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Posts Tagged ‘Medicare Part D’

The three Rs of healthcare reform

August 28th, 2013

The elements of the Patient Protection and Affordable Care Act (ACA) known as the “three Rs”—risk adjustment, reinsurance, and risk corridors—are designed to level the playing field for insurers in the commercial individual market. They are also intended to help insurers transition through healthcare reform, address adverse selection, and protect consumers by keeping premiums as stable as possible. To one degree or another, all three were earlier implemented as part of Medicare Advantage and Medicare Part D (MAPD), albeit in somewhat different forms.

In Hans Leida’s new paper “Learning from Medicare Advantage and Part D: Lessons for the individual insurance market under ACA,” he discusses how the three Rs will function within ACA’s commercial market in comparison with their applications in the MAPD market.

Here is an excerpt from the paper:

The first R is risk adjustment. Part of the mission of ACA is to make health coverage more equitable by eliminating rating on the basis of health status, and by eliminating or restricting other rating variations (such as by age and gender). However, in order not to bankrupt insurers that take on sicker individuals, the ACA imposes transfers of money between insurers that are intended to even out costs across issuers. These transfers are called risk adjustment, and are based on a complicated formula involving a risk score given to each individual based on their demographics and medical conditions. Issuers with a member base that is relatively riskier than others will be subsidized, and those with a less risky member base will be assessed. The risk adjustment program is a permanent feature of ACA.

In MAPD, the government directly varies its payments to insurers based on the risk scores of the individuals each insurer covers, and managing risk scores is a crucial key to success in that market.

Second in the government’s lineup of risk mitigation strategies is reinsurance. Under this program, the federal government will reimburse individual market issuers for a portion of the claims incurred by high cost individuals. A form of reinsurance for high claimants is also part of the Medicare Part D drug program, and was probably included for the same reason: to make insurers less nervous about jumping into an untested market.

While reinsurance is currently set to be phased out of commercial markets over the course of three years, it is a permanent feature (barring statutory changes) of Part D. Reinsurance does not fully protect individual market issuers from high claimants or do away with the uncertainty surrounding new market entrants, but it does materially mitigate issuer’s risk during the transitional years of ACA implementation.

Third, the ACA implements another tool borrowed from Medicare Part D: the risk corridor. A risk corridor protects plans against mispricing by sharing profits and losses with the federal government. As usual, the details are complex. At a high level, the government reimburses a portion of losses to plans that lose money, and requires profitable plans to remit a portion of their profits to the government. The risk corridors are the different tiers defining the government’s share of gains or losses, which starts at zero percent for small gains or losses, and ramps up to 80% for large ones.

This concept is set to apply to QHPs in the individual market for three years starting in 2014. By contrast, in Part D this is again a permanent feature, although CMS has the authority to increase the amount of risk borne by Part D insurers over time, which would amount to a phase-out of the risk corridors.

As with MAPD, the operation of these three programs will require significant amounts of data and reporting back and forth between issuers and the federal government. In addition to supplying the data and reporting, issuers must also maintain records and prepare for federal audits of this information.

One lesson learned from Medicare Part D is that all of these risk abatement features intended to increase insurers’ willingness to take part in the new market can actually be too successful. In Part D, some insurers may have seen these government subsidies as an opportunity to price aggressively in order to capture market share, since the government would bear a significant portion of losses should rates turn out to be insufficient. If this were to happen in the individual market under ACA, it is possible that the risk corridor program—which was scored as revenue neutral to the government by the Congressional Budget Office—might in fact require a significant net expenditure of federal funds.

A previous post examined the parallels between ACA’s regulation of the commercial market and existing MAPD market regulations.

Medicare, Reform , , , , ,

What can individual insurers learn from Medicare Advantage and Part D?

August 21st, 2013

Some experts have already discussed comparisons between the enactment of the Patient Protection and Affordable Care Act (ACA) and Medicare reform. One question that arises from such comparisons is whether insurers in ACA’s individual market can learn how to reduce risk and become profitable based on the past implementation of Medicare Advantage and Medicare Part D (MAPD).

In this new paper, Hans Leida aims to address the question by examining the parallels between ACA’s regulation of the commercial market and existing MAPD market regulations.

Here’s an excerpt:

While the MAPD and commercial individual markets are far from identical, they are similar enough that a comparison provides many insights to issuers hoping to succeed in a transformed individual market. In particular, issuers might expect:

• Significantly greater compliance burdens and regulatory scrutiny
• More complex rules, including last-minute changes
• More time pressure to file rates and less flexibility to change them
• Less flexibility in plan design
• Fewer ways to differentiate plans from competitive offerings

While these are serious challenges to be sure, the final lesson to be learned is that insurers can succeed in public/private hybrids. MAPD has been profitable for a wide range of insurers since its inception, despite the complexities involved, and has proved very popular with Medicare beneficiaries as well. As with ACA, MAPD provided insurers with access to vast new markets, with the federal government taking on some of the risk. So far, insurers seem up to the task. While there are many uncertainties ahead, keeping an eye on the MAPD market can provide a useful (if slightly murky) “crystal ball” for QHP [qualified health plan] issuers.

