Purchasing medicare prescription drug benefits: A new proposal

Health Affairs

Volumn 18, Issue 4, 1999, Pages 7-19

  Etheredge, Lynn ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; COST BENEFIT ANALYSIS; DRUG COST; ECONOMICS; HEALTH INSURANCE; HOSPITAL PURCHASING; HUMAN; INSURANCE; LEGAL ASPECT; MEDICARE; ORGANIZATION AND MANAGEMENT; RISK MANAGEMENT; UNITED STATES;

COST-BENEFIT ANALYSIS; DRUG COSTS; GROUP PURCHASING; HUMANS; INSURANCE COVERAGE; INSURANCE, PHARMACEUTICAL SERVICES; MEDICARE; PRIVATE SECTOR; RISK MANAGEMENT; UNITED STATES;

EID: 0033160289     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.18.4.7     Document Type: Article

References (16)

1. The FEP is operated by the Blue Cross and Blue Shield Association as part of the Federal Employees Health Benefits Program (FEHBP).
2. The meeting was held 9 April 1999 in Washington, D.C. Participants, in addition to the author, included Anthony Barrueta (Kaiser Foundation Health Plans), John Bertko (Reden and Ander), Elizabeth Dichter (PCS Health Systems), Sandra Foote (Health Insurance Reform Project), Peter Fox (PDF, Inc.), John Iglehart (Health Affairs), Stanley Jones (Health Insurance Reform Project), J.D. Kleinke (Health Strategies Network), Terry Latanich (Merck-Medco), Patricia Norton (Massachusetts Division of Medical Assistance), Michael Pollard (Michaels, Wishner, and Bonner), Edward Sellers (Blue Cross and Blue Shield of South Carolina), David Smith (United Health Care), and Robin Strongin (National Health Policy Forum). The contributions of these persons are gratefully acknowledged; they are absolved from responsibility for the author's views expressed in the paper.
3. To the extent that high expenses for some patients are predictable, it is easier for insurance companies to screen out or avoid such patients, and it is also easier for such persons to see if their expected insurance benefits will exceed their premiums.
4. PCS Health Systems estimates from Elizabeth Dichter, personal communication, 13 May 1999.
5. M. Gluck, A Medicare Prescription Drug Benefit (Washington: National Academy of Social Insurance, 1999), Table 3.
6. Only about 8 percent of Medicare enrollees obtain primary prescription drug coverage through Medigap plans or other individual insurance. See M. Davis et al., "Prescription Drug Coverage, Utilization, and Spending among Medicare Beneficiaries," Health Affairs (January/February 1999): 231-243.
7. A study that informed these suggestions is P.D. Fox et al., "Should Medicare HMO Benefits Be Standardized?" Health Affairs (July/August 1999): 40-52.
8. Higher copayments, subject to limits, would be allowed for off-formulary products.
9. Structuring Medicare Choices: Final Report of the Study Panel on Competition and Choice (Washington: National Academy of Social Insurance, February 1998). Risk sharing can include mixes of capitation and fee-for-service, cost corridors (a contractor bearing the risk for the first 5 percent of gains or losses, with eighty-twenty payer sharing in larger gains or losses), and other contracting arrangements. See J. Newhouse, "Reimbursing Health Plans and Health Providers: Selection versus Efficiency in Production," Journal of Economic Literature (September 1996): 1236-1263; and J.P. Newhouse, M.B. Buntin, and J.D. Chapman, "Risk Adjustment and Medicare: Taking a Closer Look," Health Affairs (September/October 1997): 26-43. Capitation for prescription drugs alone also risks rationing of drug benefits, possibly with higher hospital or physician expenses.
10. Structuring Medicare Choices: Final Report of the Study Panel on Competition and Choice (Washington: National Academy of Social Insurance, February 1998). Risk sharing can include mixes of capitation and fee-for-service, cost corridors (a contractor bearing the risk for the first 5 percent of gains or losses, with eighty-twenty payer sharing in larger gains or losses), and other contracting arrangements. See J. Newhouse, "Reimbursing Health Plans and Health Providers: Selection versus Efficiency in Production," Journal of Economic Literature (September 1996): 1236-1263; and J.P. Newhouse, M.B. Buntin, and J.D. Chapman, "Risk Adjustment and Medicare: Taking a Closer Look," Health Affairs (September/October 1997): 26-43. Capitation for prescription drugs alone also risks rationing of drug benefits, possibly with higher hospital or physician expenses.
11. Structuring Medicare Choices: Final Report of the Study Panel on Competition and Choice (Washington: National Academy of Social Insurance, February 1998). Risk sharing can include mixes of capitation and fee-for-service, cost corridors (a contractor bearing the risk for the first 5 percent of gains or losses, with eighty-twenty payer sharing in larger gains or losses), and other contracting arrangements. See J. Newhouse, "Reimbursing Health Plans and Health Providers: Selection versus Efficiency in Production," Journal of Economic Literature (September 1996): 1236-1263; and J.P. Newhouse, M.B. Buntin, and J.D. Chapman, "Risk Adjustment and Medicare: Taking a Closer Look," Health Affairs (September/October 1997): 26-43. Capitation for prescription drugs alone also risks rationing of drug benefits, possibly with higher hospital or physician expenses.
12. P.D. Fox, L. Etheredge, and S.B.Jones, "Addressing the Needs of Chronically Ill Persons under Medicare," Health Affairs (March/April 1998): 144-150; and S.B. Jones, "Why Not the Best for the Chronically Ill?" Research Agenda Brief (Washington: Health Insurance Reform Project, George Washington University, January 1996).
13. P.D. Fox, L. Etheredge, and S.B.Jones, "Addressing the Needs of Chronically Ill Persons under Medicare," Health Affairs (March/April 1998): 144-150; and S.B. Jones, "Why Not the Best for the Chronically Ill?" Research Agenda Brief (Washington: Health Insurance Reform Project, George Washington University, January 1996).
14. A practical way to administer this arrangement would be to continue the current "default" that all Medicare enrollees are enrolled in SMI and have SMI premiums subtracted from their Social Security benefit unless they specifically decline coverage. For coordinating prescription drug coverage, employers offering prescription drug benefits, Medigap plans, and Medicare+Choice plans would advise HCFA of their Medicare enrollees, and Medicare would not subtract the SMI premium for prescription drug benefits from Social Security checks for these persons.
15. Gluck, A Medicare Prescription Drug Benefit, Table 4. Estimates developed by Actuarial Research Corporation based on 1995 Medicare Current Beneficiary Survey data. The estimates assume a 10 percent savings compared with what beneficiaries now pay for prescription drugs. Market research would be useful to determine which combination of features would be preferred by beneficiaries, and further analysis would be needed to determine the stop-loss level to produce a fifty-fifty financing split.
16. The Congressional Budget Office (CBO) estimates that Medigap policyholders use at least 25 percent more services, on average, than they would if they did not have first-dollar coverage. Congressional Budget Office, Maintaining Budget Discipline: Spending and Revenue Options (Washington: CBO, April 1999), 172.