Health Economics Program

Transcription

1 Health Economics Program Issue Brief August 2006 Medicare Supplemental Coverage and Prescription Drug Use, 2004 Medicare is a federal health insurance program that provides coverage for the elderly and some disabled people under age 65. In 2004, roughly 686,000 Minnesotans were enrolled in Medicare, representing approximately 13% of the state population. 1 Compared to many private insurance policies, Medicare has relatively high deductibles and coinsurance and does not provide coverage for some health care services. Consequently, many Medicare beneficiaries obtain additional health insurance to pay for the cost sharing and services that Medicare does not cover. This issue brief uses data from a 2004 survey of Minnesota households to describe Medicare beneficiaries sources of supplemental insurance coverage and prescription drug coverage, with comparisons to national data. 2 It also provides a baseline for evaluating the impact of the 2003 Medicare Modernization Act on Minnesota s noninstitutional Medicare beneficiaries and includes information on prescription drug utilization and spending by Minnesota Medicare beneficiaries. Characteristics of Medicare Beneficiaries Demographically, Medicare beneficiaries in Minnesota differ in a number of ways from the national average. Table 1 shows that U.S. and Minnesota beneficiaries are similar in terms of gender and health status. Table 1 Characteristics of Non-Institutional Medicare Beneficiaries, Minnesota and US, 2004 Minnesota US Age % 15.4% % 43.8% % 30.6% % 10.2% Gender Male 42.0% 44.7% Female 58.0% 55.3% Marital Status Married 59.3% 53.0% Not Married 40.7% 47.0% Race/Ethnicity White only, non-hispanic 92.7% 78.1% Non-White 7.3% 21.9% Educational Status Less than high school 19.3% 28.4% High school graduate 36.6% 30.4% Some college/tech school 26.0% 21.8% College graduate or more 18.1% 19.4% Household Income $0-$10, % 20.2% $10,001-$20, % 28.0% $20,001-$30, % 20.0% $30,001-$40, % 12.6% $40, % 19.2% Geography Metropolitan Area (MSA counties) 63.9% 76.4% Rural Area 36.1% 23.6% Greater Minnesota 54.7% NA Twin Cities 45.3% NA Health Status Excellent 14.1% 15.3% Very Good 27.4% 25.4% Good 31.7% 31.2% Fair 18.3% 18.7% Poor 8.5% 9.4% Sources: 2004 Minnesota Health Access Survey Medicare Current Beneficiary Survey (MCBS), "Characteristics and Perceptions," preliminary estimates. Minnesota Department of Health

2 The demographic differences between Minnesota and U. S. beneficiaries include: In general, Minnesota beneficiaries have higher levels of education; Minnesota beneficiaries are more likely to be older; 3 In general, Minnesota beneficiaries have higher incomes; and Minnesota beneficiaries are more likely to be married; Minnesota beneficiaries are more likely to live in a rural area. Minnesota beneficiaries are more likely to be White; Medicare - The Basics: Medicare consists of four parts: Part A, the hospital insurance (HI) component, Part B, the supplemental medical insurance (SMI) component, Part C, the Medicare Advantage (private health plans) component and now Part D, the outpatient prescription drug component. Part A covers inpatient hospital care, inpatient skilled nursing care, home health care, and hospice care. Part A is financed primarily by a payroll tax paid by both employers and employees: however, beneficiaries are required to pay various deductibles and coinsurance. Elderly beneficiaries age 65 and older are automatically enrolled in Part A if they receive Social Security benefits or Railroad Retirement cash benefits. Part B pays for physician services, outpatient hospital services, and other health services such as laboratory and diagnostic tests. Part B has an annual deductible ($124 in 2006) and 20% co-insurance for qualified medical services. Beneficiary premiums ($88.50 per month in 2006) and general revenue finance part B. Part B is optional but nearly 95% of all beneficiaries in Minnesota who are eligible are enrolled in Part B. Although most beneficiaries are enrolled in Part A and B, some obtain supplemental coverage to pay for deductibles and coinsurance as well as for medical services not covered by Part A or B. Part A and B provide limited or no coverage for dental care, eyeglasses, hearing aids, hearing exams, and until the Medicare Modernization Act of 2003 became effective, Medicare provided little or no coverage for routine physical exams, preventive care, or outpatient prescription drugs. Beneficiaries can enroll in a private managed care plan that provides Medicare Part A and Part B services, plus additional benefits, through Part C or Medicare Advantage (MA) plans. If beneficiaries are not enrolled in a Part C plan, they can receive supplemental benefits through a Medigap plan, an employer provided plan, or Medical Assistance if they meet the eligibility requirements. In addition to the Part B premium, beneficiaries generally pay an additional premium for the added (supplemental) Part C benefits. In general, these plans require that beneficiaries use a specific network of providers. Part D was enacted in 2003 with the passage of the Medicare Modernization Act and became effective on January 1, Under Part D, prescription drug benefits are provided by private prescription drug only (PDP) plans, Medicare Advantage (MA) plans, or creditable employer coverage plans. Premiums and cost sharing vary by plan, but all basic plans must provide actuarially equivalent benefits. Low-income beneficiaries can receive subsidies to enroll in Part D plans. Prior to 2006, beneficiaries could obtain prescription drug coverage through a Part C plan, a Medigap plan, an employer provided plan, Medical Assistance, or a state drug plan. As of 2006, new enrollment in Medigap plans with prescription drug coverage is not allowed. Sources: The Centers for Medicare and Medicaid Services and the Henry J. Kaiser Family Foundation. 2

