Medicare’s Future: Current Picture, Trends, and Medicare Prescription

Medicare’s Future: Current Picture, Trends, and Medicare Prescription Drug Improvement & Modernization Act of 2003 Selected Charts Barbara S. Cooper, Senior Program Director Sabrina How, Program Assistant The Commonwealth Fund Updated February 24, 2004

2 Contents Trends in Medicare Expenditures Medicare Performance Characteristics of Medicare Beneficiaries Medicare Beneficiary Expenses Not Covered by Medicare Medicare Experience with Private Plans Prescription Drugs Medicare Prescription Drug Improvement & Modernization Act of 2003 Selected Commonwealth Fund Medicare Reports

3 Trends in Medicare Expenditures

National Health Expenditures by Source of Funds, 2002 Total National Health Expenditures 1.6 trillion Other private Out-of-poc ket 78 billion 5% 212 billion Medic are 267 billion 17% 14% Medic aid 16% P rivate Health 250 billion Insuranc e 550 billion 35% 13% Other public 196 billion Source: Katharine Levit et al., “Health Spending Rebound Continues in 2002,” Health Affairs (January/February 2004). 4

Medicare Spending as a Percent of Total Health Expenditures, 1970–2001 Percent 20% 15.2% 15.8% 1980 1990 17.2% 17.2% 2001 2002 10.5% 10% 0% 1970 Source: Katharine Levit et al., “Health Spending Rebound Continues in 2002,” Health Affairs (January/February 2004). 5

Number of Years Before HI Trust Fund Projected to Be Exhausted 2 1971 2 4 12 1979 13 14 1981 10 5 1983 7 7 1985 13 10 1987 15 17 13 1991 14 10 1993 6 7 1995 7 5 1997 4 10 1999 16 25 2001 28 28 2003 23 0 5 10 15 20 25 Missing Data for Years 1973–1977 and 1989. Source: Congressional Research Service 1995 and Annual Medicare Trustees Reports. 30 6

7 Medicare Performance

Medicare Beneficiary Experience: Compared to Privately Insured Ages 19–64 Medicare beneficiaries are less likely to report negative insurance experiences, including plan not covering care Medicare beneficiaries are less likely to report any access problems due to cost, including not getting needed specialist care Medicare beneficiaries are much more likely to report being very confident in their future ability to get care Even those most at risk, sick and poor Medicare beneficiaries, are more likely to rate their coverage as excellent Source: Karen Davis et al., “Medicare Versus Private Insurance: Rhetoric and Reality.” Health Affairs Web Exclusive (October 2002). 8

Experiences with Insurance Plan and Satisfaction with Quality of Care, by Insurance Status 80% Medicare, age 65 43% 40% Employer coverage, ages 19–64 62% 61% 51% 32% 18% 22% 20% 0% Rated Health Insurance as Excellent Reported Went Without Reported Being Negative Plan Needed Care in Very Satisfied Experiences Past Year with Care Because of Costs Source: Karen Davis et al., “Medicare Versus Private Insurance: Rhetoric and Reality.” Health Affairs Web Exclusive (October 2002). 9

Predicted Rating of Health Insurance Coverage, by Health, Poverty and Insurance Status, 2001 Percent rating coverage as “excellent” 50% Medicare, age 65 Employer coverage, ages 19–64 43% 34% 34% 26% 22% 25% 12% 16% 16% 0% Lower income, Lower income, Higher income, Higher income, sick healthy sick healthy Note: Sick:good/fair/poor health status with average number of chronic conditions for this group. Healthy: excellent/very good health status with average number of chronic conditions for this group. Models control for prescription drugs. Source: Karen Davis et al., “Medicare Versus Private Insurance: Rhetoric and Reality.” Health Affairs Web Exclusive (October 2002). 10

Experiences with Insurance Plan and Satisfaction with Quality of Care, by Prescription Drug Coverage 80% Medicare 65 without prescription coverage Medicare 65 with prescription coverage 36% 40% 22% 54% 40% 29% 15% 0% Rated Health Any Medical Bill Very Confident in Insurance as Problems Future Ability to Get Excellent Note: Model adjusted for poverty status, self-reported health status, and chronic conditions. Source: The Commonwealth Fund 2001 Health Insurance Survey. Quality Care 11

12 Percent Annual Per Enrollee Growth in Medicare Spending and Private Health Insurance and FEHBP Premiums for Common Benefits Percent Medic are 12 10 9.1 10.1 P rivate Health Ins uranc e FEHB P 10.7 9.6 8 8.7 6.2 6 4 2 0 1969–2002 1999–2002 Source: Katharine Levit et al., “Health Spending Rebound Continues In 2002,” Health Affairs (January/February 2004).

