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Status Report On Medicare Part D Enrollment In 2006: Analysis Of Plan-Specific Market Share And Coverage
The centerpiece of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was the Part D drug benefit, provided through new stand-alone prescription drug plans (PDPs) and Medicare Advantage prescription drug (MA-PD) plans. We examine 2006 Part D enrollment data to analyze organization- and plan-level market share and enrollment by plan type, benefit design, and gap coverage. Ten organizations captured 72 percent of Part D enrollment, primarily in low-premium plans and those with name recognition. More than twelve million Part D enrollees without low-income subsidies enrolled in plans with limited or no gap coverage in 2006, but the number with actual spending in the gap remains to be seen.
THE CENTER PIECE OF THE Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 was the new Part D drug benefit provided through stand-alone prescription drug plans (PDPs) and Medicare Advantage prescription drug (MA-PD) plans. MMA expanded the role of private organizations in Medicare by providing the drug benefit exclusively through private insurers, rather than Medicare’s traditional fee-for-service (FFS) program. PDPs offer drug-only coverage for beneficiaries in traditional FFS Medicare, while MA-PD plans cover all Medicare benefits, including prescription drugs. In 2006 the Centers for Medicare and Medicaid Services (CMS) contracted with hundreds of organizations, collectively offering thousands of different Part D plans competing for enrollees on price, coverage, benefit design, and pharmacy networks. Enrollment is voluntary; beneficiaries can enroll in a Part D plan or keep existing drug coverage if it is "creditable"—that is, as good as the Part D benefit. Those without creditable drug coverage who enroll in Part D after their first enrollment opportunity will face a premium penalty. In this new environment of competition and choice among Medicare’s private plans, there is great interest in how many beneficiaries chose to enroll in Part D plans in 2006, which firms and plans attracted the most enrollees, and what enrollment numbers suggest about beneficiaries’ drug coverage preferences. At the end of the 2006 Part D enrollment period, it was estimated that 38.2 million Medicare beneficiaries have some source of drug coverage, including 22.5 million enrolled in Part D plans.1 Our analysis goes beyond aggregate statistics by exploring plan-level Part D enrollment in two ways. First we examined which organizations and plans (both PDPs and MA-PD plans) attracted the most enrollees in 2006. This analysis indicates which firms gained a foothold in the Medicare market or expanded their reach through Part D. We also analyzed the distribution of Part D enrollees by plan type (PDP versus MA-PD) and benefit design (standard versus enhanced), and we assessed the number of enrollees in plans with a coverage gap (the so-called doughnut hole).2 Our findings provide a baseline for understanding the 2006 Part D marketplace and serve as a departure point for analysis of trends in Part D plan offerings and benefits.
Our analysis combined data from three CMS data files. The first, the 2006 annual Medicare private plan enrollment report, enumerates plan-level enrollment for 23.5 million beneficiaries in Medicare private plans as of 1 July 2006, including 22.5 million beneficiaries with Part D coverage through PDPs or MA-PD plans.3 The second and third files, issued in November 2005, list the PDPs and MA-PD plans available in each state in 2006 and plan-level benefit information, including premiums, deductibles, copayments, and gap coverage.4 The merged data enabled us to analyze plan-level Part D enrollment in greater detail than has yet been published. Our analysis of enrollment by organization and plan type focused on 22.5 million Part D enrollees in 3,873 Part D plans overall. However, the analysis by plan-level benefits excluded 2.1 million enrollees for whom benefit details were unavailable, primarily those in employer/union-only plans. Therefore, the enrollment-weighted analysis of benefits included 20.4 million enrollees in 2,811 Part D plans (1,446 PDPs and 1,365 MA-PD plans). Our analysis of the number of Part D enrollees in plans with a coverage gap excluded those who receive low-income subsidies (LIS), because the subsidy helps cover drug costs in the gap. The annual enrollment report does not show LIS enrollment. However, the CMS assigned dual eligibles and certain other LIS eligibles into stand-alone PDPs with premiums at or below the low-income premium subsidy benchmark in each region. These plans generally do not offer gap coverage; therefore, we assumed that LIS enrollees were auto-enrolled in plans without gap coverage and did not switch into higher-premium plans that were not fully subsidized.
Organization-level market share. Overall, 266 firms participated in the 2006 Medicare Part D market, but enrollment is concentrated among a small number: Ten companies account for 72 percent of Part D enrollment (Exhibit 1  ). Two organizations—UHC-PacifiCare (United) and Humana—dominate the Part D marketplace.
