InfoStat | 11-14-14

Medicare Part D: Premium Vs. Deductible

Since the advent of the Medicare Part D program, many seniors have struggled to answer the question “Is a Medicare drug plan with a higher premium a better value or just more expensive?” Using newly released 2015 Medicare drug plan data, HealthPocket examined how differences in plans’ premiums corresponded to differences in plans’ deductibles and enhanced drug coverage during the “donut hole” period of coverage.

The Relationship Between Premium and Deductible

HealthPocket collected the premiums and drug deductibles for every stand-alone Medicare Part D plan offered across the United States1 and assigned each plan into one of three groups: plans whose premiums were in the lowest third of the premium range, plans whose premiums were in the middle third of the premium range, and plans whose premiums were in the highest third of the premium range. With respect to deductibles, it is important to note that the Centers for Medicare & Medicaid Services (CMS) caps the maximum drug deductible a Medicare Part D plan can charge an enrollee.. In 2015, this deductible limit is $320.2

When examining differences among the groups of Part D plans, HealthPocket observed a trend where the average deductible amount decreased as the average premium increased.

GroupAvg Monthly PremiumPremium RangeAvg DeductibleDeductible Range
Plans in Bottom Third of Premium Expense$36.08$12.60 - $65.70$209.77$0 - $320
Plans in Middle Third of Premium Expense$88.66$65.80 - $118.20$33.18$0 - $320
Plans in Top Third of Premium Expense$130.87$119.10 - $171.90$0$0 - $0

The trend of lower deductibles for higher premiums, however, was not proportional. That is to say, the average deductible did not decrease at the same rate that the average premium increased (as the below tables illustrate).

Differences Between Plans in the Bottom Third of Premium Expense Vs. the Middle Third

Plans in Bottom Third of Premium ExpensePlans in Middle Third of Premium Expense% Change
Avg Monthly Premium$36.08$88.66146% increase
Avg Deductible$209.77$33.1884% decrease

Differences Between Plans in the Middle Third of Premium Expense Vs. the Top Third

Plans in Bottom Third of Premium ExpensePlans in Middle Third of Premium Expense% Change
Avg Monthly Premium$88.66$130.8748% increase
Avg Deductible$33.18$0100% decrease

Annual Costs of Premiums & Deductibles

Is a lower deductible worth a higher premium? For a Medicare beneficiary who rarely uses prescription medications, the answer is likely “no.” While a Medicare beneficiary might be willing to pay a higher premium to avoid the risk of an unacceptable deductible amount in the future, it should be remembered that there are $0 deductible insurance options even among the plans in the bottom third of premium costs (though $0 deductible plan availability varies by region).

There is the additional matter of annualized expense of higher premiums versus the reduction in annual deductible. Part D plans with the least expensive premiums averaged a deductible that was $209.77 more expensive than was the case for plans with the most expensive premiums. However, over the course of a year this same group paid $1,137.48 less on premiums.

Plans in Bottom Third of Premium ExpensePlans in Middle Third of Premium ExpensePlans in Top Third of Premium Expense
Avg Annual Deductible$209.77$33.18$0
Avg Annual Premium Payments$432.96$1,063.92$1,570.44

HealthPocket observed $176.59 average deductible savings between the least expensive plans and those in the middle grouping but it came with an average of $630.96 in added premium expense annually. Between the least expensive plans and the most expensive plans, the average deductible savings was 209.77 but the average increase in annual premium payments was $1,137.48.

Additional Drug Coverage In the Donut Hole

Some Medicare Part D plans offer drug coverage in the “donut hole” (i.e. the period after the initial coverage period ends and the catastrophic drug coverage begins) that extends beyond the minimum requirements for Medicare drug plans. This additional coverage can reduce out-of-pocket costs for those people whose annual medication expenses are high enough to cross out of the initial coverage period and into the donut hole.

Plans that had higher premiums were more likely to provide enrollees with enhanced drug coverage in the donut hole. 98% of plans in the most expensive premium group provided enhanced coverage in the donut hole as compared to 6% of plans in the least expensive premium group. 76% of plans that fell in the middle group offered enhanced drug coverage in the donut hole.

Consumers should note that the meaning of enhanced drug coverage in the donut hole can vary by plan. Some plans may extend some cost-sharing improvements on specific tiers of drugs while others may extend the cost-sharing from the initial coverage period through the entirety of the donut hole period. The Affordable Care Act is gradually eliminating the donut hole as well and this coverage gap will no longer exist by 2020.3

Conclusion

When shopping for a Medicare Part D plan, consumers should be careful not to overemphasize the significance of the deductible amount. Selecting a Part D plan based on a lower deductible could result in a higher premium, the added annual expense of which could be far in excess of the value of the deductible savings. A wise evaluation of Part D options will consider all insurance costs together (premiums, deductible, co-payments for drugs) rather than considering one cost in isolation from the others. This financial evaluation can then be weighed against other important considerations such as the plans’ quality ratings, drug restrictions, and pharmacy networks. For many, the matter of enhanced coverage in the donut hole may be viewed among this latter set of considerations since most Medicare beneficiaries’ drug costs do not enter the donut hole.4

METHODOLOGY

Data used in the study was obtained from from the 2015 PDP Landscape Source FIles (v 10 15 14) provided by the Centers for Medicare & Medicaid Services (CMS). Only Part D plans offered in the United States were included in the study. Part D plans from Washington D.C. were included in the study but not plans from Puerto Rico or U.S. territories.

Part D plans that were under sanction by the CMS were excluded from the dataset.

Plans were separated into three groups:

  • Plans whose premiums were in the lowest third of the premium range
  • Plans whose premiums were in the middle third of the premium range
  • Plans whose premiums were in the highest third of the premium range

The lowest cost Part D plan in the range was the SilverScript Choice (PDP) available in the New Mexico with a $12.60 a month premium. The highest cost Part D plan in the range was the Florida Blue BlueMedicare Rx-Option 2 (PDP) available in Florida with a $171.90 a month premium.

Averages are based on public premiums prices and deductibles on plans and do not include any offsets from the Low Income Subsidy (LIS otherwise known as “Extra Help”). Premiums and deductibles were averaged across all plans belonging to the same group. Averages were not weighted based on plan membership.

AUTHORS

This analysis was written by Kev Coleman, Head of Research & Data at HealthPocket. Correspondence regarding this study can be directed to Mr. Coleman at kevin.coleman@healthpocket.com.

Kev Coleman on Google+

Sources:

1 See Methodology section of study.
2 http://www.medicare.gov/part-d/costs/deductible/drug-plan-deductibles.html
3 “Closing the Coverage Gap - Medicare Prescription Drugs Are Becoming More Affordable.” February 2014. Centers for Medicare & Medicaid Services. CMS Product No. 11493. p.6 http://www.medicare.gov/pubs/pdf/11493.pdf Last accessed November 11, 2014
4 The 2012 estimate for Medicare enrollment is over 49,000,000 beneficiaries (http://kff.org/medicare/state-indicator/total-medicare-beneficiaries/) and the government’s latest estimate for Medicaire beneficiaries who enter gap is 1,648,384 (http://downloads.cms.gov/files/Medicare-Part-D-Donut-Hole-Savings-Summary-2010-June-2014.pdf). However, not all Medicare enrollees are in Medicare Part D and Part C plans with the Medicare prescription drug benefit having the prospect of the “donut hole” in drug coverage. Currently, enrollment in Part D and Par C Medicare Drug plans is 37 million (http://kff.org/medicare/report/medicare-part-d-in-its-ninth-year-the-2014-marketplace-and-key-trends-2006-2014/).

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