Running Head: HEALTH OF AGING

HEALTH OF THE AGING: Affordable Coverage for the Elderly Trident University International Kevin S. Varner Topics in Health Care Policy BHM 415 Case Study Module Number 1 Coordinator Professor: Dr. Mickey Shachar Core Faculty: Dr. Brad Collins July 25, 2011

HEALTH OF THE AGING: Affordable coverage for the Elderly

Based on the sharp decrease in personal income and greatly increased medical needs of those
who had reached retirement age (which) conspired with the rapidly rising cost of medical care to create an imperative (Corning 1969) during the 1950's and early 60's, landmark legislation was passed in 1965

to care for our elderly population. This legislation created the system we know today as Medicare. Over the decades it has been updated, but still remains the bedrock of guaranteed health care to our retired population. One aspect of Medicare has recently been modified to provide more affordable coverage in the area of prescription drugs. This section of the Medicare Policy is called Medicare Part D which, over the last two presidential administrations, has been greatly enhanced. Policy Measure As our population ages, and our technology increases, more and more medications become commonplace in everyday use. This medication can be the leading health care cost for some Seniors. In 2006 legislation passed modifying Medicare and adding Part D to the policy. This section details prescription drug coverage and changed the way drugs were purchased by the government program. Under this change the responsibility of purchasing

medications shifted from Medicare to "prescription drug plans" (PDP's). The purpose was to have these PDP's negotiate prices on behalf of Medicare in an attempt to get the best price from the best suppliers. Previously, Medicare had set pricing and expectations that all suppliers would give medication at this set price. The expectation for this modification of the Medicare plan was that the use of PDP's negotiating with suppliers would drop overall prices for Seniors, and change the dynamics of the markets to maintain these reduced prices (Frank 2008). Additionally, multiple programs were in place detailing specific plans for different beneficiaries, including dual eligible members and for purchasing unique drugs. Each had different guidelines

HEALTH OF THE AGING: Affordable coverage for the Elderly

in place for the different circumstances and were very detailed in the written policies. Unfortunately, based on reviews a few years after enactment of Part D and the use of PDP's, it was noted drug prices actually increased, substantially benefiting pharmaceutical companies rather than Medicaid recipients as anticipated (Frank 2008). Then, in 2009, the Affordable Health Care Act was passed and more changes were outlined in an attempt to shift Part D back to the focus of reducing prescription drug costs for Seniors. One of the greatest "Con's" to Part D was known as the "donut hole". This was a coverage gap instituted in the plan that made Seniors pay full price on prescriptions when a maximum annual coverage level was reached. As an example, in 2010 the initial coverage limit was $2830 for the year. So, when you went to the pharmacy to purchase a $100 medication, your coverage allows purchasing at 75% off the cost- so you would only pay $25. When your initial limit was reached your cost would rise to the full price until your expenditures reached another higher benchmark, dubbed "catastrophic coverage", which in the same year was $4550 (Medicare.com 2010). Then, when you had expended the "gap" between the two limits, your coverage would kick in again and cover up to 95% of the cost. Which would mean this particular medication would be sold to you for a cost of $5 for the rest of the year. The Affordable Health Care Act seeks to bridge this gap. As of January 2011, most beneficiaries will receive a 50% discount on brand name drugs during this coverage gap, yet still receive the reduced cost when hitting the next benchmark catastrophic coverage level. Other portions of Part D are in place for low income beneficiaries. These enrollees will not be eligible for this expanded coverage, as they fall under different fixed pricing standards and generally will not experience the marked increase in drug costs as the "coverage gap" levels on those who have

HEALTH OF THE AGING: Affordable coverage for the Elderly

larger income. Additionally, if you have secondary insurance you may not qualify for this coverage, as your other insurance provider would pick up a portion of the cost. Pros and Cons The initial Part D plan was an attempt to change the dynamics of prescription drug purchasing for the entire Medicare system. Obviously it failed and resulted in the new plan's development under the Affordable Health Care Act. Rising healthcare costs, coupled with a failure on the part of PDP's to meet their full potential in bargaining power, led to more difficulties and higher costs in the long run to Seniors. However, it did set the tone for this new legislation to influence pricing. The benefits of the 2011 update include coverage of the "donut hole", decreased costs in both brand name and generic drugs from companies that sign onto the program, as well as a gradual decrease in costs for these generic drugs over time, culminating in the maximum decrease of 25% in the year 2020. According to a government website article about the new plan, as of 2011 99% of companies that produce the brand-name drugs used by Medicare recipients are participating in this program (DHHS 2010). The downside appears to be in a few areas. For instance, those who participate in the "Extra Help" portion of the program (those with low income) this new coverage does not apply. At this point that may not be much of a negative, but with changes in costs and a Congress hostile to this program, the future of those beneficiaries is unknown. Additionally, the gradual increase to coverage for generic drugs begins at only 7% coverage this year before rising to the final 25% coverage in 2020. Again, with changing costs and the hostile Congress anything can happen in the intervening years to make this portion of the updated coverage disappear or be drastically reduced.

HEALTH OF THE AGING: Affordable coverage for the Elderly

Another area that is concerning in the generic drug coverage is in getting outside the "coverage gap". For brand-name drugs the total cost of the medication counts toward your expenditures for the year and will rapidly bring the total spent to the "catastrophic" level. However, generic drug costs are totaled based on the amount the beneficiary actually spends out of pocket. In essence the program seems to favor the more expensive brand-name medications, perhaps in as a means to pacify the major pharmaceutical corporations and help increase their sales. Conclusion Although not a perfect program, the portions of the Affordable Care Act that effect the initial failed "Part D" plan are major improvements. As long as this program remains funded and in place in our Medicare system, our elderly beneficiaries will receive affordable health care in the area of medication coverage. Only time will tell, as with the implementation of Part D in 2006, if the plan lives up to what it advertises, but it seems to be off to a good start.

HEALTH OF THE AGING: Affordable coverage for the Elderly

References Corning, Peter A (1969) The History of Medicare. Social Security Administration Web Site, Social Security History. Retrieved from http://www.ssa.gov/history/corning.html Department of Health & Human Services (DHHS), USA (2010) Closing the Coverage Gap Medicare Prescription Drugs are Becoming More Affordable. Medicare Prescription Drug Coverage, November 2010. Retrieved from: http://www.medicare.gov/publications/pubs/pdf/11493.pdf Frank, Richard; Newhouse, Joseph (2008) Should Drug Prices Be Negotiated Under Part D of Medicare? And if so, How? Health Affairs; Jan/Feb 2008 27, 1 ABI/INFORM Global pg 33. Retrieved from ProQuest. MEDICARE.com (2010) What is the Outlook for Medicare Part D 2011? Updated 23 Oct 2010. Retrieved from: http://www.q1medicare.com/PartD-The-2011-Medicare-Part-DOutlook.php