Open enrollment for 2018 Medicare Part D Rx plans ended December 22, 2017. During this process, seniors evaluated Prescription Drug Plans (PDP) and choose their plans.
In these plans there are 4 tiers of coverage: 1) Deductible (no greater than $405 in 2018); 2) Initial coverage phase (approximately 75% coverage until the total retail cost of Rx is $3750.
Third is the Gap or “Donut hole” where the plan may pay 56% of generic Rx costs, 15% of Brand name Rx and the manufacturer is supposed to give a 50% discount for Brand Name Drugs. This level of coverage continues until the insured has paid $5000 out of pocket for covered Rx.
The final tier of coverage is “Catastrophic” where the insured pays 5% and the plan pays 95% of covered Rx.
When you looked at the design of coverage in the “GAP”, manufactures give a discount of 50% off Brand name Rx. Long time Redding residents may remember a local ski store that tagged all of its merchandise using a discount of about 70%. If you comparison shopped you would see that they had merely increased the price dramatically, then applied the discount. Great marketing, right?
The pharma industry is no stranger to creative marketing and to my thinking they scored the biggest coup with Medicare Part D. They give a 50% discount, but there is nothing that restricts how much they can charge, so in many ways the “discount” is meaningless.
They were able to insulate themselves from the kind of protections that other first world nations have developed to protect the citizens from price gouging. They negotiated the “noninterference clause”. This banned any negotiations between Medicare and pharmaceutical companies on pricing and prevented the government from developing its own formulary or pricing structure.
Further, they suckered the legislators into the discount provision allowing them look like they were actually giving up something.
We all know there is little transparency in health care pricing. Prescription drugs are no different. If you use the Medicare website to compare pricing of medications for the 25 Part D plans in our area and input different pharmacies or plans, you will see quite disparate pricing. You will see the same at GoodRx.com.
My experience tells me that anyone taking a lot of drugs needs to be very aggressive about using the Medicare website, as well as considering Canadian pharmacy outlets and sites such as GoodRx.com to get discounted prices. In some cases it’s actually cheaper to pay full price for the medicine rather than take the insurance plan price. The latter two suggestions are important for anyone take prescription drugs.
A study published by The American Journal of Managed Care in confirms that merely by having coverage, we increase our utilization of a service, specifically prescription drugs. By insulating the consumer from the true shopping experience, with a third party payer such as an insurance plan, we again undermine the real market forces that can help control costs.
So, how goes it in the individual market, one might ask? Remember the health insurance market is divided into the following categories: Large Group (>100 employees), Small Group (2-100 employees), Individuals (typically under age 65), and Medicare (typically over age 65).
The individual under age 65 market represents about 7% of the population and they were the target market for the ACA Exchanges (Affordable Care Act, also known as Obamacare).
Open enrollment for 2018 is scheduled to end in California on 1/31. However for plans to be effective 1/1/2018 applications were due 12/15. That deadline has been extended to Friday 12/22. Check www.coveredca.com for more information.
Those who are earning 100-400% of the Federal Poverty Level and receiving subsidies on the Exchange have been mostly insulated from the 50-70% increases experienced by the rest of the individual market. The rest are moving to higher deductibles, looking at faith based plans such as MediShare or simply deciding to take the risk and forgo insurance all together. Faith based plans are not insurance but they can provide folks with an alternative. A couple in their 60’s looking at $20,000 of premiums, might be forced to do so.
While not a tax professional, I advise folks to look long and hard at reducing their income by maximum contributions to IRA’s and HSA (Health Savings Accounts) to get income down to the subsidy level. If you are even close, it’s better to have that money in your hands than the insurance company’s pocket!
Finally, we are seeing an increase in small employers reconsidering providing group health plans. The days of “you are lucky to have your minimum wage job” are coming to an end. Recruiting and retaining good employees requires employers to compete and providing benefits is an important incentive. .