ph.D.
Principal Scientist
RTI, International
1

2
RTI co-authors for this work

John Kautter

Nathan West

Gregory Pope
Purpose
3

To understand how the multitude of Medicare Part D
benefits and premiums differ on key elements.

Compare Part D options available through stand
alone prescription drug plans (PDPs) and Medicare
Advantage plans (MA-PDs).
Methods
4

Compared premiums and selected benefits of stand
alone prescription drug plans (PDPs) and Medicare
Advantage plans (MA-PDs)

Used data available on the CMS Website and Health
Plan Management System (HPMS) for 2006
Methods

Part D plan types examined:



Basic Plans (Defined Standard, Actuarial Equivalent and Basic
Alternative)
Enhanced Plans (Non-Demonstration Enhanced, Flexible Capitation
Demonstration Enhanced, and Fixed Captiation Demonstration
Enhanced)
 Demonstration = plans offered under the Medicare Part D
Reinsurance Demonstration which capitated reinsurance
payments to participating plans offering enhanced benefits.
MA-PD plan types examined:

HMOs and HMO/POS
 Local PPOs
 Regional PPOs
 Private FFS
5
Distribution of Plans by Plan Type, 2006
Basic benefit plans
Counts of plans
6
Defined
standard
Actuarially
equivalent
Basic
alternative
Enhanced alternative plans
Demonstration
NonFlexible
Fixed
demonstration
capitation
capitation
PDP
134
314
386
435
177
0
MA-PD
255
150
349
587
312
34
All plans
389
464
735
1,022
489
34
Average Monthly Part D Premiums, 2006
Basic benefit plans
Enhanced alternative plans
Demonstration
Monthly
premium
Defined Actuarially
Basic
standard equivalent alternative
NonFlexible
demonstration capitation
Fixed
capitation
Mean
7
PDPs
$25.74
$33.14
$35.52
$42.31
$45.53
NA
MA-PDPs
23.09
20.88
21.28
14.44
22.66
$38.63
All plans
24.01
29.17
28.77
26.31
30.94
38.63
Average Monthly Part D Premiums, 2006
8

Monthly premiums are a key benefit element used by
beneficiaries to choose among plan options.

Obtaining coverage through a Medicare Advantage plan, on
average, is the least expensive option for obtaining Part D
coverage.

MA-PD enrollees are often able to obtain enhanced Part D
coverage for about the same (or lower) monthly premiums than
basic coverage offered by stand alone PDPs.

But this choice comes only with enrollment in an MA plan, a
decision that has implications beyond Part D.

Use of Medicare Part C “rebates” are commonly used by MA
plans to reduce monthly premiums, an option not available to
stand alone PDPs.
Average Monthly Part D Premiums
by MA Plan Type, 2006
Basic benefit plans
Enhanced alternative plans
Demonstration
Monthly
premium
Defined
standard
Actuarially
equivalent
Basic
alternative
Nondemonstration
Flexible
capitation
Fixed
capitation
Mean
Regional PPO
9
$15.85
$36.14
$16.79
$13.69
$28.75
NA
Local PPO
31.18
30.78
26.38
19.93
32.81
57.89
HMO/POS
22.97
17.13
17.74
12.44
18.97
29.95
PFFS
17.45
14.01
29.56
26.51
15.20
NA
Average Monthly Part D Premiums
by MA Plan Type, 2006
10

Regional PPOs offered the lowest Part D premiums for Basic
Alternative plans ($16.79), followed closely by HMO plans
($17.74). Premiums for basic alternative options offered by
PFFS plans were much more costly (at $29.56).

Among non-demonstration enhanced plans, HMOs ($12.44) and
Regional PPOs ($13.69) offered the lowest premiums.
Premiums for PFFS plans ($26.51) were again the highest.

Among demonstration enhanced plans, Local PPO Part D
premiums were the highest.

There is wide variation among MA plans geographically for Part
C and D premiums. This variation is dependent on the level of
market competition among plans and Medicare county payment
rates.
Percentage of Plans Applying Co-Payments
Through Drug Tiers, 2006
Benefit plan type
Demonstration
Flexible
Fixed
capitation
capitation
Actuarially
equivalent
Basic
alternative
Nondemonstration
72.9%
70.2%
81.1%
82.4%
n/a
65.3%
85.1%
78.1%
84.1%
97.1%
PDP
Co-payment
MA-PDP
Co-payment
11
Percentage of Plans Applying Co-payments
Through Drug Tiers, 2006
12

Tiers are used by plans to define categories of drugs with
different cost sharing amounts. Plans apply different out-ofpocket costs to different tiers of drugs to encourage the use of
either generic or other preferred products.

Use of of only co-payments (as opposed to co-insurance)
generally translates to lower costs for beneficiaries.

All plan types favored co-payments over coinsurance in applying
cost sharing to their drug tiers. No clear pattern of difference
between PDPs and MA-PDs.

Among most prevalent plan type (basic alternative and nondemonstration enhanced plans) MA-PD plans were more likely
than PDPs to apply co-payments rather than co-insurance.
Coverage of Drugs in the “Donut Hole”
Gap, 2006
Counts of Plans and Percent of Plans by Plan Type
Demonstration
Non
Demonstration
Flexible capitation
Fixed capitation
76 (17.47%)
111 (62.71%)
N/A
1 (0.23%)
33 (18.64%)
N/A
141 (24.02%)
166 (53.21%)
8 (23.53%)
52 (8.86%)
17 (5.45%)
16 (47.06%)
PDP
Generic Only
Generic and Brand
MA-PDP
Generic Only
Generic and Brand
13
Coverage of Drugs in the “Donut Hole”
Gap, 2006
14

Availability of coverage in the “donut hole” gap is a key source of
difference among Part D plan benefit options.

By definition, only enhanced plan offer coverage in the gap.

Among non-demonstration enhanced plans, MA-PDs are more
likely to offer either generic, or generic and brand, coverage in
the coverage gap. MA-PDs may use Part C rebate funds to
support gap coverage.

Among the flexible capitation demonstration plans, PDPs are
more likely to offer gap coverage.

The percentage of demonstration plans offering gap coverage is
generally higher compared to non-demonstration plans. The
capitated reinsurance dollars available under the demonstration
may be a factor in supporting gap coverage.
Other Benefit Comparisons, 2006
15

For both basic and enhanced products, MA-PDs divided their
covered drugs into a larger number of drug tiers than PDPs.

PDPs tend to have slightly large pharmacy networks, though
network size is generally very large among all plans and is
therefore not a likely source of meaningful differences among
plans.

Regarding formularies, MA-PDs report more extensive coverage
of drugs compared to PDPs.

MA-PDs were less likely than PDPs to apply common formulary
management techniques (such as prior authorization, step
therapy and quantity limits).
Discussion and Conclusions
16

MA-PDs often subsidize Part D benefits using Part C rebates –
an option not available to PDPs. As a result, Medicare
Advantage drug benefits can be less costly for somewhat better
benefits.

But there are significant variations geographically. Benefits
available to beneficiaries through MA-PDs are highly sensitive to
the competitiveness of the market and Part C payment rates.

Medicare Advantage plans have the ability to influence and
manage all health care services for beneficiaries, including
physician prescribing patterns – an option not available to PDPs.
This may also influence the richness of benefits offered.

MA-PDs on average are more likely to offer enhanced benefits
than PDPs, and often at a lower price. But enrollment in an MAPD, even open network options such as Private Fee For Service
plans, is a major decision for beneficiaries.