13 Characteristics of Medicare Beneficiaries

14 Income as a Share of Poverty for Various Medicare Beneficiary Groups, Relative to Poverty Level, 1999 All Beneficiaries Elderly 19% 17% Widowed, Single, and Divorced Black and Other 100% 13% 5% 12% 100%–135% 12% 5% 12% 28% 19% 41% 135%–150% 10% 41% 11% 6% 19% 44% 12% 9% 26% 4% 12% 6% 150%–200% 200%–250% Note: ASPE Definition, Insurance Unit excludes full-year facility beneficiaries. Source: Marilyn Moon, Urban Institute analysis of 1999 MCBS. 18% 250%

Profile of Medicare Beneficiaries, by Poverty and Health Status Two of Three Have Low Incomes or Health Problems* 12% with health problems and income 200% of poverty 32% in excellent/good health with income 200% of poverty 26% in excellent/good health with income 200% of poverty 30% with health problems and incomes 200% of poverty * In fair or poor health or disabled, under-65. Source: Cathy Schoen, et al., Medicare Beneficiaries: A Population At Risk, The Commonwealth Fund, December 1998. Based on the Kaiser/Commonwealth 1997 Survey of Medicare Beneficiaries. 15

Beneficiaries with Disabling Health Conditions as a Percentage of Beneficiary Population and Total Medicare Expenditures, 1997 Percentage of enrollees 100% Neither 39.8% 67.6% 8.8% 50% 10.3% 9.3% 0% Cognitive 20.2% Physical 31.1.% Both 12.7% Medicare Population Medicare Spending Note: All figures exclude ESRD beneficiaries and the Medicare expenditures also exclude HMO beneficiaries. Source: Marilyn Moon and Matthew Storeygard, One-Third at Risk: The Special Circumstances of Medicare Beneficiaries with Health Problems, The Commonwealth Fund, September 2001. 16

17 Medicare Beneficiary Expenses Not Covered by Medicare

Sources of Supplemental Coverage Among Non-Institutionalized Medicare Beneficiaries, 2000 Employer 37% None 8% Multiple Plans 9% Public Plans Only* 15% Medicare HMO Only 12% Medigap Plans Only 19% * Includes Medicaid, Veteran Affairs, and various other programs. Source: Analysis of 2000 MCBS by Bruce Stuart for The Commonwealth Fund. 18

Percentage of All Firms with 200 or More Workers19 that Offer Retiree Health Benefits to Medicare Age Retirees 40 31 30 33 25 23 20 0 1997 1998 1999 2000 Source: Erosion of Private Health Insurance Coverage for Retirees: Findings from the 2000 and 2001 Retiree Health and Prescription Drug Coverage 2001

Average Health Expenditures for Medicare Elderly Beneficiaries, 2002 Total and Beneficiary Estimated Out-of-Pocket Spending* Beneficiary Out-of-Pocket for Medicare Services Part B Premium 832 Cost-sharing and Other Costs 638 Out-of-Pocket for Non-Medicare Health Costs 2,287 9.4% 7.2% 25.7% 57.8% Federal Medicare Program Payments 5,141 Average out-of-pocket spending 2002 3,757 * Urban Institute 2002 Simulation Model: Out of pocket includes: Part B premium, Medicare cost sharing, other premiums and non-covered services, drugs, vision and dental. Source: Maxwell, Storeygard, Moon, Modernizing Medicare Cost-Sharing: Policy Options and Impacts on Beneficiary and Program Expenditures, The Commonwealth Fund, November 2002. 20

Distribution of Out-of-Pocket Expenditures Among Elderly Medicare Beneficiaries, 1999 Supplemental Insurance Premiums Prescription Drugs 8.6% Prescription Drugs 18.1% Other Services 25.5% Other 7.2% Cost-Sharing for Medicare Services 15.6% Part B Premium 25.0% Note: Excludes HMO, ESRD, and Facility beneficiaries. Source: Marilyn Moon, Urban Institute analysis of 1999 MCBS. 21

22 Projected Out-of-Pocket Health Care Spending as a Share of Income, 2000 and 2025 2000 80% 72 63 60% 40% 2025 52 44 22 30 20% 6 8 0% All Elderly Poor Health, Age 65–74, High Low-Income Medicare Only* Income Women Age 85 , Poor Health * No insurance beyond U.S. Medicare basic benefits. Source: Stephanie Maxwell et al., Growth in Medicare and Out-of-Pocket Spending: Impact on Vulnerable Beneficiaries, The Commonwealth Fund, December 2000.