3 Supplemental Coverage Nationwide, Medicare pays for about 54% of the total personal health care expenditures of noninstitutional Medicare beneficiaries. 4 As a result, most Medicare beneficiaries obtain additional coverage through the private market or government programs to pay for the services and costs that Medicare does not cover. In the U.S. and Minnesota, beneficiaries are equally likely to lack supplemental coverage. However, for those with supplemental coverage, the sources of that coverage are different. The different sources of coverage between U.S. and Minnesota beneficiaries are similar to findings from an earlier study. 5 Figure 1 highlights the following differences between U.S. and Minnesota beneficiaries: Minnesota beneficiaries are less likely to have coverage through a government program; Minnesota beneficiaries are less likely to have supplemental coverage through a current or previous employer; Minnesota beneficiaries are more likely to have an individually purchased Medigap policy; and Minnesota beneficiaries are less likely to have coverage through a Medicare HMO. 6 Figure 1 Sources of Supplemental Insurance Coverage for Non-Institutional Medicare Beneficiaries, Minnesota and US, % 15.0% 10.6% 13.0% 34.6% 26.1% 21.8% 33.6% 13.2% 16.6% Minnesota US Public Employer Medigap Medicare HMO Medicare Only Sources: 2004 Minnesota Health Access Survey 2004 Medicare Current Beneficiary Survey (MCBS), "Characteristics and Perceptions", preliminary estimates. One explanation for many of these differences is that more non-institutional Medicare beneficiaries in Minnesota compared to the national average live in rural areas (see Table 1). As shown in Figure 2, these rural beneficiaries are less likely to have supplemental coverage through an employer or individually purchased Medicare HMO, and more likely to have individually purchased Medigap coverage than urban Minnesota beneficiaries. Figure 2 Sources of Supplemental Insurance Coverage For Minnesota Non-Institutional Medicare Beneficiaries in Metropolitan and Rural Counties, % 17.5% 14.5% 28.3% 29.7% 45.8%* 19.5%* 13.1% 13.5% Metropolitan Area Rural Area 3.7%* Public Employer Medigap Medicare HMO Medicare Only *Indicates significant difference at 95% level from metropolitan area beneficiaries. Source: 2004 Minnesota Health Access Survey There are two main reasons for the differences in supplemental coverage between urban and rural areas. First, metropolitan areas generally have more large employers than rural areas and large employers are more likely to offer retiree health benefits than small employers. 7 Second, there is less enrollment in Medicare HMO plans in rural areas in Minnesota compared to metropolitan areas; reasons for this difference likely include lower payment rates from Medicare and lower HMO market share in rural areas generally. 8 One of the main explanations for lower public coverage in Minnesota is that a higher percentage of Medicare beneficiaries enrolled in Medicaid are 3

4 institutionalized in Minnesota compared to the national average. 9 Because the data presented here only represents non-institutional Medicare beneficiaries, a greater percentage of Minnesota s Medicare beneficiaries with Medical Assistance are excluded from the survey data compared to at the national level. The type of supplemental coverage that beneficiaries have is of interest because it has an impact on the level of beneficiary spending and the types of health care services that are covered for beneficiaries. Nationally, beneficiaries with supplemental coverage through a Medigap plan generally pay more in premiums and out-of-pocket than beneficiaries with employer coverage or those enrolled in Medicare HMO plans. 10 Nearly all beneficiaries with employer coverage have coverage for prescription drugs and in 2005 beneficiaries with employer coverage paid an average premium of $128 per month. 11 In comparison, beneficiaries with Medigap coverage that includes coverage for prescription drugs paid more than twice this amount on average in monthly premiums in On average, premiums for Medicare HMO plans that provide prescription drug coverage are lower than Medigap premiums and Medicare HMO plans may also include additional benefits such as coverage for preventive, vision, and dental care. 13 The higher premium cost of Medigap plans with prescription drug coverage in comparison to employer and Medicare HMO plans is likely a key reason why many beneficiaries choose to purchase Medigap plans that do not provide coverage for prescription drugs (see Figure 4). paying higher premiums on average for their supplemental coverage. In addition, aside from differences in the sources of supplemental coverage, Minnesota beneficiaries enrolled in Medicare HMOs are paying more for coverage than the national average due to differences in Medicare payment rates. 