Seven of the top ten Part D sponsor organizations have a presence in both the PDP and MA-PD markets. Just over 20 percent of United’s Part D enrollees are in MA-PD plans—primarily health maintenance organizations (HMOs)—accounting for 19 percent of MA-PD enrollees nationwide and 5 percent of Part D enrollees in 2006. About 20 percent of Humana’s enrollees are in MA-PD plans, mainly local HMOs and private FFS (PFFS) plans, accounting for 15 percent of MA-PD enrollment in 2006. Only one of the top ten organizations—Kaiser Permanente—offers no stand-alone PDPs, and only two—Member Health and Medco Health Solutions—offer only PDPs. A more comprehensive qualitative analysis of firms’ strategic decisions is beyond the scope of this paper; however, it is likely that many chose to offer both PDPs and MA-PD plans to maximize potential enrollment in the initial years of Part D, as beneficiaries establish their preferences for drug coverage. Firms with a footprint in Medigap might have elected to offer a full menu of Medicare products, including both PDPs and MA-PD plans, to retain existing Medigap policyholders while attracting new business. And some insurers might have established a presence in both the PDP and MA-PD markets to attract new enrollees through PDP products, with a longer-term goal of shifting them into more-profitable MA products over time—the "enroll and migrate" strategy.5 The concentration of Part D enrollment in a few organizations is consistent with historical patterns in the MA market before Part D.6 In 2005 almost half of all MA enrollment was concentrated in seven firms: Kaiser, PacifiCare, Humana, UnitedHealthcare, HealthNet, Aetna, and CIGNA, with another 17 percent enrolled in Blue Cross/Blue Shield affiliates.7 Part D provided a major enrollment boost to many of these same organizations, with five of the seven—all but Aetna and CIGNA—among the top ten offering Part D coverage in 2006. Humana, for example, had slightly fewer than 0.5 million MA enrollees in 2005, but its combined PDP and MA-PD plan enrollment is 4.4 million in 2006. PDP enrollment was the largest component of Humana’s growth (3.4 million), but increased PFFS enrollment was also a contributing factor. The combined market share of United and PacifiCare, which merged at the end of 2005, also has grown dramatically from just over a million MA enrollees in 2005 to 5.7 million PDP and MA-PD enrollees in 2006. At the other end of the enrollment spectrum, a few organizations attracted minimal Part D enrollment. Part D sponsors with low enrollment have a limited pool across which to spread insurance risk and might have insufficient leverage to negotiate lower drug prices. They are also at risk of losing their Medicare contracts; beginning in 2008, the CMS might not renew contracts with sponsors having fewer than 5,000 enrollees.8 Of the fifty-four parent organizations offering PDPs, thirteen have fewer than 5,000 enrollees. These thirteen organizations offer twenty-nine PDPs in limited geographic areas only, accounting for less than 0.01 percent of total PDP enrollment in 2006.
Plan-level market share.
A few Part D plans account for a large share of Part D enrollment in 2006 (Exhibit 2
Two PDPs—United’s AARP MedicareRx and Humana’s Standard plan—together account for 23 percent of Part D enrollment nationwide, with 3.2 million in AARP MedicareRx and 2.0 million in Humana’s Standard plan. With these two products, United and Humana adopted different but evidently highly effective strategies to attract enrollees. United’s AARP product leverages beneficiaries’ recognition of the AARP "brand" and might have attracted AARP members with United-sponsored Medigap policies who wanted drug coverage from the same company and those with an AARP drug discount card. Humana attracted high enrollment in its Standard PDP with an aggressive low-premium strategy, which might have appealed to beneficiaries with low drug costs who sought Part D coverage primarily to avoid the late enrollment penalty. This plan had the lowest monthly premium in each of the thirty-one regions where it was offered in 2006, ranging from $1.87 to $17.91. In comparison, United’s AARP MedicareRx plan was priced between $22.85 and $31.34, and the Part D base beneficiary premium for 2006 was $32.20. Humana has five different plans in the top fifteen: each of its three PDPs (Standard, Enhanced, and Complete), one PFFS plan, and one local HMO/PPO. United is the only other organization in the top fifteen with multiple offerings. Unlike Humana, United offers plans with separate brand names that have a long-standing presence in various insurance markets, including the PacifiCare Saver Plan (a PDP) and the Secure Horizons Classic Plan (an HMO), along with its AARP PDP.9 Part D enrollment by plan type, benefit design, and gap coverage. Plan type. Stand-alone PDPs attracted a greater share of Part D enrollment in 2006 than MA-PD plans (72 percent versus 28 percent, respectively). Higher PDP enrollment could be due to several factors: Nearly 90 percent of beneficiaries were in Medicare’s traditional FFS program prior to 2006, and stand-alone PDPs are designed to supplement traditional Medicare; beneficiaries had wider access to PDPs offered by national