23 Medicare Experience with Private Plans

Enrollment in Medicare Managed Care/ Medicare Choice Plans by Beneficiaries, 1995–2003 Percent of Medicare beneficiaries enrolled 20% 16% 16% 16% 14% 15% 14% 12% 11% 10% 11% 8% 5% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 Sources: Marsha Gold and Lori Achman, Medicare Choice 1999–2001: An Analysis of Managed Care Plan Withdrawals and Trends in Benefits and Premiums, The Commonwealth Fund, February 2002; Centers for Medicare and Medicaid Services (CMS) Medicare Managed Care Contract Report; CMS 2002 Data Compendium, 2003; and CMS Medicare Enrollment: National Trends, 1966–2001, 2002. 2003 data are for May. 24

Medicare Choice: Lessons Risk and Payment Issues – Expensive for Medicare program because of favorable risk selection and payment rules – Incentives to “cream skim” and avoid risk Overall Failure to Date – Private plans do not participate in many states and geographic areas – Wide geographic variability in premiums and benefits – Unstable participation by private plans and providers – High out-of-pocket burden on sick – No standard benefit; impossible to compare plan benefits Source: Geraldine Dallek, Brian Biles, and Lauren Nicholas, Lessons from Medicare Choice for Medicare Reform, The Commonwealth Fund, June 2003. 25

Medicare Choice Enrollees as a Percent of Medicare Beneficiaries, by State, 2003 PA (23%) OR (28%) CA (33%) 26 RI (34%) CO (23%) AZ (30%) 1% (19 States DC) FL (19%) 1%–10% (15 States) 11%–20% (10 States) 20% (6 States) Source: Geraldine Dallek, Brian Biles, and Lauren Nicholas, Lessons from Medicare Choice for Medicare Reform, The Commonwealth Fund, June 2003. From Medicare Choice, Fact Sheet, Kaiser Family Foundation, April 2003.

27 Medicare Choice Primary Care Provider Turnover Rates by State Percentage of Primary Care Providers Who Did Not Stay in Plan at Least One Year 40 36 35 30 29 23 20 20 20 19 18 18 16 16 16 16 15 14 14 14 National Average: 14% 13 11 11 10 10 9 9 9 9 8 8 8 8 7 7 6 6 5 5 5 I ID N J H I A R M N M T O W V IN C C A PA A W A C Y G K R I N Y TN IL O H LA Z A L M O K S IA A K M D D C V A N M N C O R M A FL O N V W I N E TX 0 Source: Geraldine Dallek and Andrew Dennington, Physician Withdrawals: A Major Source of Instability in Medicare Choice, The Commonwealth Fund, January 2002. 4

