The Issue - The Research - Getting Around the Cap - Gaps in Coverage

The Issue

In the debate over providing a prescription drug benefit under Medicare, the argument is no longer whether to include an outpatient prescription drug coverage, but how to structure this benefit. Federal proposals favor placing caps or limits on the annual amount spent on prescription drugs that can be reimbursed by the payer or insurer. While this form of coverage limits the financial risk of the insurer, the implications for beneficiaries who exhaust their coverage has not been fully evaluated. Reaching cap may result in beneficiaries reducing spending for other necessities - such as food and clothing - to pay for their medications, or going without their medications altogether. Forgoing medications may lead to more costly health problems in the long term.

As policymakers seek to contain costs without negatively affecting the quality of care, how can benefits be structured so that Medicare beneficiaries manage their prescription drug expenditures effectively?

The Research

A team led by Brenda Motheral, Ph.D., and Emily Cox, Ph.D., of Express Scripts, Inc. - a pharmacy benefit management company - studied capped prescription benefits to examine whether the structure of the benefit affects beneficiary behavior. They gathered 1997 and 1998 prescription claims data from five Medicare HMO risk plans that had implemented significant changes in plan design from the first to second years studied. Along with Kathleen Fairman, also of Express Scripts, the researchers examined aspects of annual dollar caps, such as the percent of beneficiaries affected by the cap, the impact of cap administration (i.e., quarterly versus annual), and the effect of reaching the cap on disenrollment from the plan.

The researchers found that plans changed the benefit design (i.e., cap amounts and per-prescription co-payments) between 1997 and 1998, and some plans changed the cap administration from quarterly to quarterly rolling and from quarterly to annual administration. "This fluctuation in benefit design and administration of caps can be confusing for beneficiaries trying to live within the cap and manage their benefits," notes Cox.

They also examined the relationship between enrollees reaching the cap and disenrolling from the health plan, because: 1) cap amounts are in flux, both within plans from year to year and between plans; and 2) Medicare risk enrollees can switch plans on a monthly basis. They found that exhaustion of prescription benefits was associated with:

• an increased risk of disruption in claim activity for the chronic prescription therapies evaluated; and
• a two-to-threefold increase in the risk of disenrollment from the plan. This finding held across years, cap amounts, and cap administration.

Interestingly, they also found that within a plan that increased the cap amount from 1997 to 1998 and changed from a quarterly to a quarterly rolling administration, 21 percent of those who disenrolled actually re-enrolled the following year. In contrast, plans with annual and quarterly caps that either did not change or decreased their cap amount for the same period saw only 7 percent of their previous enrollees re-enrolling the following year.

"Though there are many reasons beneficiaries may be disenrolling and re-enrolling, these findings suggest that for a number of seniors, the burden of switching plans - which may include finding new doctors and learning new administrative procedures - outweighs the burden of financing their prescriptions out-of-pocket," says Cox.

In 1998, when all five plans had a $1,000 annual cap, the percent of continuously eligible members exhausting their cap ranged from 4 percent to 20 percent. Contributing to this variation were differences in underlying use and per-prescription co-pays (lower co-pays, higher percent reaching cap). Among those reaching cap in plans with annually administered caps of $1,000, members were without coverage for an average of three months. A majority of members reached the cap between September and December.
"By today's standard this cap amount is considered generous," says Cox. "Today, many enrollees face annual limits of $500, and may exhaust their benefit as early as June."

Getting Around the Cap: Beneficiaries Make Tough Choices to Pay for Medications

Another important finding was the increased risk of loss of claim activity for those who had exhausted their prescription cap compared to those who had not. While the difference was significant, it cannot be assumed that loss of prescription claim activity means that members stopped taking their medications. However, it is important to note that after coverage was exhausted, more than 80 percent of beneficiaries continued to use their prescription card in the months after the benefit was exhausted. (Members received a discount when using their card after exhausting their benefit.) Therefore, to better understand the prescription purchasing behavior of Medicare beneficiaries after exhaustion of capped benefits, two focus groups were held among Medicare+Choice plan enrollees who had exceeded the cap. Focus groups revealed that participants were reducing their out-of-pocket prescription expense by asking their providers for free samples, obtaining their medications through charitable organizations, shopping around to other pharmacies, and applying to free-drug programs such as those offered by the pharmaceutical manufacturers. These activities allow members to continue their medications, but the claim would not be captured. Thus, the extent to which loss of claims activity represents true discontinuation is uncertain.

While the disruption in claim activity among those reaching cap was significant across the chronic therapies evaluated, the focus groups indicated that people found ways to pay for their medications. For example, some enrollees were reducing spending for both necessities (e.g., food, clothing, and housing) and "luxuries" (e.g., recreation activities, vacations, etc.), to afford their prescriptions. Some also said they were receiving financial assistance from family members to pay for their medications.

"Once their benefits are gone, seniors spend a lot of time and energy trying to obtain their medications at lower cost," says Cox. "These efforts often lead to frustrating consequences and a lot of dead ends."

Gaps in Coverage

Finally, the researchers sought to understand the effect of various methods of administering the cap (i.e., annually or quarterly) on gaps in coverage. For a majority of enrollees, benefit administration made no difference in the number of days without coverage under either a quarterly rolling or an annual structure. Where variations did exist, a greater percentage of members had fewer days without coverage in an annually administered plan. Those with fewer days without coverage under a quarterly rolling administered cap were those who reached their annual cap early in the year. The research supports the notion that a quarterly cap may be more effective for those members who are likely to reach the cap early by helping them to budget their costs earlier in the benefit period.

"A more thorough understanding of the implications of annual prescription dollar caps can help in identifying approaches that will assist both Medicare beneficiaries and health plan administrators in maximizing the pharmacy benefit," notes Cox.

For more information, e-mail Emily Cox at ecox@express-scripts.com.