John Hsu, director of the Mongan Institute for Health Policy's clinical economics and policy analysis program, and the papers' other authors—including a member of the Medicare Payment Advisory Commission and researchers at Kaiser Permanente, which sells Medicare drug plans—point to data that shows insurers spend more, on average, on low-income seniors and Medicare's subsidy for low-income enrollees does not cover what plans spend.
Medicare offers drug plan coverage through private insurers; low-income seniors receive a subsidy.
Moreover, insurers with higher premiums are disqualified from enrolling low-income seniors. And researchers said fewer plans were eligible to accept low-income seniors last year than in 2006, the paper said.
Hsu and his colleagues argue their analysis suggests “that plans find it more profitable to avoid the subsidized group even if raising their premiums also costs them subscribers among higher-income nonsubsidized beneficiaries.”
The researchers analyzed some 2007 Medicare drug claims and found insurers spent one-fifth more on low-income, subsidized seniors' prescriptions than for seniors without subsidies. But under Medicare's risk adjustment method, insurers were paid just 8% more for low-income enrollees.
The inadequate subsidy “creates an incentive for plans to increase their premiums” to exceed the threshold to be eligible to accept low-income seniors, the authors wrote.
What does it mean for seniors? Last year, 8.1 million seniors received a subsidy and another 1.5 million received a partial subsidy. Insurers eligible to accept subsidized seniors must have premiums below a set threshold, which is based on the average regional premium. Low-income seniors must pay out of pocket to keep an insurer with premiums too high to accept subsidized enrollees. Or they must switch plans, which nearly all do, the authors said. New plans likely have different formularies that force seniors to switch medications.
Researchers argued historical data on drug use could improve Medicare payment. They tested the idea using the claims data. Hsu said in an e-mail the researchers did not disclose the number of enrollees in their analysis but said it was in the millions.
“Improving the accuracy of the risk-adjustment approach—for instance, by incorporating information on prior prescription drug use into the risk-adjustment formula—improved the situation, but a corrective multiplier was still needed,” the authors said. MedPAC, the National Institute on Aging and the Alfred P. Sloan Foundation funded the research.