14 Minnesota beneficiaries are also more likely to be at risk for higher out-of-pocket costs because fewer beneficiaries in Minnesota have coverage for prescription drugs (see Figure 3) or additional services such as preventive, vision, and dental care often provided by employer and Medicare HMO plans. 15 Characteristics of Minnesota Beneficiaries Without Supplemental Coverage As shown in Figure 1, 15% of Minnesota and U.S. beneficiaries do not have coverage to supplement Medicare. Beneficiaries who lack additional insurance are not covered at all for some health care goods and services such as prescription drugs, and they are responsible for unlimited amounts of Medicare cost sharing. Demographically, there are differences between all non-institutionalized Minnesota Medicare beneficiaries and those without supplementary coverage. Table 2 highlights the following differences between Minnesota s Medicare beneficiaries with and without supplemental coverage: In general, Medicare beneficiaries without coverage are younger; Medicare beneficiaries without coverage are less likely to be married; With the differences in supplemental coverage between Minnesota and the U.S., it is likely that beneficiaries in Minnesota pay more for supplemental coverage and realize a greater risk of higher out-ofpocket costs than the national average. Because Minnesota has fewer beneficiaries enrolled in lower cost employer-sponsored and Medicare HMO plans and more enrollment in higher cost Medigap plans than nationally, Minnesota beneficiaries are likely In general, Medicare beneficiaries without coverage have lower levels of education; In general, Medicare beneficiaries without coverage have lower incomes; and Medicare beneficiaries without coverage are less likely to reside in the Twin Cities. 4

5 Table 2 Characteristics of Non-Institutional Medicare Beneficiaries Without Supplemental Coverage in Minnesota, 2004 Age MN Beneficiaries Without Coverage 28.9% 31.2% 25.4% 14.5% All MN Beneficiaries 13.9% 41.3% 31.1% 13.7% Gender Male 43.9% 42.0% Female 56.1% 58.0% Marital Status Married 49.7% 59.3% Not Married 50.3% 40.7% Race/Ethnicity White only, non-hispanic 89.9% 92.7% Non-White 10.1% 7.3% Educational Status Less than high school 24.6% 19.3% High school graduate 33.0% 36.6% Some college/tech school 31.8% 26.0% College graduate or more 10.6% 18.1% Household Income as % of Poverty Guidelines 0 to 100% 16.8% 14.4% 101 to 200% 34.1% 28.0% 201 to 300% 25.4% 23.5% 301 to 400% 12.9% 13.1% 401%+ 10.8% 21.0% Geography Metropolitan Area (MSA counties) 59.3% 63.9% Rural Area 40.7% 36.1% Greater Minnesota 62.9% 54.7% Twin Cities 37.1% 45.3% Health Status Excellent 13.5% 14.1% Very Good 25.8% 27.4% Good 30.9% 31.7% Fair 20.8% 18.3% Poor 9.0% 8.5% Bold indicates significant difference at 95% level from all Minnesota beneficiaries. Source: 2004 Minnesota Health Access Survey. Based on income alone, roughly 29% of noninstitutional Medicare beneficiaries without supplemental coverage in Minnesota are potentially eligible for some level of supplemental coverage through public programs. These public programs include Medical Assistance, the Qualified Medicare Beneficiary program, the Specified Low-Income Medicare Beneficiary program and the Qualified Individual program. 16 Enrollment in one of these programs could improve access to health care and reduce out-of-pocket spending for beneficiaries without supplemental coverage. Medicare beneficiaries without supplemental coverage are almost twice as likely to lack a usual source of care or delay care due to cost compared to those with supplemental coverage through Medicaid. 17 Prescription Drug Coverage There is one large difference between the pattern of supplemental coverage and prescription drug coverage for Minnesota and the United States. Minnesota noninstitutional beneficiaries are just as likely to have Medicare supplemental coverage as the national average (84.5% and 85.0%), but as shown in Figure 3, they are much less likely to have prescription drug coverage (56.2% and 64.0%). The primary reason for this difference is that Minnesota beneficiaries have lower rates of supplemental coverage through government programs or employer plans where coverage for prescription drugs is more likely, and higher rates of Medigap coverage where prescription drug coverage is less likely. Figure 3 Sources of Prescription Drug Coverage for Non- Institutional Medicare Beneficiaries, Minnesota and US 43.8% 5.6% 16.1% 22.8% 11.7% Minnesota 36.0% 15.2% 6.7% 29.2% 13.0% US Public Employer Medigap Medicare HMO None Sources: 2004 Minnesota Health Access Survey. Laschober, Mary, "Trends in Medicare Supplemental Insurance and Prescription Drug Benefits, Prepared for The Henry J. Kaiser Family Foundation, June