or near-national Part D sponsors; and more than seven million low-income beneficiaries were auto-enrolled into PDPs, accounting for more than 40 percent of all PDP enrollees. Just over a quarter of Part D enrollees (6.4 million beneficiaries) enrolled in MA-PD plans in 2006, approximately 80 percent of whom were in local MA plans (primarily HMOs) in 2005 and were automatically enrolled in MA-PD plans offered by the same insurer in 2006.10 Roughly 500,000 enrollees (only 2 percent of Part D enrollees) elected PFFS plans that offer the Part D benefit in 2006. Including the 264,000 enrollees in PFFS plans without drug coverage, PFFS enrollment increased fivefold between September 2005 and July 2006, with Humana accounting for 60 percent of the growth in this segment.11 Regional PPOs (RPPOs) were a new plan option in 2006, but with few offerings available in each region and some regions without any RPPOs, these plans have less than 1 percent of Part D enrollment.
Benefit design.
Most Part D plans in 2006 do not offer the statutorily defined standard benefit, with a $250 deductible, 25 percent coinsurance up to an initial benefit limit, a $2,850 coverage gap, and catastrophic coverage after beneficiaries spend $3,600 out of pocket.12 Only 17 percent of Part D enrollees are enrolled in standard-benefit Part D plans—including 9 percent in Humana’s Standard PDP (Exhibit 3
Thirty percent of Part D enrollees are in plans with enhanced drug benefits. Such plans may lower or eliminate the deductible, cover some excluded drugs, offer gap coverage, or provide some combination of the above. A greater share of MA-PD plan enrollees than PDP enrollees have enhanced coverage (73 percent versus 17 percent, respectively). Medicare payment policies likely played a role in enabling more MA-PD plans to provide enhanced Part D benefits in 2006. The law requires MA plans to return to their enrollees any "savings" generated in the bidding process for Parts A and B benefit coverage in the form of lower premiums or supplemental benefits, including for Part D benefits.13 In 2006, nearly half of all MA-PD HMOs have no monthly drug premium, whereas all stand-alone PDPs do, and the average unweighted premium for these plans is less than half that of PDPs in 2006 ($16 and $37, respectively).14
Coverage gap.
Most Part D plans in 2006 include a coverage gap, and most enrollees are in plans with a gap (Exhibit 4
Not all Part D enrollees in plans with a coverage gap in 2006 will reach the gap or be affected by it. Of the 22.5 million Part D enrollees, 9.3 million are dual eligibles or other LIS enrollees with subsidized gap coverage (Exhibit 5 ). Another 2.3 million Part D enrollees are in plans with full or partial gap coverage. This leaves 48 percent of all Part D enrollees—10.9 million Medicare beneficiaries—in plans without gap coverage, liable for 100 percent of their drug costs if their total spending exceeds $2,250 in 2006. The proportion who might be exposed to the gap rises to 55 percent of all Part D enrollees (12.4 million beneficiaries) when the 1.5 million Part D enrollees with generic-only gap coverage are included.
This analysis differs from others that estimate the number of Part D plan enrollees who will have spending in the coverage gap, which would be lower than our estimate because only a subset of enrollees will have drug costs that exceed $2,250.15 Approximately four million beneficiaries (roughly a third of the 12.4 million Part D enrollees with limited or no gap coverage) are projected to have spending in the coverage gap in 2006.16 This estimate, updated from a previous analysis, is in line with other recent projections.17
Exhibit 6
Several factors related to the design of the Part D program, marketplace dynamics, and beneficiary decision making might explain why the majority of Part D enrollees lack gap coverage in 2006. In terms of the design of the program, based on the auto-assignment algorithm for dual eligibles and certain other low-income beneficiaries, it is likely that the majority were assigned to plans without gap coverage, although as noted earlier, LIS enrollees are not financially at risk for 100 percent of costs in the gap. In terms of marketplace dynamics, few plans offered full gap coverage in 2006, and premiums for these plans are comparatively high. For example, the average monthly premium for Humana Complete with full gap coverage in 2006 is $55.46—72 percent higher than the $32.20 base beneficiary premium.18 With regard to beneficiary decision making, those with minimal drug expenses might have opted to enroll in a low-premium plan (likely without gap coverage) primarily to avoid the late enrollment premium penalty. Some enrollees with modest drug spending might have assumed that they would not need a plan with gap coverage. It is also likely that some beneficiaries were unaware of the coverage gap when they enrolled in Part D or might not have understood the implications of choosing a plan with a gap.19 Conversely, beneficiaries in plans with gap coverage might have deliberately chosen such plans, despite higher average premiums, because they anticipated high drug spending in 2006, were risk-averse, or equated higher premiums with more comprehensive coverage.
