A simple change to the Medicare Part D low-income subsidy program could save $5 billion

Abstract

Medicare Part D provides a subsidy to beneficiaries with incomes below 150 percent of the federal poverty level. Enrollees with the low-income subsidy accounted for 75 percent of the $60 billion in total federal Part D spending in 2013. The government randomly assigns any new beneficiary who automatically qualifies for the subsidy, or who successfully applies for it without indicating a preferred plan, to a stand-alone Part D plan whose premium is equal to or below the average premium for the basic Part D benefit in the region. We used an intelligent reassignment algorithm and 2008-09 Part D drug use and spending data to match enrollees to available plans according to their medication needs. We found that such a reassignment approach could have saved the federal government over $5 billion in 2009, for mean government savings of $710 (median: $368) per enrollee with a low-income subsidy. Implementing that simple change to reassign beneficiaries would have also lowered the proportion of prescriptions that required utilization review from 29 percent to 20 percent, and the proportion of prescriptions with quantity limits from 27 percent to 19 percent.

Keywords: Cost of Health Care; Health Economics; Health Spending; Medicare.

Exhibit D

Potential Savings If Beneficiaries Were Assigned to the Least Expensive Plans Based on Total Beneficiary and Government spending Using 2009 Data, by Quintile of Total Savings. SOURCE Authors' analysis using study data.

Exhibit E

Potential Savings If Beneficiaries Were Assigned to the Least Expensive Benchmark Plans Based on Total Beneficiary and Government spending Using 2009 Data, by Quintile of Total Savings. SOURCE Authors' analysis using study data.

Exhibit 1

Potential Savings If Beneficiaries Were Assigned to the Least Expensive Plans Based on Total Beneficiary and Government spending Using 2008 Data, by Quintile of Total Savings SOURCE Authors' analysis using study data.

Exhibit 2

Potential Savings If Beneficiaries Were Assigned to the Least Expensive Benchmark Plans Based on Total Beneficiary and Government spending Using 2008 Data, by Quintile of Total Savings SOURCE Authors' analysis using study data.