A couple of weeks ago, the Hill reported that there is interest in the Senate to change the Medicare Part D drug benefit so that is actually functions as catastrophic insurance.
Senate Finance Committee Chairman Chuck Grassley (R-Iowa) is working on a bipartisan plan to cap seniors’ expenses for prescription drugs in Medicare as part of a broader effort to lower drug prices.
Grassley told The Hill on Wednesday that one idea he is working on with Sen. Ron Wyden (Ore.), the top Democrat on the panel, is “some sort of maximum amount that one person would have to pay” for drugs…
Capping Medicare Part D enrollees’ out-of-pocket costs has long been a priority for Wyden, who previously proposed legislation to limit seniors’ costs to around $2,650 a year. More than 1 million seniors in 2015 paid more than $3,000 for their Medicare drugs, according to Wyden’s office.
Medicare Part D has a complex benefit design. There is an initial deductible, then an area where the beneficiary pays 25% coinsurance, then depending on whether or not the drug is brand or generic, another layer of coinsurance. Finally, once drug costs are over a threshold ($8,140 in 2019), the individual beneficiary has a 5% co-insurance. There is currently no out of pocket limit to a patient’s total cash costs.
This is a problem. Dr. Stacie Dusetzina is one of America’s leading drug pricing experts and she made this comment about helping her dad choose a Medicare plan that stuck with me:
I told him those are the drugs I study
His reply was no way could he afford that. He would just have to die.
— Stacie Dusetzina (@DusetzinaS) October 23, 2017
5% is much better than 90% or 100% but for drugs that routinely cost $100,000 or more per year, it is still a massive fiscal barrier to care.
Medicare Part D’s design has never provided true catastrophic protection. It did not provide that protection in 2006 when the number of six figure drugs was far lower, and it does not provide that protection now as an increasing number of six and (potentially) seven figure drugs for a lifetime are on the market and in the pipeline.
Policy makers have a number of choices that they can make. They can institute an out of pocket cap which increases the actuarial value of Medicare Part D without any other changes. They can hold actuarial value constant by increasing the deductible while also instituting an out of pocket cap. They can change how rebates flow. They can encourage more competition to hopefully hold prices lower than they otherwise would be.
The basic choice of whether or not to hold the actuarial value of Medicare Part D constant and then rejigger the benefit design is one that will test the ability of Congress to make non-Pareto improvements. Someone will benefit and a lot more people will be mildly hurt. The other choice is to turn on another firehose of federal money. That is the easier choice to make politically.