Of course, there are also many differences between the MAPD program and commercial coverage under the ACA. The following excerpt lays out one fundamental difference between the two markets:

…When the MAPD programs were introduced, the populations involved were generally already receiving benefits through the original Medicare program, and consequently much was known about their demographics and morbidity levels. Under the ACA, it is difficult to precisely predict what populations will sign up for coverage in the new individual health insurance marketplaces, and how they will differ from those currently insured.

To understand more about how Medicare Advantage works watch the video below.

Medicare, Reform , , , ,

Assessing the use of anticoagulant drugs in the Medicare population

August 6th, 2012

Atrial fibrillation is the most common form of cardiac arrhythmia, better known as an irregular heartbeat. The disorder has significant health and cost concerns for the Medicare population because of its association with an increased risk for stroke and all-cause mortality.

A study published in the May/June issue of American Health & Drug Benefits by Milliman’s Kate Fitch, Jonah Broulette, Bruce Pyenson, and Kosuke Iwasaki used Medicare Part D claims data to assess the use of the anticoagulant drug warfarin in the Medicare population.

Here is an excerpt highlighting key points from the study entitled “Utilization of Anticoagulation Therapy in Medicare Patients with Nonvalvular Atrial Fibrillation:”

• Patients with atrial fibrillation (AF) are at a significant, 5-fold increased risk for stroke and all cause mortality compared with those without AF.

• Oral anticoagulation therapy is recommended by national guidelines as the cornerstone for stroke prevention in patients with AF.

• Warfarin significantly reduces the risk for ischemic stroke; newer anticoagulant agents have shown even greater reduction of stroke risk compared to warfarin.

• Although AF risk increases with age, this present study shows that anticoagulation therapy is underutilized in Medicare beneficiaries who have nonvalvular AF (NVAF), resulting in an increase in ischemic strokes.

• These findings suggest the need to follow guideline-based anticoagulation recommendations in patients with NVAF to prevent strokes and the associated excess in healthcare costs, reduced quality of life, and even death.

• These findings also raise the need to investigate provider compliance with clinical guidelines regarding oral anticoagulation therapy for stroke prevention in older patients (aged >65 years) with NVAF.

A copy of the entire study can be read here.

Winghan Jacqueline Kwong, of Daiichi Sankyo Inc. also co-authored the study.

Medicare, Research , , , , , , ,

It’s time for plan sponsors to reassess their options under Part D

October 6th, 2010

Healthcare reform legislation has resulted in significant changes to prescription drug plan options under Medicare Part D. A new article by Troy Filipek and Greg Gysberg considers why plan sponsors should reexamine their existing approaches to prescription drug coverage and take advantage of the new opportunities available since passage of the new healthcare laws.

Medicare, Pharma , ,

How will healthcare reform affect Medicare Part D?

May 5th, 2010

A new healthcare reform briefing paper by Brian Anderson and Troy Filipek looks at the reform provisions affecting Medicare Part D. The paper is available here.

Medicare, Reform , ,

Grab bag

December 27th, 2009

Reform and Part D

August 17th, 2009

Medicare Part D has not yet been the focus of much reform-related media attention, but as a program that serves millions of seniors, any changes bear watching. A new healthcare reform briefing paper by Troy Filipek looks at the reform concepts related to Part D that are currently on the table. These reforms include proposed price controls, efforts to fill the much-publicized donut hole, possible formulary changes, and various efforts at standardization and simplifiction.

Medicare, Pharma ,

Optimizing Part D

August 3rd, 2009

The latest issue of Health Affairs includes an article examining possible changes to the Medicare Part D prescription drug program that could reduce costs (note: subscription required). Milliman analysis on formulary design highlights one opportunity. Quoting from the article:

Formulary design is a widely used private-sector tool for controlling health plans’ drug costs. Medicare limited the freedom of Part D plans to control their formularies through rules such as the safe harbor guidelines established by the U.S. Pharmacopeia17 and MMA’s requirement that Part D plans cover at least two drugs per class.18

 

The CMS went beyond the statute, requiring at least one drug in each subclass as well. In addition, the CMS has given special protections to six classes of drugs, requiring that “all or substantially all drugs” in the classes be included in the formularies.18 This rule effectively eliminates Part D drug price negotiations over anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants. In other classes, Part D plans routinely exclude some drugs as part of the normal commercial formulary process.19 The 110th Congress solidified and expanded the protected classes. The July 2008 physician payment update legislation gave the CMS clear statutory authority to expand the protected drug classes and created a cumbersome process that delays competition within the classes.20

 

These rules limit the negotiating power of Part D plans and make drugs in those classes more expensive. A Milliman study found that these six protected classes accounted for 16.8-33.2 percent of Part D drug costs by Part D plan administratorsReversing this one rule would decrease prices in these classes by 9-11 percent, for a projected Part D savings of $511 million per year.21 To ease the negative effect such restrictions can have on price negotiations, Congress could modify the Medicare Part D rules to give private drug plans more freedom to control their formularies. More-flexible formularies would permit more-aggressive negotiations by Part D plans, because the plans would have more maneuvering room to negotiate for deeper discounts, as they do with some of their non-Medicare plans.22

Cost, Pharma ,