6 Differences in prescription drug coverage between Medicare beneficiaries in Minnesota and the United States follow the same pattern as the differences in supplemental coverage between Minnesota and the United States. 18 Non-institutional Medicare beneficiaries in Minnesota are more likely to have prescription drug coverage through Medigap policies and less likely to have prescription drug coverage through Medicare HMO plans, employer-sponsored coverage or public coverage than their national counterparts (see Figure 3). Figure 4 Beneficiaries with Prescription Drug Coverage, by Type of Supplemental Insurance Coverage 100% 87% 88% 89% 92% 90% 84% 80% 70% 60% 52% 47% 50% 40% 29% 30% 20% 10% 0% Employer Medicare HMO Medigap Public Sources: 2004 Minnesota Health Access Survey. Laschober, Mary, "Trends in Medicare Supplemental Insurance and Prescription Drug Benefits, Prepared for The Henry J. Kaiser Family Foundation, June MN As shown in Figure 4, supplemental coverage for prescription drugs is highest for employer plans, public coverage and Medicare HMOs at the national level. However, national prescription drug coverage patterns do not exactly mirror those in Minnesota. Although public and employer-sponsored prescription drug coverage in Minnesota is similar to coverage at the national level, prescription drug coverage through Medigap plans in Minnesota is much higher and through Medicare HMO plans much lower. One explanation for why coverage for prescription drugs through Medicare HMOs is lower in Minnesota is that Medicare payments to HMOs in Minnesota are lower than nationally, resulting in less availability of comprehensive prescription drug coverage through Medicare HMOs and higher premiums for US beneficiaries who purchase coverage that includes prescription drugs. 19 An explanation for why Minnesota beneficiaries enrolled in Medigap plans are more likely to have prescription drug coverage than beneficiaries nationally is that Minnesota beneficiaries, and rural beneficiaries especially (see Figure 5), have less access to affordable sources of supplemental coverage and prescription drug coverage through employer plans or Medicare HMOs and may find that a Medigap plan is their only option for supplemental coverage and prescription drug coverage. Figure 5 Sources of Prescription Drug Coverage for Minnesota Non-Institutional Medicare Beneficiaries in Metropolitan and Rural Counties, % 7.7% 13.8% 25.3% 12.2% Metropolitan Area 48.8%* 20.2%* 18.2%* 11.0% Rural Area Public Employer Medigap Medicare HMO None 1.8%* *Indicates significant difference at 95% level from metropolitan area beneficiaries. Source: 2004 Minnesota Health Access Survey. Characteristics of Beneficiaries Without Prescription Drug Coverage The differences in demographic characteristics between all Medicare beneficiaries and those without supplemental insurance coverage are similar to the demographic differences between all Medicare beneficiaries and those without prescription drug coverage. As shown in Tables 2 and 3, in general, Minnesota beneficiaries without supplemental coverage and/or prescription drug coverage are more 6

7 likely to live in Greater Minnesota, have fewer years of education, and have lower incomes than all Minnesota Medicare beneficiaries. Minnesota beneficiaries without drug coverage are different from beneficiaries without supplemental coverage in that they are older than Medicare beneficiaries in general, and are similar to all Medicare beneficiaries in terms of marital status. Table 3 Characteristics of Non-Institutional Medicare Beneficiaries Without Prescription Drug Coverage in Minnesota, 2004 MN Beneficiaries All MN Without Coverage Beneficiaries Age % 13.9% % 41.3% % 31.1% % 13.7% Gender Male 42.6% 42.0% Female 57.4% 58.0% Marital Status Married 57.6% 59.3% Not Married 42.4% 40.7% Race/Ethnicity White only, non-hispanic 94.8% 92.7% Non-White 5.2% 7.3% Educational Status Less than high school 21.3% 19.3% High school graduate 37.3% 36.6% Some college/tech school 26.4% 26.0% College graduate or more 15.0% 18.1% Household Income as % of Poverty Guidelines 0 to 100% 12.6% 14.4% 101 to 200% 33.6% 28.0% 201 to 300% 26.5% 23.5% 301 to 400% 11.8% 13.1% 401%+ 15.5% 21.0% Geography Metropolitan Area (MSA counties) 59.8% 63.9% Rural Area 40.2% 36.1% Greater Minnesota 61.0% 54.7% Twin Cities 39.0% 45.3% Health Status Excellent 13.9% 14.1% Very Good 27.2% 27.4% Good 32.6% 31.7% Fair 18.7% 18.3% Poor 7.6% 8.5% Bold indicates significant difference at 95% level from all Minnesota beneficiaries. Source: 2004 Minnesota Health Access Survey. Based on income alone, roughly 19% of noninstitutional beneficiaries in Minnesota without prescription drug coverage were potentially eligible for prescription drug coverage through Medical Assistance or the Prescription Drug Program in Beneficiaries who lack prescription drug coverage are more likely to not fill a prescription, take smaller amounts, or skip doses due to cost than beneficiaries with coverage. In 2006, with the implementation of Medicare Part D lower income beneficiaries are eligible for subsidies to purchase prescription drug coverage. The Minnesota Prescription Drug Program ended on December 31, Prescription Drug Utilization