Medicare Spending on HMOs and Stand-Alone Drug Plans: What is it Worth to Beneficiaries?

The development of a prescription drug benefit under Medicare included key financial expansions in the program—the establishment of subsidized stand-alone prescription drug plans (PDPs) and increased payments to HMOs. A key question for policymakers planning future Medicare budgets is whether one of these expansions is more valuable to beneficiaries than the other. To assist policymakers in answering this question, Steven Pizer, Ph.D., assistant professor at Boston University School of Public Health, and colleagues examined how well each of the two expansions improved the welfare of Medicare beneficiaries per dollar of additional federal spending. The researchers found that while costs per enrollee were similar for beneficiaries in PDPs and HMOs, the addition of PDPs produced nine times as much value for beneficiaries per government dollar as the increase in payments to HMOs. 

Should Healthy Medicare Beneficiaries Postpone Enrollment in Part D?

In 2006, the federal government added a voluntary outpatient prescription drug benefit to the Medicare program through the Medicare Prescription Drug, Improvement, and Modernization Act (MMA): Medicare Part D. Given the monthly out-of-pocket premiums and cost-sharing, “healthy” Medicare beneficiaries who do not regularly take prescription drugs wonder whether or not it is cost effective for them to enroll in Part D. Part D premiums, however, depend on when a Medicare beneficiary enrolls in a prescription drug plan. To help answer the question of whether healthy 65-year-old Medicare beneficiaries should enroll in Part D as soon as they are eligible or postpone enrollment until they contract a drug-intensive condition, Bryan Dowd, Ph.D., Mayo Professor and Director of Graduate Studies in the Division of Health Services Research and Policy at the University of Minnesota School of Public Health, and colleagues examined the differences in lifetime out-of-pocket prescription drug expenditures depending on when beneficiaries enroll in Part D. The researchers found that the total lifetime expected out-of-pocket costs are minimized if healthy 65-year-old Medicare beneficiaries enroll in Part D immediately upon eligibility rather than waiting until they contract a drug-intensive condition.