28 2001 Premium and Selected Benefit Copayments: Tampa Medicare Choice Plans Enrollment limit Premium Doctor visits: Primary care Specialist Outpatient visits: Ambulatory surgery Hospital visit Durable medical equipment Diagnostic tests: Clinical lab X-rays/diagnostic lab Radiation therapy Outpatient rehabilitation services Inpatient hospital care Skilled nursing facility: Days 1–20 Days 21–100 Home health care Bone mass measurement Prescription drugs Formulary drugs 30–31-day supply Generic copay Brand copay 90-day mail order Generic copay Brand copay Cap Generic Brand Non-formulary 30–31-day supply Generic copay Brand copay 90-day mail order Generic copay Brand copay Cap Plan V1 No 63 10 5– 200 200 200 0 0 40– 200 Plan V2 No 0 15 15– 400 500 500 0 0 40– 350 Plan W Yes 63 10 25 0 50 0 0 0 Plan X1 No 179 10 15 35 35 0 0 0 Plan X2 No 0 10 15 50 50 0 0 0 Plan Y No 0 15 20 100 50 20% 5 5 X-ray; 50 other radiation services 5– 50 25/visit 150/day Plan Z1 No 0 10 15 25 25 0 0 0 Plan Z2 Yes 19 5 10 25 25 0 0 0 40/visit 40/visit 500 per admiss.; 200/day for days 7–30 at network hospital 0/day 85/day 0 10/physician’s office, 40 nonphysician clinic 40/visit 40/visit 500 per admiss.; 200/day for days 7–30 at network hospital 0/day 90/day 0 15/physician’s office, 40/nonphysician clinic No prescription drug coverage 0 25/visit 150/day 0 10– 15/visit 100/stay 0 10– 15/visit 300/stay 15/service 15/visit 200/stay 10/service 10/visit 0 0 97 0 0 0 0 0 0 0 0 0 75 75 0 0 0 0 0 0 0 0 0 0 10 20 preferred 5 20 5 15 10 Not covered 8 40 (31-day) 7 20 (31-day) 5 15 20 40 preferred 15 60 15 45 30 Not covered 24 120 Not available Unlimited Not available Unlimited 150/3 months generic and preferred & nonpreferred brand 10 40 Unlimited 250/6 month formulary & nonformulary brand 35 35 Unlimited 50/month formulary & nonformulary brand 30 30 Unlimited Not covered Not covered 500/year 125/3 months non-formulary generic & all brand 30 30 125/3 months non-formulary generic & all brand 30 30 10 80 See above 105 105 See above 90 90 See above Not available Not available See above See above Plan has no formulary Plan Y has a 3,500 out-of-pocket limit protection for combined inpatient and outpatient services, not including certain office visit copays, prescription drugs, medical supplies, and selected other benefits. b 40 specialist per visit copay, except 10/visit to Allergy physicians, 5/specimen to hospital pathologists, 5/interpretation to hospital radiologists, 50/visit to ER physician, 200 for cataract surgery, 50/each allergy skin testing, and 40% of charges for non-plan second medical opinion. c 50 specialist per visit copay, except 15/visit to Allergy physicians, 15/specimen to all hospital pathologists, 15/interpretation to hospital radiologists, 50/ visit to ER physicians, 400 for cataract surgery, and 50% of charges for non-plan second medical opinion. d 200 copay for complex procedures, defined as Cardiac Catheterization, MRI, Lithotripsy, Nuclear Stress Test, CAT Scan, and PET Scan; 40 copay for all other simple diagnostic testing procedures; and 50 copay for allergy skin testing. e 350 copay for complex procedures, defined as Cardiac Catheterization, MRI, Lithotripsy, Nuclear Stress Test, CAT Scan, and PET Scan; 40 copayment for all other simple diagnostic testing procedures; and 50 copay for allergy skin testing. f 1,000 per admission and 200/day for days 7-30 at non-participating hospitals. g 1,000 per admission and 300/day for days 7-30 at non-participating hospitals. h Glucose monitors, test strips, lancets, and self-management training. a

Average Annual Out-of-Pocket Cost-Sharing for Medicare Choice Enrollees, 1999–2003 2,000 1,786 1,438 1,500 1,000 1,964 1,185 976 500 0 1999 2000 2001 2002 2003 Note: Results are weighted by plan enrollment. Out-of-pocket cost estimates include the Medicare Part B premium, the Medicare Choice premium, spending for physician and hospital copayments, and outpatient prescription drugs not covered by the M C package. Source: Marsha Gold and Lori Achman, Average Out-of-Pocket Health Care Costs for Medicare Choice Enrollees Increase 10 Percent in 2003, The Commonwealth Fund, August 2003. 29

Estimated Total Annual Out-of-Pocket Spending for Medicare Choice Enrollees by Health Status, 1999–2003 Poor Health Good Health 4,000 3,000 2,000 1,203 1,503 1,000 0 3,578 2,823 2,210 836 997 1999 2000 5,305 4,783 Fair Health 5,000 2,432 2,696 1,842 1,565 1,194 2001 1,430 2002 2003 Source: Marsha Gold and Lori Achman, Average Out-of-Pocket Health Care Costs for Medicare Choice Enrollees Increase 10 Percent in 2003, The Commonwealth Fund, August 2003. 30

Percentage of Medicare Choice Enrollees with Any Cost-Sharing for Inpatient Hospital Admissions, 1999–2002 Percentage of enrollees 100 78 80 60 33 40 20 13 4 0 1999 2000 2001 2002 Source: Lori Achman and Marsha Gold, Trends in Medicare Choice Benefits and Premiums, 1999-2002, The Commonwealth Fund, November 2002. 31

32 Prescription Drug Coverage in Medicare Choice, 2001–2003 Percentage of enrollees 100 80 60 30 31 No Prescription Drug Coverage 29 Generic Prescription Drug Coverage Only 40 Brand-Name and Generic Prescription Drug Coverage 8 40 20 62 0 2001 2003 Note: Enrollment for 2001 is from March 2001. Enrollment for 2003 is from February 2003. Source: Lori Achman and Marsha Gold, Medicare Choice Plans Continue to Shift More Costs to Enrollees, The Commonwealth Fund, April 2003.

