Medicare is funny insurance in that its benefit design does not cap off maximum exposure. This is true in Medicare Parts A and B. And it is true in Medicare Part D. People can buy Medi-gap or Medicare Advantage plans to limit their maximum exposure, but this is a weakness in Medicare.
Kaiser Family Foundation has a good description of the benefit structure for 2018:
In 2018, the Part D standard benefit has a $405 deductible and 25% coinsurance up to an initial coverage limit of $3,750 in total drug costs, followed by a coverage gap. During the gap, enrollees are responsible for a larger share of their total drug costs than in the initial coverage period, until their total out-of-pocket spending in 2018 reaches $5,000
And it can lead to conversations like the following from one of the nation’s leading experts on drug pricing and Medicare had with her father….after enrollees reach the catastrophic coverage threshold, Medicare pays for most (80%) of their drug costs, plans pay 15%, and enrollees pay either 5% of total drug costs or $3.35/$8.35 for each generic and brand-name drug, respectively.
I told him those are the drugs I study
His reply was no way could he afford that. He would just have to die.— Stacie Dusetzina (@DusetzinaS) October 23, 2017
This is a problem.
We are seeing more high and super high cost drugs being approved. For people who don’t receive the Low Income Subsidy (LIS) extra help, they are on the hook for 5% of the catastrophic costs. This means people who were to receive the recently approved CAR-T treatment for blood cancer may be on the hook for $15,000 or more in out of pocket costs. It may mean future retirees living with Cystic Fibrosis (a phrase that was nonsensical a decade ago), could see annual $10,000 to $12,000 co-payments just for one drug that works for them.
The long term answer is to find ways to bring down drug costs. The short term answer is to recognize that this is a problem with traditional Medicare. It provides no baseline cap to catastrophic costs. Beneficiaries can see their costs capped if they buy a Medicare Supplemental plan or Medicare Advantage plan but the basic design of Medicare does not limit absolute losses to a patient.
There are ways that Medicare benefit designs can be modified to put a cap on total exposure while holding actuarial value constant. That is a mechanical decision where healthier people pay a bit more to limit the total cost of the expensive or the ill. If Congress was to increase deductibles or co-pays on common services, this would hold actuarial value constant while paying for a maximum out of pocket limit. It is a trade-off. Do we ask more from relatively healthy/inexpensive people in most years to provide protection for sick or expensive people in a bad year?
This is one of the trade-offs that people who are thinking about Medicare for All need to think about. Most years, most people have below average costs. That will influence the loss aversion dynamics of changing benefit structure even while holding actuarial value constant. There will be a few people who are much better off and a lot of people slightly worse off.
B
David, do you have posts on Medicare Advantage and network restrictions? My parents will be soon signing up for Medicare vs. Medicare Advantage. They like the idea of the original government-sponsored Medicare instead of working with a private contracted plan, but the lack of ultimately catastrophic coverage is a dealbreaker for them. They are mostly healthy (thank God) but that will change one day and they know that. They want the flexibility to see a doctor at one of the big academic medical centers in Boston (Beth Israel is fine if Partners/Dana Farber is too expensive) and to not have to worry about drug prices if their doctor recommends something.
Le Comte de Monte Cristo, fka Edmund Dantes
We could – perhaps – limit C suite compensation, and the ability to advertise, and windfall profits by regulating pharma like a public utility.
JGabriel
David Anderson @ Top:
A problem that we’re only likely to see exacerbated under the current Republican administration and Congress.
JGabriel
@Le Comte de Monte Cristo, fka Edmund Dantes:
The probem there is that, while I’m sure not all of the super-high drug prices are justified, probably some of them are. Developing treatments for a malady that only affects a few thousand, or a few hundred, or only a few dozen, is going to require a high price just to recover development costs – in *some* cases.
