New research by three Milliman actuaries explores the dynamics underlying the relationship between Medicare Part D plan premiums and sharing rebates directly with beneficiaries at the pharmacy counter. According to Dieguez, Carioto and Pyenson, plans that elect to voluntarily pass through a share of the rebates are likely to charge high premiums relative to the market average, yet any premium increases that could result from requiring all plans to pass through rebate savings are expected to be modest.
The three researchers modeled the 2019 financial impact of plans voluntarily sharing 50 percent of rebates directly with beneficiaries at the pharmacy counter. The report finds that plans who voluntarily pass through a share of the rebates would likely charge more than double the average monthly premium ($80 vs. $33), due to the following factors:
- Individual bids from plans offering voluntary point-of-sale (POS) rebates have limited impact on the overall Part D market, and therefore do not affect the direct subsidy payment that all plans receive from the government. Plans that voluntarily share rebates at the point of sale will have a higher plan-specific bid amount, but there are no changes to the direct subsidy to offset the higher bid. However, if all Part D plans were required to implement POS rebates, the national average bid amount would grow. A higher national average bid would trigger a corresponding increase in the direct subsidy, which would moderate the impact to premiums. Milliman concludes that for POS rebates to be viable, they would need to be mandatory for all plans. This way, the average bid amounts, direct subsidy and other national benchmarks would be adjusted to reflect changes in plans’ costs.
- Adverse selection. A plan voluntarily offering POS rebates would face an increased risk of attracting less healthy and therefore more costly enrollees. Medicare Plan Finder allows beneficiaries to estimate out-of-pocket costs for their current medicines, so plans with POS rebates would be attractive to many beneficiaries with high medicine spending. Beneficiaries have many plan options in most markets, including lower-premium products without POS rebates that could be more appealing to healthier beneficiaries with lower medicine spending. In part, voluntary POS rebate plans must charge significantly higher premiums because they expect higher spending per beneficiary and higher brand medicine use than the average Part D plan in the market.
- Extra benefits. Because of limits in the number of benefit designs that can be offered, a plan offering a voluntary POS design will enhance benefits so that it can also offer a low premium basic plan. Enhanced benefits add to the member premium.
The Department of Health and Human Services Office of the Inspector General recently proposed a regulation that would require the rebates Part D plans negotiate with biopharmaceutical companies to be entirely passed through to beneficiaries at the pharmacy counter. According to the government’s analysis, the proposed change could result in a modest average premium increase of $3 to $6 per month – less than a dime a day – and result in substantial overall reductions in patients’ out-of-pocket spending.
Mandatory sharing of rebates with Part D beneficiaries at the point of sale could result in reduced cost sharing and also promote consistent and appropriate use of medicines, improve health outcomes, ensure patients are not penalized for being sick, decrease government spending on low-income subsidy payments and promote a more competitive marketplace for medicines.