33 Prescription Drugs

Sources of Supplemental Coverage for Prescription Drugs Among Non-Institutionalized Medicare Beneficiaries, 2000 E mployer 33% Medic are HMO Only No Rx 13% Benefit 24% Medigap P lans Only 9% Multiple P lans 4% P ublic P lans Only* 17% * Includes Medicaid, Veteran Affairs, and various other programs. Source: Analysis of 2000 MCBS by Bruce Stuart for The Commonwealth Fund. 34

Prescription Drugs: Barely One-Half Covered All Year Prescription Drug Coverage of Medicare Beneficiaries in 1996* Percent of Beneficiaries 53% 60% 40% 28% 19% 20% 0% Never Covered Only Part Year Covered All Year Annual Drug Coverage * Noninstitutionalized beneficiaries enrolled in Medicare throughout 1996. Source: Bruce Stuart, Dennis Shea, and Becky Briesacher, Prescription Drug Costs for Medicare Beneficiaries: Coverage and Health Status Matter, The Commonwealth Fund, January 2000. 35

Percentage of 65–to–69-Year-Old Medicare Beneficiaries with Employer-Sponsored Medical and Drug Coverage, 1996 and 2000 50% Medical Coverage Drug Coverage 49.8 45.5 40.9 39.4 40% 41.4 38.3 30% 20% 40.1 44.2 35.4 36.2 36.2 34.8 10% 0% 1996 2000 1996 2000 1996 2000 All Ages 65 to 69 Men Ages 65 to 69 Women Ages 65 to 69 Source: B. Stuart, P. K. Singhal, C. Fahlman, J. Doshi, and B. Briesacher, “EmployerSponsored Health Insurance and Prescription Drug Coverage for New Retirees: Dramatic Declines in Five Years,” Health Affairs Web Exclusive (July 23, 2003): W3-334–W3-341. 36

Projected Prescription Drug Spending of Medicare Beneficiaries, 2006 Percent of Beneficiaries 90% 81% 71% 60% 47% 30% 21% 13% 0% 275 695 2,000 4,500 L evel of P res c ription Spending Note: Community-residing beneficiaries only. Source: Dennis Shea and Bruce Stuart, Projections from cost-estimating model based on 1999 MCBS for The Commonwealth Fund. 5,800 37

Projected Distribution of Medicare Beneficiaries and Total Drug Expenditures, 2006 (updated 6/27/03) 5,000 19.6% 3,000– 4,999 16.7% 2,000– 2,999 13.2% 1,000– 1,999 16.3% 57.8% 20.8% 1– 999 24.1% 10.4% 0 10.2% Beneficiaries 7.5% 3.5% Expenditures Source: Actuarial Research Corporation analysis for the Kaiser Family Foundation, June 2003. 38

Factors Accounting for Growth in Prescription Drug Spending per Capita, 1980–2011 Other Average annual percent change 18 8 6 4 2 Drug P ric es (Consumer P ric e Index - Drugs ) 16.1 16 14 12 10 Drug U tilization (N umber of P res c riptions) 10.7 0.8 0.9 6.5 9 1980-1993 1993-1997 10.0 2.7 5 3.3 2.4 4.6 4.9 4.9 1997-2000 2000-2003 2003-2011 2.2 2.8 0 5.1 9.2 4.2 13.3 Calendar Y ears Note: Data for 2000–2011 are projections. ”Other” includes quality and intensity of services, and age-gender effects. Source: Centers for Medicare and Medicaid Services, The CMS Chart Series, 2003. 39

40 Change in Distribution of Medicare Beneficiaries, by Level of Drug Spending from 1995 to 1999 Share of Beneficiaries 30% 1995 1999 25% 20% 15% 10% 5% 0% 0– 250 251– 1,000 1,001– 2,000 2,001– 5,000 5,001– 10,000 10,001 Level of Drug Spending (in 2004 dollars) Note: Excludes beneficiaries living in nursing facilities. Urban Institute analysis of the 1999 Medicare Current Beneficiary Survey, adjusted for Congressional Budget Office estimates of 2004 spending. Source: C. Boccuti, M. Moon, and K. Dowling, Chronic Conditions and Disabilities: Trends and Issues for Private Drug Plans, The Commonwealth Fund, October 2003.