Mel
This creates a nightmare for anyone who needs a specialty drug. Even if you purchase an advantage plan, copay costs are still unbelievably high. For example, my “copay” for an infusion drug would be nearly $7,000; my copay portion for the infusions to administer the drug would be between $1,500 and $2,000. So, a total of around $9,000 out of pocket for 4 infusions. And forget attempting to get help from the pharmaceutical companies’ “patient assustance” programs if you have any form of Medicare. Nearly all state that if you have “government insurance or assistance” you do not qualify for any copay assistance programs. A few have a separate, income based copay assistance program, but very few people who need that assistance in order to be able to get their much-needed medication and still be able to pay for house payment or rent, food and heating qualify for help.
How many couples or families, even if one partner is working full time, can easily survive a $9,000 hit to their finances, especially since it would be expected to be paid in a lump sum or over a very short period of time? Add to that the fact that most people ill enough to require these meds already have a large yearly medical expense burden that makes it difficult to stay afloat, and add to that the immense stress level faced daily by people ill enough to require specialty drugs – you get the picture.
It’s a very broken part of the process, made worse by the fact that the billing formats for specialty drugs (especially infusion drugs) are often vague and extremely confusing, and Meficare and insurance customer service reps often have little to no knowledge about how the many specialty drugs are handled. Are the infusion and the med billed as one? Separately? How is it billed if it is given in a physician’s office versus at a clinic?
These seem like simple questions that should have simple answers, but it took 7 months to just get these answers (and that was with myself, my spouse, three doctors, two nurses, an infusion clinic supervisor, and finally a patient advocate trying to get a straight answer out of insurance and medical billing reps and supervisors).
Apparently this billing /pricing/ classification confusion is not an uncommon scenario. Lives can hang in the balance.
David Anderson
check your e-mail
Ohio Mom
I have nothing to add to this conversation except that the twice yearly shot I get to prevent osteoporosis (and to reduce the chances my breast cancer would recur in my bones), doubled from $1,000 a pop to $2,000 last year, and why this should be so, I can’t imagine.
Wasn’t recouping the development costs included in the original price? Will the price keep rising?
Mel
I do understand the concerns about the high cost of these drugs, and as several people have noted, they are exorbitant.
But try to imagine how you would feel if one of your loved ones needed a particular drug to fight cancer, MS, lupus, Parkinson’s, etc., and you could not give them that help. You know it’s there, right out of reach, available to those who have more money, but completely unavailable to your loved one. The difference isn’t a person’s need for the medication. The only difference is income.
Now imagine that you are the patient, and that your family can “afford” the medication, but only if they risk literally losing their home. Assume that they have already had to sacrifice nearly everything else because of medical expenses. Can you let them make that sacrifice? I can’t.
Go broke, and have a chance to be well, or stay ill and squeak by month by month until the next major medical expense shoves you even closer to the edge? I have had strangers comment that people who can’t afford their medications “should have worked harder or saved more”. They make an assumption that because I am educated, I am not poor, and because I am not poor, I must not be “one of those people”. I don’t for a aecond think that anyone commenting in this thread thinks that way. But that thinking, at a great distance, underlies the argument of whether or not we should cover these medications.
The very wealthy will get the medicines regardless. The well off will be able to afford better insurance with lower copays and reduced cost-sharing, thus giving them greater access in addition to their already greater financial resources. It is the poor, the working poor and those that hover in that limbo area above the poverty line but still vulnerable to any major unexpected expense, who don’t have the ability to pay for needed medicines. So it becomes, if we strip away the theoretical arguments about cost-benefit ratios, risk-pools, and cost distribution, a discussion about the value of life and the value of wealth in our country. If you are rich, you can access, can afford and will receive the medication and treatment. End of story. “Access to” and “ability to afford” are two different creatures, however. Even if your insurance approves a drug that you need, what good does it do if 4 treatments equals 9 house payments?
The wealthy will get the treatment they need. If you are not well off, even if you are insured and have some income, you likely cannot afford the treatment and thus will not receive it.
These are the realities that far too many people face. Sometimes, only the specialty drugs work.