and Spending The 2004 Minnesota Health Access Survey included questions on prescription drug utilization and spending. Besides providing insight into utilization and out-of-pocket spending for prescription drugs, these results also provide a baseline for analyzing the transition to Medicare Part D in Minnesota. Table 4 shows that 92% of non-institutional Medicare beneficiaries in Minnesota take at least one prescription drug. Table 4 also provides the following information for Medicare beneficiaries who take at least one prescription drug on a regular basis: Medicare beneficiaries take an average of 4.2 prescription drugs on a regular basis; 36% of Medicare beneficiaries take 5 or more prescription drugs on a regular basis; 13.5% of Medicare beneficiaries either do not fill their prescriptions, skip doses or take lower doses in order to save money; 5.6% of Medicare beneficiaries purchase prescription drugs from a foreign country; 30.7% of Medicare beneficiaries spend $100 or more per month out-of-pocket on prescription drugs; and 5.3% spend more than $300 per month. 7

8 Table 4 Minnesota Non-Institutional Medicare Beneficiaries Prescription Drug Utilization and Spending, 2004 Health Status Excellent Very Good Good Fair Poor Household Income as % of Poverty Guidelines 0 to 100% 101 to 200% 201 to 300% 301 to 400% 401%+ Taking Prescription Drugs on a Regular Basis Number of Prescription Drugs a Mean a Change or Skip Prescription Due to Cost a b Buy From a Foreign Country a Monthly Out-of-Pocket Spending a $1-$49 $50-$99 $100-$199 $200-$299 $300 or more MN Beneficiaries Without Drug Coverage 13.9% 27.2% 32.6% 18.7% 7.6% 12.6% 33.6% 26.5% 11.8% 15.5% 89.6% 18.7% 22.4% 14.3% 14.8% 29.8% % 9.4% 29.9% 30.6% 24.2% 8.4% 6.9% MN Beneficiaries With Drug Coverage 14.3% 27.6% 30.9% 18.0% 9.2% 15.9% 23.7% 21.0% 14.1% 25.3% 93.8% 12.4% 18.7% 16.2% 12.3% 40.4% % 2.8% 50.2% 25.4% 16.9% 3.4% 4.1% All MN Beneficiaries 14.1% 27.4% 31.7% 18.3% 8.5% 14.4% 28.0% 23.5% 13.1% 21.0% 92.0% 15.1% 20.2% 15.4% 13.3% 36.0% % 5.6% 41.7% 27.6% 19.9% 5.5% 5.3% Bold indicates significant difference at 95% level from those with prescription drug coverage. Source: 2004 Minnesota Health Access Survey. a Includes only those non-institutional Medicare beneficiaries who take one or more prescription drugs on a regular basis. b "Change or skip" here refers to either reducing the quantity of drugs taken, skipping doses or not filling a prescription. Table 4 also illustrates differences in prescription drug spending and utilization between Medicare beneficiaries with and without drug coverage. In general, these Minnesota results are consistent with 21, 22 recent national studies: Medicare beneficiaries without coverage are less likely to take prescription medications than those with coverage; In general, Medicare beneficiaries without coverage take fewer prescription medications than those with coverage; Medicare beneficiaries without coverage are more likely to skip or reduce the quantity of drugs taken or not fill a prescription as a result of cost than those with coverage; Medicare beneficiaries without coverage are more likely to purchase drugs from a foreign country than those with coverage; and In general, Medicare beneficiaries without coverage pay more in out-of-pocket costs than those with coverage. Factors Influencing Coverage for Prescription Drugs The results presented in Table 4 show that utilization (the number of drugs that a beneficiary consumes) and income both appear to be related to whether or not a Medicare beneficiary in Minnesota has coverage for prescription drugs. Table 4 shows that Minnesota Medicare beneficiaries without prescription drug coverage have lower incomes and take fewer drugs than beneficiaries with prescription drug coverage. However, the results in Table 4 do not provide information on the relative influence of utilization, income, or other factors on whether or not beneficiaries have prescription drug coverage. In order to estimate the relative impact of each variable, a logistic regression model is used to estimate the impact of each factor while holding the other factors constant. For example, this model can estimate the influence of income on whether or not beneficiaries have prescription drug coverage by holding age, sex, race, educational level, geography, and prescription drug use constant. 23 Results from this analysis show that having prescription drug coverage is most influenced by the number of drugs a beneficiary takes on a regular basis, 8

