In 2000, about 6 million Medicare beneficiaries are enrolled in Medicare+Choice (M+C) coordinated care plans. This number has grown from about 3 million in 1996 enrolled in risk HMOs, comparable to today’s Medicare+Choice plans. When a Medicare beneficiary chooses to enroll in an M+C plan (usually an HMO), the contracting organization receives a fixed monthly payment from Medicare to furnish all Medicare- covered services. If it is projected that the plan can furnish these services at a cost less than the Medicare payment, the plan must share the savings with enrollees by providing supplemental benefits. As a result of this rule, or simply to compete for market share, most M+C plans have offered enrollees supplemental coverage. These supplemental benefits often include some drug coverage, at a much lower premium than enrollees would have had to pay for an equivalent Medigap plan. In addition, unlike Medigap plans, M+C plans must accept all applicants, regardless of health status (other than individuals with End Stage Renal Disease, [ESRD]) or age. M+C plans have thus been an attractive source of supplemental coverage for beneficiaries willing to accept the restrictions on provider choice that plan membership entails.
In 1996, 95 percent of enrollees in risk HMOs had at least some drug benefit.24 More recently, some plans have reduced benefits. While complete information is not available, HCFA(now known as CMS) has estimated that in 1999, 84 percent of HMO enrollees were in plans that included drugs as a basic benefit.25 (Other enrollees may have obtained drug coverage by purchasing a high-option plan.)
Drug benefits in Medicare HMOs vary widely. About 54 percent of enrollees with drug coverage in 1999 were in plans that imposed an annual dollar limit on all drug payments, most commonly between $1,000 and $2,000. Another 24 percent were in plans that had a limit on payments for brand-name drugs but no limit for generic drugs, while 22 percent were in plans that had no payment limit for drugs. Copayments typically ranged between $5 and $10 per prescription; higher copayments were often imposed for brand-name drugs. (Note that this description is based on the basic plans offered to all enrollees. Some plans offer supplemental benefits at a higher premium. There is no information on the level of benefits offered by employer-sponsored plans through M+C contractors.) As is the case for other enrollees in managed care plans, drug benefits are commonly administered by a PBM or are managed directly by the organization.
There is considerable geographic variation in the level of drug coverage offered by M+C plans. The most generous coverage appears to be associated with high payment areas in which multiple plans compete for enrollees. For example, in 1999 all plans with unlimited drug benefits and no copayments were located in Florida. Plans with annual caps of $2000 or more were concentrated in Miami, Phoenix, and Los Angeles. In general, where plans are available in rural areas, they tend to charge higher premiums and offer no drug coverage or significantly less generous drug coverage.26
In 2000, M+C plans generally have reduced drug benefits and increased enrollee out-of- pocket costs. For example, 86 percent of plans have annual dollar limits on drugs, including 70 percent of plans with annual caps of $1000 or less, and 32 percent with annual caps of $500 or less per enrollee, up from 35 percent and 19 percent respectively in 1998. Additionally, while over one million beneficiaries lived in areas in 1999 with M+C plans available that offered zero copayments for prescription drugs, all beneficiaries will now be subject to copayments for generic and brand-name drugs.27
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