Medicare Prescription Drugs Through Private Drug-Only Plans: A Discussion with Actuaries
Central to the current debate over Medicare prescription drug coverage is the role of private insurance plans in providing drug benefits to Medicare beneficiaries. This report offers views from health actuaries knowledgeable about the Medicare program and the prescription drug debate on key issues that emerge for potential plan sponsors, such as insurers and PBMs, in providing prescription drug benefits to Medicare beneficiaries through private, drug-only plans. The views of the actuaries were obtained through structured individual and group phone interviews conducted in the Spring of this year. To provide a framework for the discussion, actuaries were given a summary of the provisions contained in H.R. 4954 the bill that passed the House of Representatives in 2002. The proposals currently under consideration were not available at the time of the interviews.
The actuaries were guardedly optimistic that a drug-only private plan approach to providing Medicare prescription drug benefits could be viable, provided that certain key features were included. Most important were that there be adequate government subsidies of beneficiary premiums, and that, while plans should bear some insurance risk to provide incentives for efficiency, at least in the beginning, insurance risk should be shared between the private plans and the federal government. On the method of risk sharing, most of the actuaries said that risk corridors would be better and more attractive than reinsurance. Allowing only a one-time election of the drug benefit was also regarded as critical. Additional features seen by actuaries to increase the viability of plans offering a drug-only benefit included: the freedom to price premiums without arbitrary government limits; the ability to price premiums for local markets and not nationally; flexibility to exit the market (no guaranteed renewal as exists for Medigap insurers); some benefit flexibility, especially with respect to cost-sharing structures; preemption of most state laws and regulations to reduce the costs of compliance and make it easier to market on a multi-state or national basis; and an active role for the government in marketing and collecting premiums to reduce plans' administrative costs. However, based on their experiences with M+C and Medigap, actuaries also regarded the government as an unreliable business partner and worried that the rules of the game would be significantly changed over time.