9 age, income and geography. 24 The following estimates were obtained from the analysis, holding other factors constant: Beneficiaries taking 5 or more prescription drugs on a regular basis are almost 3 times as likely and beneficiaries taking 3 to 4 prescription drugs are over twice as likely to have drug coverage as beneficiaries not taking prescription drugs. Beneficiaries between the ages of 65 and 74 are almost three times as likely and beneficiaries between the ages of 75 and 84 are almost two times as likely to have drug coverage as beneficiaries under the age of 65; Beneficiaries with incomes above 400% of federal poverty guidelines are almost twice as likely as beneficiaries with incomes less than or equal to 200% of federal poverty guidelines to have drug coverage; and Beneficiaries in the Twin Cities metropolitan area are approximately 25% more likely to have prescription drug coverage than beneficiaries in Greater Minnesota; The logistic regression results imply that both utilization and income influence whether beneficiaries get drug coverage; however, utilization appears to be more strongly related to the decision to purchase drug coverage. This finding has important implications for participation in Medicare Part D by Minnesota Medicare beneficiaries. Although Part D will likely make prescription drug coverage more affordable for beneficiaries, some healthy beneficiaries who take few or no prescription drugs may choose not to enroll. As shown in Figure 6, approximately 10% of beneficiaries without prescription drug coverage do not take any prescription drugs and another 27% spend less than $50 per month on drugs. Based on the logistic regression results, these are the beneficiaries who may be least likely to participate in Medicare Part D. Figure 6 Distribution of Monthly Out-of-Pocket Prescription Drug Spending by Minnesota Medicare Beneficiaries With and Without Drug Coverage, %* 22%* 27%* 27%* 3% 3% 16% 24% 47% 2% 2% 2% 3% 3% 5% 18% 25% 39% 10%* 6% 8% Without Prescription With Prescription All Drug Coverage Drug Coverage No drugs $0-$49 $50-$99 $100-$199 $200-$299 $300-$399 $400+ Source: 2004 Minnesota Health Access Survey. *Indicates a significant difference at the 95% level from beneficiaries with prescription drug coverage. Figure 7 provides the potential monthly prescription drug savings under Part D for Minnesota Medicare beneficiaries without prescription drug coverage, based on their current spending on prescription drugs. Using the national average monthly premium of $32.20, 25 and assuming standard coverage, 26 the point where a beneficiary would start saving money under Medicare Part D is at $63.80 in prescription drug costs per month. Figure 7 shows that more than 37% of Minnesota Medicare beneficiaries (approximately 112,000) without prescription drug coverage spend less than this amount per month. As of June 11, 2006 approximately 77% of Minnesota Medicare beneficiaries had enrolled in a prescription drug plan. 27 Besides beneficiaries (particularly healthy beneficiaries) choosing not to enroll to avoid paying premiums, gaps in enrollment could be the result of confusion about which plans are best, a reluctance to change plans, a lack of pertinent information or other reasons. It will be important to track the number and 9

10 characteristics of beneficiaries in Minnesota who do not have prescription drug coverage after the initial implementation of Part D, because, as with all health insurance, the degree to which the risk pool includes healthy or low risk enrollees affects premium costs and increases for all enrollees. Figure 7 Distribution of Monthly Prescription Drug Spending by Minnesota Medicare Beneficiaries Without Prescription Drug Coverage in 2004, Compared to Part D Benefit $400+ 3% $93+* $300 to $399 3% $93* $200 to $299 8% $93* $100 to $199 $50 to $99 $1 to $49 22% 27% 27% $27 to $93* -$10 to $26 -$32 to -$11 were more likely to be enrolled in types of supplemental plans, like Medigap, that offered less affordable prescription drug coverage. This is likely related to why fewer Minnesota beneficiaries had prescription drug coverage. One important question is how existing insurance coverage will change over the next few years as a result of Medicare Part D. Beyond initial enrollment in Part D, the longer-term impact of the law is unclear because it is not known how beneficiaries in general, and healthy beneficiaries in particular, will respond. In addition, although subsidies were built into the existing Medicare Part D legislation to avoid having employers drop retiree coverage, 28 the long-term effect of this strategy remains to be seen. Another concern is how the large percentage of Medicare beneficiaries with Medigap coverage, particularly in rural areas, will respond to Medicare Part D as new enrollment in Medigap plans with prescription drug coverage is no longer allowed. It is important to monitor how this new law will impact coverage, utilization, and spending of Minnesota Medicare beneficiaries in the future. $0 Monthly Spending on Prescription Drugs 10% -$32 Estimated Monthly Savings from Medicare Part D Source: 2004 Minnesota Health Access Survey *Note: Savings remain the same while the beneficiary is in the donut 26 hole. Summary and Conclusions Past and current evidence suggests that supplemental coverage for Minnesota Medicare beneficiaries differs from the national average. These differences are important because they imply that Medicare beneficiaries in Minnesota on average pay more for supplemental coverage and are at greater risk for higher out-of-pocket costs than the national average. Of particular interest is how this affects prescription drug coverage. Prior to the implementation of Medicare Part D, Medicare beneficiaries in Minnesota Endnotes 1 The Henry J. Kaiser Family Foundation, Minnesota Medicare Enrollment as a Percent of Total Population, 2004 and Minnesota: Total Number of Medicare Beneficiaries, As part of the survey, 3,085 Medicare beneficiaries were asked questions about prescription drug utilization and spending, supplemental and prescription drug health insurance coverage and other issues. 