Many Factors Driving Up Medicare Drug Premiums in 2018

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By Mindy Yochelson

Medicare drug premiums will rise next year due to many factors, including higher prices for specialty drugs, fewer drugs coming off patent, and the shifting of cost sharing to premiums, policy experts say.

Average monthly Part D prescription drug plan premiums are expected to increase for the third year in a row, rising 9 percent for 2018 to $43.48, the Kaiser Family Foundation said. “It seems like in general plans are operating in an environment where drug prices are rising, and unless they all negotiate steep rebates, some of those higher prices get passed on to enrollees in the form of higher premiums,” Juliette Cubanski, associate director of Medicare policy for KFF, told Bloomberg Law Oct. 18.

An increase in health-care costs, like drug premiums, means beneficiaries on fixed incomes will have to make sacrifices in others area, Leslie Fried, a senior director at the National Council on Aging, told Bloomberg Law.

Top plans include those sponsored by Humana Walmart; SilverScript Insurance Co., a CVS company; Aetna; and WellCare. There are 20.4 million beneficiaries in Part D plans, KFF said.

Different Process

In contrast, the Centers for Medicare & Medicaid Services in an Oct. 20 blog posting repeated its August findings that the average basic premium is projected to decline $1.20 below the 2017 average basic premium to $33.50.

KFF and the Medicare agency analyze premiums differently. The CMS looks just at basic Medicare plans, while KFF, in its Oct. 13 analysis, examined both basic and enhanced prescription drug plans that generally have higher premiums.

“There are two basic reasons why premiums are higher” in the KFF study, Lawrence Kocot, principal and national leader of KPMG LLC’s Center for Healthcare Regulatory Insight, told Bloomberg Law.

These are rising drug cost trends and “greater coverage of out-of-pocket costs in the premium” by enhanced plans that are included in just that analysis, he said.

Many enhanced plans don’t have deductibles, so costs are shifted to the premium, causing the average premium in the study to increase, he said.

Changing Plans

KFF’s estimate is based on beneficiaries remaining in their current plan. If they do so, more than a third (34 percent) of enrollees who don’t receive low-income assistance are projected to have a premium increase of at least $10 per month, KFF said.

Once open enrollment ends Dec. 7 and numbers are re-examined, the weighted average premium could be several percentage points lower as a result of enrollees switching to plans with lower premiums, KFF said.

However, even then, “the average premium is likely to be higher in 2018 than in 2017, and the three-year increase over the 2015 average premium will mark a significant shift upward,” KFF said.

“We’ve seen this trend of higher premiums for a few years now,” Cubanski, an author of KFF’s study, said.

Drug Price Impact

“The drug benefit is increasing due to new and very expensive specialty drugs becoming available,” John Rother, executive director of the Campaign for Sustainable Rx Pricing, told Bloomberg Law.

A study by AARP released last month said retail prices for specialty prescription drugs widely used by older Americans increased by an average of 9.6 percent from 2014 to 2015, the highest increase since at least 2006.

The greatest component of growth in the Part D drug benefit is the rising cost of expensive specialty drugs, Kocot said.

Rother said another element is that there haven’t been as many brand drugs going off patent to make room for cheaper generics.

However, Cubanski said premium increases aren’t necessarily the exclusive result of outside forces.

“Some plans could be increasing premiums because they’re offering more generous coverage, maybe switching from charging a deductible to not, maybe adding gap coverage,” she said. Others could be expanding formulary coverage or could just have higher costs per enrollee, she said.

Beneficiaries choosing a drug plan “should weigh not only plan premium, but whether their drugs are covered, what types of restrictions and cost-sharing apply to such drugs, and what pharmacies are part of the plan’s network,” David A. Lipschutz, senior policy attorney for the Center for Medicare Advocacy, told Bloomberg Law.

To contact the reporter on this story: Mindy Yochelson at myochelson@bna.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bna.com

For More Information

The Kaiser Family Foundation analysis is at http://src.bna.com/tyg.

The CMS blog post is at http://src.bna.com/tyD.

The AARP study is at http://src.bna.com/tyz.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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