41 Share of Total Drug Expenditures by Medicare Beneficiaries’ Spending Levels Percentage of Total Expenditures 9% 8.3% 8.5% 8.3% 7.6% 8% 6.8% 7% 6% 6.5% 6.8% 6.1% 6.1% 5.5% 5.0% 5% 4.6% 3.6% 4% 3% 6.0% 4.2% 3.9% 2.3% 2% 1% 0 -5 5 00 00 - 1, 1 00 ,0 0 00 - 1, 1 50 ,5 0 00 - 2, 2 00 ,0 0 00 - 2, 2 50 ,5 0 00 - 3, 3 00 ,0 0 00 - 3, 3 50 ,5 0 00 - 4, 4 00 ,0 0 00 - 4, 4 50 ,5 0 00 - 5, 5 00 ,0 0 00 - 5, 5 50 ,5 0 00 - 6, 6 00 ,0 0 00 - 7, 7 00 ,0 0 00 8 8 ,0 ,0 00 00 1 1 0, 0, 00 00 0 0 2 0, 00 2 0 0, 00 0 0.0% 0 0% Per Capita Drug Expenditures Source: Marilyn Moon, Urban Institute analysis of the 1999 MCBS.

Prescription Drug Use and Spending Among Medicare Beneficiaries, by Entitlement Status, 1998 Mean annual number of prescriptions filled Mean annual Rx spending 40 1,500 34 25 1,284 1,000 841 20 500 0 0 U nder age 65 Age 65 and Under age 65 Age 65 and w ith older with older disabilities disabilities Source: Becky Briesacher et al., Medicare’s Disabled Beneficiaries: The Forgotten Population in the Debate Over Drugs, The Commonwealth Fund/Henry J. Kaiser Family Foundation, September 2002. 42

43 Annual Prescription Fills and Average Drug Spending, by Number of Chronic Conditions Average Drug Spending (2006 dollars) Percentage with More than 2,000 in Drug Spending Number of Chronic Conditions Prescription Fills 0 8 1,346 18% 1 12 1,819 27% 2 18 2,543 43% 3 24 3,426 56% 4 30 4,046 66% 5 or more 40 5,673 75% Total 23 3,320 51% Note: Excludes end-stage renal disease and beneficiaries living full-year in a nursing facility. Urban Institute analysis of 1999 Medicare Current Beneficiary Survey. Spending in 2006 adjusted for Congressional Budget Office estimates. Source: C. Boccuti, M. Moon, and K. Dowling, Chronic Conditions and Disabilities: Trends and Issues for Private Drug Plans, The Commonwealth Fund, October 2003.

Out-of-Pocket Spending on Prescription Drugs as a Share of Income Among Beneficiaries Under Age 65 with Disabilities, by Drug Coverage Status Percent of 65 beneficiaries with disabilities spending 5 percent or more of their income on Rx 50% 44% 36% 25% 19% 0% Full-Y ear R x C overage Part-Y ear R x C overage No R x C overage Source: Becky Briesacher et al., Medicare’s Disabled Beneficiaries: The Forgotten Population in the Debate Over Drugs, The Commonwealth Fund/Henry J. Kaiser Family Foundation, September 2002. 44

Percent of Seniors in Eight States Who Spend 100 Per Month on Drugs, by Source of Drug Coverage 50% 43% 40% 30% 35% 25% 23% 19% 20% 12% 12% VA/Defense E mployer 10% 8% 0% T otal No Drug Coverage Medigap S tate HMO P harmac y P rogram Source: Dana Gelb Safran et al., Seniors and Prescription Drugs: Findings from a 2001 Survey of Seniors in Eight States, The Commonwealth Fund/Kaiser/Tufts-New England Medical Center, July 2002. Medic aid 45

Percent of Seniors in Eight States Who Spend 100 Per Month on Drugs, by Chronic Condition and Prescription Drug Coverage Seniors with Coverage Seniors without Coverage 100% 80% 80% 61% 54% 60% 40% 29% 30% 20% 20% 0% CHF Diabetes Hypertension Source: Dana Gelb Safran et al., Seniors and Prescription Drugs: Findings from a 2001 Survey of Seniors in Eight States, The Commonwealth Fund/Kaiser/Tufts-New England Medical Center, July 2002. 46

