Comparison of enrollees in MA-PD plans and employer plans
Members enrolled in the employer plans were younger than members enrolled in MA-PD plans, and a higher proportion were men (). However, the likelihood of having hypertension or diabetes and other comorbid chronic illnesses was similar in the two groups.
Characteristics Of Study Population: Elderly Medicare Beneficiaries With Drug Coverage Through An Individual Part D Plan Or An Employer-Group Plan, 2006
Proportion of members reaching the doughnut hole
Overall, 25 percent of beneficiaries in the MA-PD plans reached the doughnut-hole region, compared with 40 percent of beneficiaries in employer plans (). (These and subsequent numbers are adjusted for differences in age, sex, and prospective risk score between the MA-PD and employer-group plan members.) Among beneficiaries with hypertension only, 17 percent of those enrolled in MA-PD plans reached the doughnut hole, compared with 30 percent of those enrolled in employer plans.
Proportion Of Elderly Medicare Beneficiaries Who Spent $2,250 Or More On Prescription Drugs (The “Doughnut Hole” Threshold), By Selected Conditions, 2006
The proportion of beneficiaries reaching the doughnut hole increased as the number of chronic illnesses increased. Looking at beneficiaries in the MA-PD plans, about 34 percent with both hypertension and diabetes reached the doughnut hole in 2006, while 61 percent with hypertension, hyperlipdemia, CHF, and diabetes did so. We observed a similar pattern for beneficiaries with diabetes only and with diabetes and other chronic conditions. These results suggest that those facing the doughnut hole took account of it in their (or their physicians’) decisions about drug usage. Note that to the degree the employer group is healthier in unobserved ways, those differences understate the effect of any anticipatory behavior.
Not surprisingly, out-of-pocket spending among those in the MA-PD plans was much higher than that of beneficiaries enrolled in employer plans because the latter group had coverage for brand-name drugs during the coverage-gap period (). The difference increased dramatically the longer beneficiaries remained in the doughnut hole.
Annual Out-Of-Pocket Spending On Prescription Drugs Among Elderly Medicare Beneficiaries In Part D And Employer-Group Plans, 2006
Among beneficiaries who ever reached the doughnut hole, the majority reached it during the second half of 2006. People with different illnesses and combinations of illnesses reached the doughnut hole at different times. Beneficiaries with diabetes not only were more likely to reach the doughnut hole than were beneficiaries with hypertension, they also reached it more quickly. Furthermore, both of these groups reached the doughnut hole more quickly than the average beneficiary enrolled in MA-PD plans (). Similarly, beneficiaries with multiple conditions were more likely to reach the doughnut hole more quickly than were beneficiaries with only hypertension ().
Percentage Of Elderly Medicare Beneficiaries Reaching The “Doughnut Hole” In Each Month, Among Those In Part D Plans With Total Drug Spending Greater Than $2,250 In 2006, With Hypertension Or Diabetes
Percentage Of Elderly Medicare Beneficiaries Reaching The “Doughnut Hole” In Each Month, Among Those In Part D Plans With Total Drug Spending Greater Than $2,250 In 2006, With Hypertension And Comorbidities
On average, 5 percent of all beneficiaries went through the doughnut hole into catastrophic coverage—9 percent in employer-group plans and 4 percent in MA-PD plans. The majority of those who went through the doughnut hole had several chronic conditions.
Responses to the doughnut hole
We examined the medication use of beneficiaries whose spending reached the catastrophic coverage region. As economic theory would have predicted, the number of prescriptions they filled appeared unaffected by the doughnut hole; they filled seven prescriptions per month both before and after reaching it.
Beneficiaries who reached the doughnut hole but not the catastrophic coverage region used five prescriptions per month, on average, before they reached the doughnut hole. Those with no coverage in the doughnut hole, however, reduced medication use by 14 percent, about 0.7 prescriptions per month (0.4 generic and 0.3 brand-name), compared with beneficiaries with coverage of both brand-name and generic drugs (). Those with coverage for generic but not brand-name drugs in the doughnut hole, however, only reduced use 0.14 prescriptions per month, the net effect of a decrease of 0.5 brand-name prescriptions and an increase of 0.36 generic prescriptions.
Impact Of Reaching “Doughnut Hole” On Number Of Monthly Prescriptions Filled
Thus, some with only generic coverage during the coverage gap switched from brand-name to generic drugs when they reached the coverage gap. Although some with no coverage during the gap may also have switched to generic drugs, we did not detect it.
Estimated cost of mandated coverage of generics in the doughnut hole
The average unit price of a monthly generic prescription in our sample was $26, compared with $106 for a monthly brand-name prescription. Neither of these values includes rebates. Those with generic coverage in the doughnut hole filled, on average, sixteen monthly generic prescriptions during the doughnut-hole period, compared with eight among beneficiaries with no coverage. (This difference includes any differences in risk and copayment between the two groups.) Given an assumed $10 copayment for generic drugs in the doughnut hole, mandated generic coverage would cost plans $256 [($26–$10) × 16] per person during the doughnut hole. That number would increase to $335 and $415 for a $5 copayment or a $0 copayment, respectively, for generic coverage in the doughnut hole, assuming no behavioral response.
To offset this additional cost, which would otherwise raise premiums, Frank and Newhouse proposed that plans be allowed to increase initial cost sharing, which is now prohibited by statute.9
To calculate the necessary increase, we used information on the distribution of spending in our sample. Among the MA-PD plan members with no coverage or with generic coverage during the doughnut-hole period in 2006, 25 percent spent more than $2,250; 53 percent spent between $250 and $2,250 with an average of $1,203; and the rest spent less than $250. Among the 25 percent who spent more than $2,250, the additional cost sharing applies to the $2,000 subject to coinsurance ($2,250–$250); among those who exceeded the deductible but did not reach the doughnut hole, the additional cost sharing applies to the average spending of $1,203; those who spent less than $250 do not contribute in additional cost sharing. Based on this distribution, the coinsurance rate during the initial coverage period would have to increase 5.6 percentage points [$256 × 25%/($2,000 × 25% + $1,203 × 53%)]—or the equivalent in copayments—from the current 25 percent to offset the reduction in out-of-pocket spending due to generic coverage with a $10 copay in the doughnut hole. The additional cost sharing would increase to 7.4 or 9.1 percentage points if the copay for generic coverage were $5 or $0 in the doughnut hole.
These estimates, however, are almost certainly an upper bound, because the group with generic coverage in the doughnut hole is a self-selected group with higher-than-average drug usage. As a result, drug usage among those with no coverage, were they to have such coverage, is likely to be less, perhaps much less, than sixteen monthly prescriptions—the average usage among those in our sample who purchased generic coverage.