MMA provided a major opportunity for private organizations to establish and expand their presence in the Medicare market by offering new Part D products. The final enrollment figures for 2006 suggest that overall, these organizations were relatively successful at signing up large numbers of beneficiaries, which bodes well for assuring access to drug coverage through Part D plans in the future. In 2006 a small number of organizations emerged as dominant players in a crowded market. For the 2007 contract year, the Part D market is expanding rather than contracting, with seventeen national plan sponsors—up from nine in 2006—and 31 percent more stand-alone PDPs nationwide.20 The robust response from insurers to Part D in 2006 and 2007 is at least partly attributable to their drive to gain market share in Medicare given limited opportunities for growth in other sectors, and to payment policies that encourage plan participation and mitigate risk, including reinsurance and risk corridors. In addition, the CMS elected to phase in enrollment-weighted premiums for 2007 to stabilize coverage for low-income beneficiaries, which effectively increases payments to plans (and federal spending). The proliferation of PDPs in 2007 might also be a result of Part D sponsors’ reassessing and repositioning their plans in light of their competitors’ offerings and their own experience based on several months of operation in 2006. Although the majority of Part D enrollees are in PDPs, MA has gained ground compared with previous years, with 14 percent of beneficiaries enrolled in MA-PD plans in 2006. Local HMOs continue to account for most MA-PD enrollment, with relatively few beneficiaries enrolled in regional PPOs or PFFS plans, although the latter option has experienced growth that warrants attention. Of interest is whether Part D enrollment will continue to be concentrated in PDPs or whether more beneficiaries will enroll in MA-PD plans and, if so, what the implications are for traditional FFS Medicare and federal spending. In the first year of Part D, beneficiaries’ plan choices appear to have been influenced by name recognition or low premiums, or both.21 Few enrollees chose plans with gap coverage in 2006, which could be a concern for those with relatively high drug costs who might be better off in a plan with full-year coverage and no gaps, despite the higher premium.22 Beneficiaries will have greater access to plans with gap coverage in 2007, but this is primarily because more plans will offer generic-only coverage. Humana PDP Complete, which had the highest enrollment among plans offering full gap coverage in 2006, will cover only generics in the gap in 2007. It will be important to assess the extent to which these plans alleviate financial burden for those who reach the gap. During the annual six-week enrollment period that runs from November 15 through December 31, Part D enrollees can switch to another plan. Key questions include how many enrollees will switch plans and how many might instead follow the path of least resistance and keep the plan they have. With hundreds of new plans available next year and some notable changes between 2006 and 2007 in premiums, benefit designs, and other features, beneficiaries might be well advised to revisit their enrollment decisions annually to optimize their coverage and avoid changes that could increase their out-of-pocket costs or limit their access to medications. BECAUSE IT HAS BEEN LESS THAN A YEAR since the start of the new Medicare drug benefit, monitoring both the evolution of the Part D plan landscape and beneficiaries’ actual experiences with various Part D products over time is essential. Part D sponsors clearly met—if not exceeded—congressional expectations by providing beneficiaries access to numerous drug plan choices in 2006 and even more for 2007. Understanding how beneficiaries respond to the evolving Part D market and how Part D coverage affects access to medications, out-of-pocket spending, and overall health outcomes are important subjects for ongoing research.
Juliette Cubanski (JCubanski{at}kff.org) is a principal policy analyst with the Henry J. Kaiser Family Foundation in Washington, D.C. Patricia Neuman is a vice president of the Kaiser Family Foundation and director of the foundation’s Medicare Policy Project. The authors gratefully acknowledge thoughtful comments and insights on the analysis from Diane Rowland, Drew Altman, and four anonymous reviewers.
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