47 Percent of Seniors in Eight States Who Did Not Fill a Prescription One or More Times Due to Cost or Skipped Doses to Make a Prescription Last Longer in the Last 12 Months, by Drug Coverage Did not fill a prescription one or more times because it was too expensive 14% 25% Total 11% Skipped doses of medicines to make the prescription last longer Without Prescription Drug Coverage 16% 27% With Prescription Drug Coverage 13% Either did not fill a prescription one or more times or skipped doses of medicines 22% 35% 18% 0% 10% 20% 30% 40% Source: Dana Gelb Safran et al., Seniors and Prescription Drugs: Findings from a 2001 Survey of Seniors in Eight States, The Commonwealth Fund/Kaiser/Tufts-New England Medical Center, July 2002. 50%

48 Percent of Seniors in Eight States Who Reported Forgoing Needed Medicines, by Chronic Condition and Prescription Drug Coverage Seniors with Coverage 50% Percent of seniors who did not fill prescriptions one or more times due to cost: Seniors without Coverage 50% 40% 40% 33% 31% 30% Percent of seniors who skipped doses of medicine to make it last longer: 28% 25% 30% 20% 20% 14% 14% 10% 0% 0% Diabetes 16% Hypertension CHF 31% 17% 14% 12% 10% CHF 30% Diabetes Source: Dana Gelb Safran, et al., Seniors and Prescription Drugs: Findings from a 2001 Survey of Seniors in Eight States, The Commonwealth Fund/Kaiser/Tufts-New England Medical Center, July 2002. Hypertension

Projected Annual Medicaid Prescription Drug Expenditures Per Dual Eligible with Full Medicaid Benefits, 2002 (in Dollars) New Mexico Alabama Arkansas Georgia District of Mississippi Michigan Oregon California Massachusetts Maryland Iow a South Carolina Illinois South Dakota Colorado Wisconsin Tennessee Oklahoma New York Arizona 1,896 1,958 1,985 2,058 2,137 2,196 States spend 6.8 billion on prescription drugs for dualeligible beneficiaries 2,379 2,435 2,563 2,571 2,677 2,702 2,707 2,724 2,729 2,735 2,756 2,814 2,814 2,814 2,814 2,815 U.S. Average Alaska 2,823 2,839 2,841 2,862 2,866 2,916 2,929 2,943 2,948 2,961 3,003 3,012 3,024 3,037 3,054 3,054 3,082 3,087 3,094 3,116 3,119 North Carolina Haw aii Vermont Wyoming Kentucky Nevada Rhode Island Montana West Virginia Florida Nebraska Kansas New Jersey Virginia Louisiana Maine North Dakota Utah Minnesota Texas Delaw are Pennsylvania Idaho New Ohio Missouri Washington Indiana Connecticut 3,267 3,280 3,321 3,327 3,383 3,393 3,556 3,558 3,851 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Source: Stacy Berg Dale and James Verdier, State Medicaid Prescription Drug Expenditures for Medicare-Medicaid Dual Eligibles, The Commonwealth Fund, April 2003. 4,500 49

50 Percent of Seniors in Eight States with Incomes at or Below 100% of Poverty Who Have Heard of Medicaid and QMB/SLMB Programs Have heard of a government program called Medicaid Have heard of a government program called QMB or SLMB 96% 100% 87% 94% 93% 95% 91% 96% 56% 50% 33% 18% 8% 10% 10% 10% 14% 20% 0% IL MI NY PA CA CO OH Source: Dana Gelb Safran et al., Seniors and Prescription Drugs: Findings from a 2001 Survey of Seniors in Eight States, The Commonwealth Fund/Kaiser/Tufts-New England Medical Center, July 2002. TX

51 Medicare Prescription Drug Improvement & Modernization Act of 2003

Medicare Prescription Drug Improvement & Modernization Act of 2003 Prescription drug coverage—largest benefit expansion in program history Structural changes—increased “privatization” Health Savings Accounts 52

Key Features of Medicare Prescription Drug Benefit Voluntary benefit effective January 1, 2006 Rx benefit through regional stand-alone private Rx plans or HMOS or PPOs 410 billion in federal government spending, 2004–2013 Annual premium in 2006 about 420—can vary by plan Annual 250 deductible indexed to drug spending Coverage gap (“donut hole”)—no coverage for spending between 2,250 and 5,100 Subsidies for low-income beneficiaries Subsidies to employers to maintain retiree coverage 53

Medicare-Approved Drug Discount Card Program Effective June 2004, all beneficiaries (except those with Medicaid drug coverage) can enroll in a Medicareapproved discount card program; program ends when new benefit is implemented Choice of at least discount 2 cards; discounts of about 10%–15% of total drug costs; enrollment fee up to 30 annually Beneficiaries with incomes below 135% of poverty pay no fee and receive 600 annual subsidy toward the purchase of drugs; no asset test Bush administration assumes only 4.7 million out of 7.2 eligible low-income beneficiaries will sign up for the program Increasing participation rates to 90% would provide valuable assistance to 6.5 million of the most vulnerable elderly and disabled beneficiaries 54

