This week, the leading Republicans on two major Congressional committees tried to restart the Medicare Part D reform process with their Democratic counterparts. This is a worthy effort with plenty of bipartisan potential in the new year, and should be one of lawmakers’ top health care priorities before election season gets underway.
Energy and Commerce Committee Ranking Member Greg Walden (R-OR) and Ways and Means Committee Ranking Member Kevin Brady (R-TX) wrote a letter on Monday to their counterparts, Chairman Frank Pallone (D-NJ) and Chairman Richard Neal (D-MA). In the letter, Ranking Members Walden and Brady outline three areas where the four lawmakers agree when it comes to reforming and redesigning Medicare’s prescription drug benefit:
Establishing an out-of-pocket cap on spending for seniors in the program.
Allowing seniors to spread their out-of-pocket burdens over the 12 months of a plan year, rather than having to “[absorb] the full cost in the first quarter.”
Reducing the taxpayer’s liability for drug costs in the catastrophic phase (currently 80 percent) and shifting that cost to insurers and drug manufacturers, giving them “greater incentive[s] to manage costs.”
Medicare Part D has been correctly hailed as a successful program, delivering strong benefits and low costs to millions of Americans. According to the Kaiser Family Foundation (KFF), around 45 million people are enrolled in Part D plans, with an average premium of $32.74 per month and a standard deductible of $435 in 2020.
One part of Part D that’s not working for seniors or taxpayers, though, is the so-called “catastrophic phase” of coverage. Under current law, Part D beneficiaries cover:
100 percent of costs up to the $435 standard deductible;
25 percent of costs from the $435 standard deductible to the $4,020 initial coverage phase threshold (insurers cover the other 75 percent);
25 percent of costs from the $4,020 initial coverage phase threshold to the $9,719 catastrophic coverage phase threshold (manufacturers cover 70 percent through rebates and insurers the remaining 5 percent);
5 percent of costs beyond the $9,719 catastrophic coverage phase (Medicare, funded by taxpayers, covers 80 percent, and insurers cover the remaining 15 percent).
This means that even before seniors hit the catastrophic coverage threshold, they could be on the hook for up to $2,756 in out-of-pocket drug costs. Even after that point, they are responsible for five percent of all drug costs. Worse yet, Medicare’s 80-percent coverage in the catastrophic phase incentivizes insurers to rush some high-cost beneficiaries through initial coverage and to the catastrophic threshold, where taxpayers are footing a majority of the bill. (American Action Forum has a thorough breakdown of these perverse incentives.)
These misaligned incentives also explain why Medicare’s coverage of beneficiary costs in the catastrophic phase (called “reinsurance”) went from 14.7 percent of program costs in 2006 to 46.8 percent in 2017.
And this is why there is bipartisan momentum, in the House and Senate, for Part D redesign. The Prescription Drug Pricing Reduction Act (PDPRA) from Senate Finance Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR), would reduce taxpayers’ liability in the catastrophic phase from 80 percent to 20 percent for brand-name drugs and 40 percent for generic drugs. Plans would be responsible for 60 percent of costs for each type of drug, while manufacturers would be responsible for the additional 20 percent on brand-name drugs. The beneficiary responsibility for brand-name and generic drugs? Zero percent. The PDPRA would also lower the catastrophic threshold from $9,719 under current law to $3,100 (in 2022).
While lawmakers and stakeholders will debate the finer points of the Grassley-Wyden proposal in the coming months, the Congressional Budget Office (CBO) has estimated their Part D redesign will decrease federal government spending $34.6 billion over 10 years. While a CBO score isn’t everything, a Part D redesign that saves both seniors and taxpayers money accomplishes all three areas of agreement between Ranking Members Walden and Brady and Chairmen Pallone and Neal.