3 The older Minnesota beneficiary population is consistent with the fact that the 65+ population is older in Minnesota than the national average (includes the institutionalized and noninstitutionalized population). U.S. Bureau of Census: State Population Estimates by Demographic Characteristics, July 1, Special data run for MDH done by Westat, Inc. using CMS data. U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), Health and Health Care of the Medicare Population, MDH Health Economics Program, Medicare Supplemental Coverage in Minnesota, December Although the pattern of supplemental coverage is the same, results are not directly comparable due to changes to the 2004 questionnaire. 10

11 6 One note of caution is that the assignment of mutually exclusive insurance categories is different for the Minnesota and U.S. results. Relative to the CMS data, Minnesota results may overestimate HMO coverage (by including both cost and risk HMOs), overestimate employer-sponsored coverage (because HMO plans offered by an employer are counted under HMO in the U.S. results and under employer in the Minnesota results) and overestimate Medicaid coverage. In summary, the differences discussed in this brief could be even larger if the CMS and Minnesota definitions were the same. 7 The Henry J. Kaiser Family Foundation and Hewitt Associates, Retiree Health Benefits Now and in the Future, January p. vi. 8 U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, Ratebooks and Supporting Data for March-December In 2004, 6.2 % of Minnesota s population 65 and older resided in nursing homes, compared to a national average of 4.1 %. AARP, Reforming the Health Care System, December p. 5. Although the percent of Minnesota and US beneficiaries enrolled both in Medicaid and Medicare is similar, Minnesota Medicare beneficiaries enrolled in Medicaid are at least 25% more likely to reside in a nursing home based on a MDH analysis of Henry J. Kaiser Family Foundation, MCBS and Minnesota Medicaid administrative data. 10 Jessica Banthin and Didem Bernard, Out-of-Pocket Expenditures on Health Care and Insurance Premiums among the Elderly Population, This study shows that out-ofpocket plus premium expenditures were higher for Medicare beneficiaries with Medigap coverage as compared to other sources of supplemental coverage. One caution is that the study only included Medicare beneficiaries 65 and over. 11 The Henry J. Kaiser Family Foundation and Hewitt Associates, Prospects for Retiree Health Benefits as Medicare Prescription Drug Coverage Begins, December p See the following: Weiss Ratings Inc., Weiss Ratings News. Medigap Rates Continue to Vary Dramatically. Minnesota Department of Commerce, 2004 & 2005 Annual Premium Guide Medicare Supplement. 13 See the following: Lori Achman and Lindsay Harris, The AARP Policy Institute, Early Effects of the Medicare Modernization Act: Benefits, Cost Sharing, and Premiums of Medicare Advantage Plans, U.S. Centers for Medicare and Medicaid Services, CMS News, Review Shows Beneficiaries in Medicare Advantage Plans will see Better Benefits, Lower Costs, February 27, See also comparisons of plans on medicare.gov. 14 In 2005, the average monthly payment rate to Minnesota HMOs was $646 and the national average payment was $736. See Kaiser, Minnesota: Average Monthly Payment Rates (Weighted), See the following for national and Minnesota average HMO premiums and level of coverage: Lori Achman and Lindsay Harris, The AARP Policy Institute, Early Effects of the Medicare Modernization Act: Benefits, Cost Sharing, and Premiums of Medicare Advantage Plans, Minnesota Department of Commerce, 2004 & 2005 Annual Premium Guide Medicare Supplement. See also comparisons of plans on medicare.gov. 15 Ibid. 16 This estimate only includes income limits and does not adjust for asset limits or spend-downs. 17 U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), 2004 Medicare Current Beneficiary Survey (MCBS), Characteristics and Perceptions, preliminary estimates. 9% of non-institutional Medicare beneficiaries who have Medicare Only indicate they have no usual source of care and 20% have delayed care due to cost. For Medicaid covered beneficiaries it is 5% and 13%, respectively. 