55 Standard Drug Benefit 2006 2013 Annual Deductible: 250 445 Coinsurance to Initial Limit: 25% 25% Initial Limit: 2,250 4,000 Out-of-Pocket Threshold: 3,600 6,400 Coverage Gap: 2,850 5,066 Coinsurance Above OOP: (greater of) 2/ 5 or 5% 3/ 8 or 5%

Prescription Drug Benefit 2006: Beneficiary Cost-Sharing Total spending by beneficiary 7,000 5% after 3,600 outof-pocket 6,000 5,000 5,100 4,000 2,850 Gap 3,000 2,000 1,000 0 2,250 420 estimated annual premium Medigap and Medicaid cannot fill in gap Employer contributions do not count as out-ofpocket spending 25% Coinsurance 250 Deductible 56

Estimated Impact of the Medicare Law on State Medicaid Spending (FY 2004–2013) In Billions 88.5 17.2 8.9 Medicaid Savings Retained by States Mandatory State Payments to Federal Government (“Clawback”) New State Costs (New Enrollment of Beneficiaries and Administration of Low-income Subsidy Program) Note: Estimates do not include the effects of Medicaid provisions in Title X of H.R. 1. Source: KCMU analysis of Congressional Budget Office estimates, 2003. 57

Beneficiary and Plan Share of Spending in 2006, at Individual Expenditure Levels, Under the New Medicare Drug Benefit Source: Marilyn Moon, American Institutes for Research. 58

Structural Change: Increased “Privatization” Stand-alone private drug plans Establishes Medicare Advantage—HMOs and new regional PPO options Subsidies to encourage private plan participation —extra payments to HMOs begin 2004; average payments exceed those in traditional Medicare Moves toward defined contribution plan— demonstration of competition between traditional Medicare and private plans starts in 2010 59

Selected Commonwealth Fund Medicare Reports L. Achman and M. Gold, Medicare Choice Plans Continue to Shift More Costs to Enrollees, The Commonwealth Fund, April 2003 C. Boccuti and M. Moon, Adverse Selection in Private, Stand-Alone Drug Plans and Techniques to Reduce It, The Commonwealth Fund, October 2003 C. Boccuti and M. Moon, “Comparing Medicare and Private Insurance: Growth Rates in Spending for Health Care Over 30 Years,” Health Affairs 22 (March/April 2003) C. Boccuti and M. Moon, Private, Individual Drug Coverage in the Current Medicare Market, The Commonwealth Fund, October 2003 C. Boccuti, M. Moon, and K. Dowling, Chronic Conditions and Disabilities: Trends and Issues for Private Drug Plans, The Commonwealth Fund, October 2003 G. Dallek, B. Biles, and L. H. Nicholas, Lessons from Medicare Choice for Medicare Reform, The Commonwealth Fund, June 2003 K. Davis, “American Health Care: Why So Costly?” Testimony before Senate Appropriations Subcommittee on Labor, Health and Human Services, Education and Related Agencies, Washington, DC, June 11, 2003 K. Davis, “Making Health Care Affordable for All Americans” Testimony before the Senate Committee on Health, Education, Labor, and Pensions, Washington, DC, January 28, 2004 K. Davis, C. Schoen, M. Doty and K. Tenney, “Medicare Versus Private Insurance: Rhetoric and Reality,” Health Affairs Web Exclusive (October 9, 2002) S. Maxwell, M. Storeygard, and M. Moon, Modernizing Medicare Cost-Sharing: Policy Options and Impacts on Beneficiary and Program Expenditures, The Commonwealth Fund, November 2002 M. Moon, Medicare Prescription Drug Legislation: How Would It Affect Beneficiaries? The Commonwealth Fund, October 2003 D. G. Safran, P. Neuman, C. Schoen, et al., “Prescription Drug Coverage and Seniors: How Well Are States Closing the Gap?” Health Affairs Web Exclusive (July 31, 2002) D. Shea, B. Stuart, and B. Briesacher, Caught in Between: Prescription Drug Coverage of Medicare Beneficiaries Near Poverty, The Commonwealth Fund, August 2003 For additional information, visit The Commonwealth Fund’s website at www.cmwf.org 60