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Why Seniors Often Pick The Wrong Drug Plan

How to sort through the crazy number of choices and figure out the right one!

As a component of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), the Medicare Part D program originally went into effect on January 1, 2006 with much fanfare. This federal program was set up to subsidize the cost of prescription drugs for Medicare beneficiaries. In essence, Medicare Part D allows the private insurance industry to deliver a public insurance product. This was unprecedented in the history of Medicare since it was created in 1963. Being a new experiment, it raised a number of key policy issues. One key question is whether Medicare beneficiaries can effectively handle the task of picking the drug plan that makes the most favorable economic sense for them. “Only 6 to 9 percent of the 55,000 seniors included in a recent study chose the lowest-cost plan based on their actual usage of prescription drugs.” Making the choice is not easy—there are so many drug plans on offer and the process of comparing and selecting one is so tedious. In 2009, there are at least 45 stand-alone prescription drug plans (PDPs) available in every state. The lowest number, if you can call it that, is 45 in Alaska and the highest is 57 in the region covering Pennsylvania and West Virginia. For the Medicare Advantage prescription drug (MA-PD) plans, each state has 40 on average. For 2009, 17.5 million Medicare beneficiaries are enrolled in PDPs and 9 million in MA-PDs, for a total of at least 26.5 million beneficiaries. A substantial proportion of these seniors may have picked the wrong Medicare drug plans and paying hundreds of dollars more per year as a result. A recent study prepared by Jonathan Gruber of MIT for the Kaiser Family Foundation found that in the initial year of Medicare Part D (2006) seniors spent, on average, an additional $500 on drugs because they did not choose the plan that provided the lowest effective cost to them. In fact, only 6 to 9 percent of the 55,000 seniors looked at in the study chose the lowest-cost plan based on their actual usage of prescription drugs. The basic problem is that seniors base their decisions mainly on the expected cost of premiums and do not pay enough attention to their prescription drug requirements and what the real cost of their co-pays and other out-of-pocket costs will add up to. In effect, many seniors are not doing very well in handling choice on their public insurance options. “Making the choice is not easy—there are so many drug plans offered and the process of comparing and selecting one is tedious.” Fortunately, seniors who are dissatisfied with their existing Medicare drug plan will have the chance to sign up with another provider during the open enrollment period that extends from November 15 to December 31 of each year. The choice of a drug plan should not be determined by the cost of premiums alone. Seniors and their family members can navigate their way through the confusing sea of options by considering these key factors:
  • Check if the prescription drugs normally used are included in the drug plan’s formulary. The formulary list usually changes every year, but it is important that as many of the senior’s drugs as possible are included. Remember, prescription drug use increases with age.
  • Find out in which tier, or level, each of your drugs are placed; the tier which will determine the amount of co-pay per drug. Most plans have 3 to 5 tiers.
  • Calculate the amount of monthly co-payments required in each plan you’re considering based on the number of drugs you take. Now compare that total to what your co-pays are for your current plan. Add in the total annual premiums to their respective plan’s co-pay totals to see if you’d save money with another plan.
  • Check if the plan allows substitution of prescription drugs. If so, will prior authorization be needed? Normally, the fewer the restrictions, the better.
  • Determine the step therapy requirements, if any, for the prescription drugs to qualify.
  • Check for coverage in the “doughnut hole.” For 2009, the hole begins when total retail cost of prescription drugs reaches $2,700; catastrophic coverage will kick in after total prescription drug costs exceed $6,153.
  • Check if the plan is willing to waive any of the deductibles.
  • Find out if your preferred pharmacy is part of the network in the prescription drug plan.
You will probably want the plan that results in the lowest total costs to you. This is not the same as having the lowest monthly premium. Total costs include premiums, co-pays and any other out-of-pocket. Beyond the lowest costs, there may be other factors involved in the decision such as:
  • Reputation of the drug plan provider
  • If the provider offers the brand name of a drug if there are reasons to take that over a generic
  • Fewer utilization restrictions, such as step therapy limits and prior authorization requirements
  • Preference for a convenient pharmacy not participating in the plan
Yes, it will be more time consuming to find the best plan for you, but by determining the most cost effective plan you’ll in essence be getting paid through your out-of-pocket savings for this research.