A congressional Medicare adviser is exploring a complete restructuring of the program's Part D prescription drug coverage, with plans to make official recommendations in its June report to Congress.
The Medicare Payment Advisory Commission, or MedPAC, discussed possible changes to Medicare Part D during an Oct. 3 meeting. The changes include eliminating manufacturers' coverage-gap discount and capping beneficiaries' out-of-pocket spending.
Francis Crosson, MedPAC chairman, said if the commission finalizes the recommendations and Congress makes the changes, the program would be a "much, much better benefit for beneficiaries and a better financial approach for the Medicare program."
"This is a big deal," Crosson said. "This is in many ways, to me, as important as the original design and passage of Part D."
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MedPAC advises Congress about potential payment rate and policy changes for Medicare, the federally run health insurance program for people who are 65 and older, have certain disabilities or end-stage renal disease. The commission delivers a March and June report to Congress with its recommendations; it does not have legislative authority.
The Part D program, which began in 2006, operates differently than other parts of Medicare. Private sponsors compete for and operate the plans, and Medicare sets payment rates based on price bids from the sponsors.
Shinobu Suzuki, a principal policy analyst for MedPAC, said rising drug costs, particularly for specialty drugs, and the Part D structure has contributed to a rise in spending. Part D spending has increased from about $46 billion in 2007 to about $80 billion in 2017, according to MedPAC.
Removing coverage-gap discount
Eliminating a coverage-gap discount for manufacturers was one of the main changes discussed by the commission. When beneficiaries hit a certain payment threshold, they fall into a "coverage gap," and beneficiaries assume the majority of costs until they cross into the "catastrophic" level, where Medicare plans then cover the majority of costs.
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To help alleviate this cost burden for beneficiaries, the Affordable Care Act required manufacturers that participate to provide discounts. The amount of discounts grew over time, with the goal of dropping beneficiaries' responsibility in the coverage gap to 25% by 2020. This 25% rate for beneficiaries was actually adopted in 2019.
Suzuki said the coverage-gap discount is not an effective way to offset rising drug prices and Medicare spending. The discount only covers about 2% of the price of most specialty-tier drugs, and it does not cover beneficiaries that qualify for low-income subsidies, which is a population that incurs high costs, according to Suzuki.
As a result of eliminating the discount, plan liability would total 75% for all drugs and biologics up to the out-of-pocket threshold for beneficiaries that do not qualify for a low-income subsidy.
To offset the loss of the coverage-gap discount, a new manufacturer discount would be applied in the catastrophic phase for all beneficiaries.
Pat Wang, MedPAC commissioner and president and CEO for Healthfirst Inc., a not-for-profit health insurer in New York, cautioned against removing the discount from the coverage gap, saying that manufacturers should have "skin in the game" at every level of the Part D program.
The commission also discussed capping beneficiaries' out-of-pocket spending. Under the discussed proposal, cost-sharing for beneficiaries that do not qualify for a low-income subsidy would drop from 5% to zero in the catastrophic phase, which is the current rate for beneficiaries with low-income subsidies.
Significantly reducing the percentage of reinsurance that plans receive was also discussed and supported by multiple commissioners.
Currently, reinsurance covers about 80% of beneficiaries' spending in the catastrophic phase after rebates. Reinsurance spending is one of the fastest-growing areas of Part D, increasing by nearly 17% annually, according to MedPAC.
Rachel Schmidt, a principal policy analyst for MedPAC, said reinsurance is typically for offsetting risk and unpredictable outcomes. However, Schmidt said there is not a lot of unpredictability in Part D spending. About 80% of catastrophic spending is attributable to enrollees who also had catastrophic spending in the previous year, according to Schmidt.
Paul Ginsberg, vice chairman of the commission, said dropping the reinsurance rate from 80% to 20% would be a "quick first step" to restructuring the program.