18 See the following: (1) Safran et al. (2005), Prescription Drug Coverage and Seniors: Findings From A 2003 National Survey, (2) AARP (February 2006), Reforming the Health Care System, 2005, (3) The Henry J. Kaiser Family Foundation and Hewitt, Retiree Health Benefits Now and in the Future, January 2004, (4) The Henry J. Kaiser Family, Medicare Chartbook, Summer 2005, (5) The Henry J. Kaiser Foundation (February 2006), Tracking Prescription Drug Coverage Under Medicare: Five Ways to Look at the New Enrollment Numbers. There are many reasons why prescription drug coverage data from these sources was not used including that (1) the target population was different (e.g., Safran only included Medicare beneficiaries 65 years or older), (2) the period of coverage was different (the Kaiser Family Tracking. publication and AARP Reforming... publication are for coverage at-any-time during the year, not a-point-in-time estimate such as the one used for Minnesota), (3) no prioritizing of the insurance categories (the AARP Reforming. ), (4) the prescription drug coverage definition was different ( Kaiser Family Tracking included only creditable coverage or coverage equal to or exceeding Medicare Part D coverage), (5) results were very different than other publications (Safran et al. s 20% Medigap prescription drug coverage rate estimate for 2003 is much higher then estimates from other sources. For example, in 2001, Laschober estimates that the Medigap prescription drug coverage rate was 6.7% and CMS although using the at-any-time during the year approach, still only estimates Medigap prescription drug coverage at 11% for 2003). 19 In 2005, the average monthly payment rate to Minnesota HMOs was $646 and the national average payment was $736. See Kaiser, Minnesota: Average Monthly Payment Rates (Weighted), See the following for average premiums and level of coverage: Lori Achman and Lindsay Harris, The AARP Policy Institute, Early Effects of the Medicare Modernization Act: Benefits, Cost Sharing, and Premiums of Medicare Advantage Plans, Minnesota Department of Commerce, 2004 & 2005 Annual Premium Guide Medicare Supplement. 20 In its 2005 special session, the legislature repealed Statutes (the Minnesota Prescription Drug Program). 11

12 21 Safran DG, Neuman P, Schoen C, Kitchman MS, Wilson I, Cooper B, Li A, Chang H, Rogers WH. Prescription Drug Coverage and Seniors: Where Do Things Stand on the Eve of Implementing the new Part D Benefit? Findings from a 2003 National Survey of Seniors? Health Aff April 19, 2005 (web exclusive): W5-152-W U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), 2004 Medicare Current Beneficiary Survey (MCBS), Characteristics and Perceptions, preliminary estimates. 23 Beneficiaries on full Medicaid are excluded from this analysis because they all receive prescription drug coverage. In addition, a variable is used to control for beneficiaries who receive employersponsored coverage because most employer-sponsored health insurance automatically includes prescription drug coverage. 24 Endogeneity may be an issue in this analysis as the utilization of prescription drugs may be influenced by whether or not a beneficiary has drug coverage. To test for the impact of lack of drug coverage on lower prescription drug consumption, beneficiaries who stated that they had reduced or skipped doses or did not fill a prescription due to cost were removed from the model. The direction and magnitude of the model results under this specification were similar to the model results where these beneficiaries were included, except geography was no longer a significant factor. The influence of drug coverage on increased prescription drug consumption may still be a source of bias; however, this impact is mitigated by the fact that to increase drug consumption a prescription is needed and most beneficiaries would be subject to additional cost-sharing. In addition, beneficiaries with no or low cost sharing through Medicaid or an employer plan are removed or controlled for in the original model. 25 The Henry J. Kaiser Family Foundation, Medicare Drug Benefit Calculator, August Kaiser also notes in Minnesota: Entire Prescription Drug Plan Profile from contracts approved as of October 2005, that the average private prescription drug plan premium in Minnesota for basic plans ( lowest premium plan offered by each sponsoring organization in a region ) is $ The standard Medicare Part D coverage includes a $250 deductible, 75% of outpatient prescription drug costs between $250 and $2,250, zero coverage for prescription drug costs between $2,250 and $5,100, and, in general, 95% of prescription drug costs above $5, As calculated by MDH from the following two sources: U.S. Department of Health and Human Services (CMS), Current Medicare Beneficiary Population by State as of June 11, The Henry J. Kaiser Family Foundation, statehealthfacts.org, Medicare Beneficiaries with Creditable Prescription Drug Coverage by Type, as of May 7, The Henry J. Kaiser Family Foundation and Hewitt Associates, Retiree Health Benefits Now and in the Future, January The Health Economics Program conducts research and applied policy analysis to monitor changes in the health care marketplace; to understand factors influencing health care cost, quality and access; and to provide technical assistance in the development of state health care policy. For more information, contact the Health Economics Program at (651) This issue brief, as well as other Health Economics Program publications, can be found on our website at: h ealth e conomics p rogram Minnesota Department of Health Health Economics Program 85 East Seventh Place, P.O. Box St. Paul, MN (651) Upon request, this information will be made available in alternative format; for example, large print, Braille, or cassette tape. Printed with a minimum of 30% post-consumer materials. Please recycle.