Medicare Part D in Its Ninth Year: The 2014 Marketplace and Key Trends, 2006-2014

Since 2006, Medicare beneficiaries have had access through Medicare Part D to prescription drug coverage offered by private plans, either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug plans (MA-PD plans). Now in its ninth year, Part D has evolved due to changes in the private plan marketplace and the laws and regulations that govern the program. This report presents findings from an analysis of the Medicare Part D marketplace in 2014 and changes in features of the drug benefit offered by Part D plans since 2006.

Part D Highlights for 2014 and 2006-2014 Trends

In 2014, more than 37 million Medicare beneficiaries are enrolled in Medicare drug plans, an increase of 2 million compared to 2013 and 15 million since 2006.

• The majority (62 percent) of Part D enrollees are in PDPs, but enrollment in MA-PD plans is growing more rapidly, representing half of the net increase in enrollment from 2013 to 2014. About 6.5 million Medicare beneficiaries with drug coverage from their former employers now get that coverage through a Part D plan designed solely for that firm’s retirees. Partly due to changes in law that took effect in 2013, enrollment in employer plans has quadrupled since 2006.

In 2014, three Part D sponsors account for half of all Part D PDP and MA-PD enrollees.

• UnitedHealth, Humana, and CVS Caremark have enrolled half of all participants in Part D. This level of market concentration is relatively unchanged since 2006. UnitedHealth and Humana have held the highest shares of enrollment since the program began, while enrollment in CVS Caremark has grown through the acquisition of other plan sponsors. UnitedHealth, by itself, has maintained the top position for all nine years of the program, and in 2014 provides coverage to more than one in five PDP and MA-PD enrollees.

Average monthly PDP premiums have been essentially flat since 2010; premiums for some of the most popular plans increased for 2014, while for other popular plans premiums fell.

• On average, PDP enrollees pay premiums of $37.75 per month in 2014. PDP premiums vary widely even for plans with equivalent benefits, ranging from $12.80 to $111.40 per month for plans offering the basic Part D benefit. UnitedHealth’s AARP MedicareRx Saver Plus PDP, which was new in 2013, raised its premiums by 54 percent (an average increase of about $8 per month) in 2014. By contrast, WellCare’s Classic PDP lowered its premium by 38 percent (an average decrease of about $13 per month) in 2014.
• Part D enrollees in MA-PD plans pay lower premiums on average ($14.70) than those in PDPs.

Cost sharing for brand-name drugs has been relatively stable in recent years, but has risen substantially since the start of Part D; MA-PD plan enrollees generally pay somewhat higher cost sharing than PDP enrollees.

• Cost sharing for brands between 2006 and 2014 has increased by about 50 percent for beneficiaries enrolled in PDPs and by about 70 percent for those in MA-PD plans. Copayments for brand-name drugs are higher than those typically charged by large employer plans, while copayments for generics are generally lower.
• On average, MA-PD plan enrollees pay somewhat higher cost sharing for their drugs than PDP enrollees, particularly for brand-name drugs. For example, median cost sharing for preferred and non-preferred brands in MA-PD plans is $45 and $95, respectively, compared to $40 and $85 in PDPs.

In 2014, about three-fourths of all plans (76 percent of PDPs and 75 percent of MA-PD plans) use five cost-sharing tiers: preferred and non-preferred tiers for generic drugs, preferred and non-preferred tiers for brand drugs, and a tier for specialty drugs.

• Four-tier arrangements were most common until 2012 when plans began shifting toward the five-tier cost-sharing design.

Part D plans typically use specialty tiers for high-cost drugs and charge coinsurance of from 25 percent to 33 percent during the benefit’s initial coverage period, as in previous years.

• These initial high out-of-pocket costs may create a financial barrier to starting use of specialty drugs, which are expected to be a significant cost driver for Medicare in the future. Users who incur these initial high out-of-pocket costs are likely to reach the benefit’s catastrophic threshold within a short period and thus see their coinsurance reduced to 5 percent.

Use of preferred pharmacy networks has grown rapidly in recent years, and for some PDP enrollees, access to preferred pharmacies is geographically limited.

• The share of Part D stand-alone drug plans with this type of pharmacy network grew from 7 percent in 2011 to 72 percent in 2014. Enrollees in these plans pay lower cost sharing if they use preferred pharmacies and higher cost-sharing if they use a non-preferred pharmacy. In some plans, however, there is no preferred pharmacy within a reasonable travel distance, which could make it difficult for enrollees in these plans to take advantage of this lower cost sharing.

About one in six LIS beneficiaries enrolled in PDPs (1.3 million beneficiaries) are paying a premium for their Part D plan in 2014.

• About 11 million Part D enrollees receive extra help through the Part D Low-Income Subsidy (LIS), a majority of whom (8 million) are enrolled in stand-alone PDPs. The subsidy reduces cost sharing and pays their drug plan premiums, as long as they enroll in PDPs designated as benchmark plans. But 16 percent of LIS beneficiaries enrolled in PDPs (1.3 million) are paying monthly premiums in 2014, and of this group, two-thirds are paying $10 or more per month. In addition, 300,000 LIS beneficiaries enrolled in MA-PD plans (19 percent) are paying premiums in 2014. CMS does not reassign these beneficiaries to a zero-premium PDP because they have actively selected the plan they are in. On average, LIS beneficiaries paying premiums for their PDPs pay $17.85 per month, well above the average in previous years.

Only 5 percent of PDP enrollees are in plans with the highest star ratings (4 stars or more).

• More than half of all PDP enrollees are in plans with 3.5 stars out of a maximum five stars. Nearly one-fourth of PDP enrollees are in plans with fewer than 3 stars; plans at this level for three years in a row are subject to removal from the program.

While the Part D program has matured since 2006, the marketplace also changes every year. Plans can and do enter and drop out of the market annually, and enrollees can and do experience changes in premiums, cost sharing for their medications, which drugs are covered by their plan, and which pharmacies they can use without paying higher cost sharing. Now in its ninth year of operation, the Part D program has enjoyed relative stability in recent years. The program has had consistently high levels of plan participation, offering dozens of plan choices for beneficiaries in each region and broad access to generic and brand-name drugs.

Beneath the surface, however, there are some sobering trends. This analysis highlights the cost and access trends that could pose challenges for Part D enrollees. Although premiums have been flat for several years, average premiums have increased by nearly 50 percent between 2006 and 2014. In addition, median cost sharing for brand-name drugs has increased over these years. Finally, many low-income beneficiaries are paying steadily higher premiums for coverage when they could be enrolled in premium-free plans.