Analysis: Medicare Part D's greatest hits

By OLGA PIERCE, UPI Health Business Correspondent  |  Nov. 22, 2006 at 12:32 AM
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WASHINGTON, Nov. 21 (UPI) -- The marketplace for the Medicare Part D prescription drug benefit is highly concentrated in the hands of a few large health insurance companies, according to a new study, raising concerns about the future of competition in the program.

But insurers say bigger is not worse -- and could even be better.

Out of the 266 choices available, more than 70 percent of Part D beneficiaries chose one of ten large companies during the last enrollment period, and two companies -- United and Humana -- "dominate the Part D marketplace" with enrollments of 25 and 19 percent or all beneficiaries, says a study by researchers at the Kaiser Family Foundation appearing Tuesday on the Web site of the journal Health Affairs.

Competition is also concentrated at the plan level, the report says. United's AARP Medicare Rx and Humana's Standard Plan together account for 23 percent of Part D enrollment nationwide.

"Enrollment is concentrated in a few plans," study author Juliette Cubanski, principal policy analyst at the Kaiser Family Foundation, told United Press International. "In 2007, I'm not expecting to see many changes."

That concentration reveals what seniors shopping for drug plans were most concerned about and it was not coverage in the so-called donut hole, a gap in benefits between $2,250 and $5,100 in total annual drug expenses where seniors continue to pay premiums but must cover all their drug costs out-of-pocket, Cubanski said.

More than half of all beneficiaries -- almost 11 million seniors -- are enrolled in plans that either lack donut hole coverage altogether, or cover only generic drugs, according to the study. Only 4 percent of the 22.5 million Part D enrollees are in plans offering doughnut-hole coverage for both brand-name and generic drugs

"Beneficiaries' choices in the first year of the drug benefit seem to have been influenced by name recognition of United's AARP plan and the low premiums offered by Humana," Cubanski said, but seniors need to examine their benefits closely to make sure they still work for them in 2007, especially in light of the fact that insurers have made significant changes.

The concentration could become more pronounced after 2008 when federal policies designed to limit the financial risk of participating insurers are set to expire, Cubanski said. "Larger companies have a great deal of experience setting premiums and calculating bids. Smaller companies might end up pulling out because they're exposed to a higher level of uncertainty."

Critics of the benefit's design, where the federal government contracts with private insurers who administer the benefit, say that concentration is a sign that the market is not working.

"The market's not working so well on either controlling prices or filling the coverage gap," said Robert Hayes, president of the Medicare Rights Center, a senior advocacy group based in New York.

"The plans with the biggest bank accounts and market share will take advantage of that by increasing prices even more," Hayes told UPI.

Seniors in 11 states already face a lack of donut-hole coverage options, and that could increase as well when the market becomes more limited, he said, and in areas where plans are offered, increasing premiums place them out of reach for many beneficiaries.

"Plans with reasonable donut hole coverage have extremely high-cost premiums or co-payments," Hayes said. "They get you one way or the other."

To make sure all seniors have access to a comprehensive, affordable option, Medicare should offer a government-administrated benefit as some Congressional democrats have suggested, he said.

But insurers say successful plans are attracting seniors by giving them what they want, and that size means they can exercise more clout for their members.

"Consumers are voting with their feet, choosing the type of plan that serves them best," said Mohit Ghose, spokesman for America's Health Insurance Plans, an industry trade group.

"The market is performing the way it was envisioned by its authors in Congress," Ghose told UPI.

Seniors -- millions of whom had no drug coverage at all before the benefit began -- have 40 to 50 plans to choose from in every state, he said.

The large size of some plans also serves to keep prices low for consumers, he said, because they have significant clout to negotiate lower drug prices with pharmaceutical manufacturers. "Market power helps insurers keep prices down."

The introduction of a Medicare-administered plan may also not be a very effective solution to the market power of private insurers, study author Cubanski said. Medicare "now sees itself as a business partner. If Medicare were to try to step in and compete with its own plan, it's not really clear how that would work."

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