The Impact of Medicare Part D on Pharmaceutical Prices and.pptVIP

Introduction Medicare created in 1965 and now insures 43+ million Insurance for most health care services Part A: hospital inpatient care and some long term care Part B: hospital outpatient care and physician services Most 85% Medicare recipients in fee-for-service Thousands of FFS prices set and updated periodically For first 40 yrs – most prescription drug expenses uncovered Certain physician-administered drugs the exception Changed in Jan 2006 with enactment of Medicare Part D Largest expansion of Medicare since its inception Projected to cost $780 billion in first ten years 2006-15 This paper: estimate impact on RX prices and utilization Medicare Before Part D Created for those 65+ by Soc Sec Amendments of 1965 Provides insurance for most health care expenditures By 1967 19 million elderly individuals enrolled Expanded to include Social Security Disability recipients in 1973 Currently insures 43 million U.S. residents Two main components – Part A and Part B Hospital Insurance - deductible of $900 Supplementary Medical Insurance - monthly premium, 20% copay Fee-for-service reimbursement Thousands of prices set and updated periodically Essentially no coverage for prescription drugs Physician-administered drugs the one exception Medicare Part D Medicare Modernization Act passed in December 2003 Part D took effect January 1, 2006 Several key features Private insurance plans compete for enrollees Medicare recipients have option to enroll and pay monthly premium Premiums subsidized by the federal government ~70 percent Out-of-pocket costs a non-linear function of RX spending Premiums increase for those who delay enrollment Plan instruments Formulary list of covered drugs - need 2+ in each of 146 categories Prices in the “donut hole” and co-pays in the coverage areas Degree to which enrollees are steered to certain drugs Medicare Part D continued Two Part D plan types Prescription Drug Plans PDPs – stand-alone plans Medicare Advantage Drug Plans MA-PD –