2018 MA and PDP premium, bid amount, related information released

Important 2018 Medicare Part D prescription drug plan (PDP) and Part C Medicare Advantage (MA) information for MA organizations and PDP sponsors has been announced by CMS. The information includes the average basic premium for a PDP, the Part D national average monthly bid amount, the Part D base beneficiary premium, the income-related monthly adjustment amount (IRMAA) for enrollees in PDPs who have incomes above certain threshold amounts, the Part D regional low-income premium subsidy amounts, the MA regional preferred provider organization (PPO) benchmarks, and the MA employer group waiver plan (EGWP) regional payment rates.

Average basic PDP premium

The average premium for 2018 is based on bids submitted by drug plans for basic drug coverage for the 2018 benefit year and calculated by the independent CMS Office of the Actuary. The average basic premium for a PDP in 2018 is projected to decline to an estimated $33.50 per month. This represents a decrease of approximately $1.20 below the actual average premium of $34.70 in 2017. The decline comes despite the fact that spending for the Part D program continues to increase faster than spending for other parts of Medicare, largely driven by spending on high-cost specialty drugs.

Part D national average monthly bid amount

CMS computes the national average monthly bid amount from the applicable Part D plan bid submissions in order to calculate the base beneficiary premium. The national average monthly bid amount is a weighted average of the standardized bid amounts for each stand-alone PDP and MA prescription drug plan (MA-PD). The calculation does not include bids submitted by Medicare medical saving account plans, MA private fee-for-service plans, specialized MA plans for special needs individuals, Program of All-Inclusive Care of the Elderly (PACE) programs, any “fallback” PDPs, and plans established through reasonable cost reimbursement contracts. The reference month for the 2018 calculation was June 2017. The national average monthly bid amount for 2018 is $57.93.

Part D base beneficiary premium

The base beneficiary premium is equal to the product of the beneficiary premium percentage and the national average monthly bid amount. Part D beneficiary premiums are calculated as the base beneficiary premium adjusted by the following factors: (1) the difference between the plan’s standardized bid amount and the national average monthly bid amount; (2) an increase for any supplemental premium; (3) an increase for any late enrollment penalty; (4) a decrease for MA-PDs that apply MA A/B rebates to buy down the Part D premium; and (5) elimination or decrease with the application of the low-income premium subsidy. The Part D base beneficiary premium for 2018 is $35.02. In practice, actual premiums vary significantly from one Part D plan to another and seldom equal the base beneficiary premium.

Income-related monthly adjustment amount (IRMAA)

If a beneficiary’s “modified adjusted gross income” is greater than the specified threshold amounts ($85,000 in 2018 for a beneficiary filing an individual income tax return or married and filing a separate return, and $170,000 for a beneficiary filing a joint tax return), then the beneficiary is responsible for a larger portion of the total cost of Part D benefit coverage. Therefore, in addition to the normal Part D premium paid to a plan, such beneficiaries must pay an IRMAA to the standard base beneficiary premium of $35.02 for 2018. Beneficiaries do not pay the IRMAA to the Part D plan; instead, IRMAAs are collected by the federal government.

Part D regional low-income premium subsidy amounts

Full low-income subsidy (LIS) individuals are entitled to a premium subsidy equal to 100 percent of the premium subsidy amount. A Part D plan’s premium subsidy amount is the lesser of the plan’s premium for basic coverage or the regional low-income premium subsidy amount (LIPSA). The 2018 regional LIPSAs are available through the CMS website.

MA regional PPO benchmarks

The standardized PPO benchmark for each MA region is a blend of: (1) a statutory component consisting of the weighted average of the county capitation rates across the region for each appropriate level of star rating; and (2) a competitive, or plan-bid, component consisting of the weighted average of all of the standardized A/B bids for regional MA PPO plans in the region. For 2018, the national weights applied to the statutory and plan-bid components are 66.5 percent and 33.5 percent, respectively.

Beginning in 2017, these benchmarks reflect the average bid component of the regional benchmark excluding EGWPs. The statutory and plan-bid components of the MA regional standardized benchmarks for 19 of the 26 MA regions are available from CMS. In the remaining seven MA regions, there are no regional MA plans.

MA regional EGWP payment rates

For detailed descriptions of the payment policy finalized for 2018 MA regional EGWP payment rates see the 2018 Advance Notice and Rate Announcement. The payment rates for Regional EGWPs are in the file Regional Rates and Benchmarks 2018 which can be accessed on the CMS website.

Part D catastrophic cost protections don’t prevent specialty drug payment disasters

Despite Medicare Part D protections against catastrophic costs, some beneficiaries will pay thousands of dollars out-of-pocket for a single specialty drug in 2016. A new analysis by researchers at Georgetown University and the Kaiser Family Foundation determined that for 12 specialty drugs used to treat four serious health conditions—hepatitis C, multiple sclerosis, rheumatoid arthritis, and cancer—enrollees will pay between $4,000 and $12,000 out of pocket. Further, the analysis found that a “significant share” of the out-of-pocket costs for drugs that cost more than $600 per month can be incurred even after enrollees’ drug spending reaches the drug benefit’s catastrophic threshold.

Part D prescription drug coverage

Medicare Part D includes a gap in coverage between the initial coverage limit of drugs subject to an annual deductible and coinsurance, and catastrophic coverage after an individual incurs out-of-pocket expenses above a certain annual threshold. The gap between the initial coverage limit and catastrophic coverage is known as the “donut hole,” which requires beneficiaries to pay the full costs of certain drugs out of pocket before catastrophic coverage takes effect.

Sections 3301 and 3314 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and section 1101 of the Health Care and Education Reconciliation Act of 2010 (HCERA) (P.L. 111-152) made Medicare Part D more affordable by gradually closing the donut hole and requiring manufacturers to discount the cost of certain drugs (mostly brand-name drugs) by 50 percent.

Analysis findings

Despite the ACA’s protections, the analysis found that Part D enrollees will pay thousands of dollars out of pocket for a single specialty drug in 2016, even after their drug costs exceed the catastrophic coverage threshold. Part D providers determine which drugs to put on formulary—the list of drugs which are covered by the plan. CMS requires certain drugs to be on formulary, including cancer drugs and at least two drugs in every category or class; beyond those requirements, plans determine their own formularies. According to the analysis, whether a drug is on formulary is the most significant driver of out-of-pocket costs for a specialty drug. Further, specialty drugs, even when on formulary, tend to require prior authorization from the insurance provider and are subject to quantity limits.

The analysis considered 12 specialty drugs, and found that when they are on formulary, the maximum out-of-pocket cost is never more than 10 percent higher than the minimum out-of-pocket cost; however, that amount is still thousands of dollars. Monthly out-of-pocket costs vary widely for both brand-name and generic drugs depending on the plan an individual is enrolled in, making it essential for beneficiaries to consider the medications they require when choosing a plan. Out-of-pocket costs for commonly used brand and generic drugs are often significantly higher when they are off formulary. The analysis found that medial off-formulary costs for six top brands and one top generic drug are at least $200 more per month.