Medicare Beneficiaries Will Pay Higher Out-of-Pocket Costs as PDPs Increase Use of Coinsurance in 2015

For the first time in the history of Part D, all PDPs will incorporate a specialty tier.

A new analysis from Avalere Health finds that Medicare Part D prescription drug plans (PDPs) are poised to increase significantly the use of coinsurance in 2015. Avalere found that two-thirds of standalone Part D PDPs will apply coinsurance—i.e., consumers paying a percentage of the total cost of the drugs—to at least their top two formulary tiers, an increase of 83% from 2014.

“Adding coinsurance to a second plan tier means that more beneficiaries will be looking at the full cost of branded drugs at the pharmacy counter,” said Dan Mendelson, CEO at Avalere Health. “This strategy has proven central to plan operations as they try to keep premiums low to maintain stability in Part D.”

For the First Time in History of Part D, All PDPs Will Incorporate a Specialty Tier in 2015

Since the introduction of Part D in 2006, the use of specialty tiers has been more common in Medicare Part D than in other markets, such as employer-sponsored insurance. From 2012 to 2015, the number of Part D PDPs using specialty tiers has increased, jumping nearly 15% in four years. As a result, all PDPs will use a specialty tier in 2015, the first time this has occurred in the history of Part D.

In Part D, plans can only place a drug on the specialty tier if the total drug price negotiated between the plan and pharmacies exceeds $600 month. Coinsurance, or the cost sharing responsibilities of the beneficiary, is limited to between 25 and 33%, depending on the size of the deductible for a given plan. Unlike drugs placed on all other tiers, beneficiaries cannot appeal the cost sharing for drugs placed on the specialty tier.

“The clear trend toward specialty tiers in exchanges and Part D is likely to have an impact on employer-sponsored benefit designs over time,” said Caroline Pearson, vice president at Avalere Health. “Benefit managers and C-Suite executives are definitely taking notice of how active management of the pharmacy benefit may be able to reduce premiums.”

Two-Thirds of PDPs Will Use at Least Two Coinsurance Tiers

Perhaps more significant for beneficiaries and manufacturers is the major shift toward the use of at least two coinsurance tiers in 2015. Avalere’s analysis found that 66 percent of PDPs in 2015, representing 60 percent of covered Medicare Part D beneficiaries, will apply coinsurance to their top two tiers. In 2014, only 32% of PDPs (representing 35% Part D beneficiaries) did the same.¹

In total, enrollment in plans with at least two coinsurance tiers increased from 6.4 million to 11.1 million from 2014-2015.

In most cases, these plans include one specialty tier and apply coinsurance to the non-preferred brand tier. Unlike the specialty tier, there are no restrictions on what drugs can be placed on non-specialty coinsurance tiers, nor are there cost-sharing limitations. As a result, many of these tiers have cost-sharing rates ranging from 35 to 50%.

The shift toward more than one coinsurance tier has been accompanied by a shift toward formularies with five tiers. In 2015, 89% of plans will have five or more tiers, a 53% increase since 2012. Indeed, the dominance of five-tier plans can be accounted for in part by a surge in the number of such plans with two coinsurance tiers in 2015—while only three plans used this formulary structure in 2014, 335 plans will do so in 2015. Among these plans, coinsurance on tier four (typically used for non-preferred brand drugs) averages 44%.

“The inclusion of more coinsurance tiers on PDP formularies is designed to increase plans’ ability to obtain lower spending for high-cost — but non-specialty – drugs,” said Christine Harhaj, senior manager, Avalere Health. “Unlike most specialty drugs, however, these treatments are often prescribed to a broad patient population and applying coinsurance rates may have the effect of significantly increasing cost sharing for a large number of Part D beneficiaries.”

Methodology

This analysis was conducted using DataFrame, a proprietary database of Medicare Part D plan features, and Contract Year (CY) 2015 Part D plan formulary data released by CMS in October 2014 and CY 2014 Part D plan formulary data released in October 2013. Employer group waiver plans (EGWPs) are excluded from the analysis, as are plans marketed in US territories, such as Puerto Rico and Guam.

For the analysis of plans using at least two coinsurance tiers, Avalere includes all plans using coinsurance cost sharing on the top two tiers offered. Some plans may also use coinsurance for other tiers. In addition, some six tier plans include a low-copay sixth tier. In these instances, Avalere assessed whether tiers four and five use coinsurance.

For the 2015 plan year, the SmartD Rx Saver PDP, the SecureRx — Option 1 PDP, and the SecureRx – Option 3 PDP are under enrollment sanctions, so formulary data is excluded from the files. Without formulary data for these plans, Avalere made several assumptions when conducting the analysis:

• SecureRx — Option 1 and SecureRx – Option 3 plans’ formulary structure, use of a specialty tier, and average cost sharing by formulary tier remains constant from 2014 to 2015.
• As SmartD Rx Saver was sanctioned in both 2014 and 2015, Avalere excluded that plan from the full analysis. As a result, the total number of 2015 PDPs analyzed is 967 and the total number of 2014 PDPs is 1,101.

[1] Avalere uses September 2014 enrollment data to project 2015 enrollment by plan and September 2013 enrollment data to project 2014 enrollment. As a result, new plans do not have any reported enrollment.

SOURCE: Avalere Health