And when it’s the life of someone you love, or your own life, suddenly all the “is it really worth it to save just a few people” arguments go out the window.
I get it. I really do. Taken cold, it is hard to imagine how anything could justify the costs of these medicines. And the people who desperately need them see the cost and the enormous pharmaceutical profit margins as unjustifiable too.
But what we should be concerned about, in my opinion, is not whether or not cost should limit or end our using these drugs to save lives or to curtail disability-inducing illness. Instead, we should be concerned about controlling prices, so thst these drugs are available to all patients who need them, NOT just to the wealthy.
When you face a frightening, life threatening diagnosis, or when you have lost years of your life to a debilitating illness, a drug that offers you a chance to survive, to take back your life and perhaps be able to work again, seems like a miracle. You start to see very clearly that the human cost of illness should outweigh the drug cost, and that equal access should be the standard.
The profit margins on these drugs, even after adjustment for R & D costs, are enormous. Many of the drugs my physician looked at for me are in common use in Europe right now, at a rate affordable for insurance and for patients. Very few physicians prescribe these drugs without serious contemplation, trying multiple lower cost tier drugs first with a chronic disabling illness, or making sure that no other drug will do the job equally. I can’t think of a single patient who would embark upon using specialty drugs ( with their sky high costs and many possible, sometimes fatal side effects) without great need, or without serious thought and investigating of other options first.
The difference in how pricing regulations / pharmaceutical price controls are approached by government means all the difference for patients. None of the drug companies are suffering when providing the drugs for a lower price in Europe. And very, very few, if any, pull out of those markets when governments make an organized, consistent policy regarding price negotiations (although they might scream and stomp their feet at first).
Please forgive the lengthy comment. This is a subject weighing heavily on my mind, and I just feel like it’s important to look at it from all angles, since it impacts so many people in this country.
Rick
Interesting discussions. But imagine if Medicare had been allowed (blocked by Republicans…) to negotiate drug prices with the drug barons (the VA can). Simple solution but it helps little people and not the drug companies who own our congress critters. Case closed.
Steeplejack
@B:
Note: Medicare Advantage is in addition to Medicare, not instead of. It covers things that basic Medicare doesn’t. Your parents should shop for a plan that allows them to see the doctors they want and go to the hospitals they want. I think they definitely will want a Medicare Advantage plan.
Alex
@Steeplejack: No, you’re thinking of Medigap (Medicare Supplemental). Medicare Advantage is a privatized Medicare plan you can choose instead of traditional Medicare.
Alex
For all that there aren’t many retirees with cystic fibrosis yet, there are probably lots of younger people on disability for complex medical needs like cystic fibrosis who are on Medicare. You get Medicare 2 years after your disability determination. So, let’s say you need that new drug for spinal muscular atrophy. I think the sticker price is something in the hundreds of thousands of dollars a year. No way you can manage to pay 5% of that out of pocket on disability income.
The Fat Kate Middleton
My husband and I are on Medicare and a Medicare Supplemental for the last eight years, and have been very happy with the coverage we’ve received. I have been treated for three major illnesses during that time (breast cancer, mulltiple broken ribs and pneumonia, and IBD). Our total costs those episodes (excluding meds) required only $800 out of our pockets. Lately though, things have been happening with Part D (prescription meds) that befuddle me. After the diagnosis of IBD (Irritable Bowel Disease), the script my doctor wrote for me came in at $640/month, said treatment to continue indefinitely. I managed to persuade my doctor to prescribe something else much more affordable – but next week I go in for my every 6 mons. injection, same as Ohio Mom (comment 7) above, and have been warned that the cost will increase. It’s been really disheartening.
nonynony
@JGabriel:
Or rethinking how development is funded. Public subsidies for the upfront development and less reliance on investors gambling that their investments will be recouped might be a better model for drugs that aren’t ever going to be available at a low cost to a mass market.
(Of course that would require us to be a country with a population that thinks that the health of other people is worth investing subsidies in. And apparently we aren’t that sort of country.)