MA and Part D benefit administration not always straightforward

Although the idea that private insurers can be more efficient than the government in offering health plans may be a matter of opinion, over 17 million Medicare beneficiaries have taken “advantage” of the option by enrolling in Medicare Advantage (MA). At the American Health Lawyers Association (AHLA) Fundamentals of Health Law conference, Thomas Barker, partner at Foley Hoag LLP, noted that MA enrollment has steadily increased over the past 10 years. Medicare Part D coverage is also an important benefit for those taking outpatient medications. Despite beneficiaries’ reliance on these programs, administration of the benefits still has some kinks.

Medicare Advantage

MA plans are available to those entitled to Part A or eligible to enroll in Part B. MA plans are required to offer all original Medicare benefits, but may implement their own cost-sharing and benefit designs as long as they are actuarially equivalent to original Medicare. For example, original Medicare only covers skilled nursing care under Part A if the beneficiary has been in an inpatient hospital for three days prior to nursing facility admission. Most MA plans do not impose this rule.

MA plans are required to implement the same cost sharing for four particular categories: chemotherapy administration, renal dialysis, skilled nursing care, and “other benefits specified by CMS” (of which there are none to date). Congress reasoned that this would provide for predictability in benefit design.

Local and national coverage decisions

Original Medicare may not pay for items and services that are not reasonable and necessary for diagnosis or treatment. CMS issues national coverage decisions on reasonableness and necessity of certain therapies and technologies, which apply to MA plans. If a national coverage decision has not been issued for a certain item or service, local CMS contractors have the power to issue their own decisions. Barker explained that this is when MA plan design starts to get complicated.

If an MA plan is only operating in a regional market, it must apply the local coverage decisions. However, if multiple markets are covered, the MA plan has the option of applying the coverage decision even to enrollees who are outside of the decision’s jurisdiction. In cases where no decision has been issued, nationally or locally, MA plans have some discretion. Although CMS has not clarified its position, Barker interprets the available information to mean that MA enrollees are entitled to the same benefits as original Medicare beneficiaries living in their area. Yet at the same time, CMS seems to give MA plans some discretion to use the medical necessity criteria of other local plans or develop their own evidence-based criteria.

Part D

Medicare Part D is completely offered through private plans, which are extremely competitive (compared to MA plans’ requirement to bid against an established benchmark). Part D operation also differs from MA due to the increased flexibility in benefit design. Although there is a statutorily established design, fewer than 10 percent of Part D enrollees are in such a plan. Almost all plans offer a different coverage design that is actuarially equivalent to the standard benefit. Most commonly, these plans have no deductible and have a three-tiered cost-sharing amount as opposed to coinsurance.

Beneficiaries who choose to enroll in Part D are entitled to “coverage of covered Part D drugs.” Although the definition is basic, some challenges have emerged. The drug must be FDA approved and only dispensed pursuant to a prescription, can be a vaccine and insulin, can be used for a “medically-accepted indication,” and must not be expressly excluded from coverage or covered by Parts A or B. Although Part B covers some drugs, such as those that are physician-administered, CMS contractors can make differing determinations over whether a Part B-covered drug is usually self-administered. This results in some drugs covered under Part B in some jurisdictions and under Part D in others.

The “medically-accepted indication” phrase in the statute has also presented some challenges. Barker noted that this entire issue turns on grammar as much as it does administrative law. After establishing that the drug must be prescribed and FDA approved, it says “and such term includes…any use of a covered Part D drug for a medically accepted indication.” In a relevant lawsuit, a physician prescribed a drug approved as a fertility drug to treat a rare form of ovarian cancer. Although there was compendia support, it would not have met the “medically accepted indication” definition and the Part D plan denied coverage. The court rejected the government’s argument that the phrase “and includes” is definitional, finding that reading the phrase as illustrative was more logical. Therefore, according to the court, a Part D drug does not have to be prescribed for a medically accepted indication in order to be covered.

Now that Medigap can’t cover drug costs, why exclude younger beneficiaries?

Although 31 states require Medigap insurers to provide at least one policy to Medicare beneficiaries under 65 with disabilities, only 2 percent of these beneficiaries have such a policy. The Kaiser Family Foundation (KFF) noted that insurers’ original concerns about paying high prescription drug costs for younger beneficiaries are now moot, and questioned the justification of excluding younger adults with beneficiaries from buying Medigap policies.

Medigap

Medigap serves as supplemental insurance to help Medicare beneficiaries cover out-of-pocket expenses, which can be significant due to how the program is structured. About 20 percent of the 57 million Medicare beneficiaries have such a policy. In 1990, the federal government required insurers to allow new senior beneficiaries to buy a Medigap policy. At that time, when many Medigap plans covered some drug costs, insurers did not want to cover the high drug spending of those under 65 with disabilities.

Although the vast majority of beneficiaries are seniors, about 9 million people under 65 with disabilities have Medicare. Usually, those under 65 must become eligible for disability benefits, and then wait for 24 months until Medicare coverage becomes active. The KFF noted that younger Medicare beneficiaries generally have poorer self-reported health status than seniors and are operating with lower incomes. They also report more difficulty in accessing the care they need, sometimes due to costs.

Drug coverage

 Although Medigap plans could originally cover drug costs, the government now prohibits drug coverage due to the Part D benefit. Although Medicare per capita spending on prescription drugs is much higher for younger beneficiaries than for seniors (about $3100 more in 2014), Medigap insurers no longer have to worry about this cost. Excluding Part D expenditures, average spending per capita for younger beneficiaries is about $400 more than for seniors.