How Low Can They Go? 2016 Part D Benchmarks Show Decline Is Accelerating

By James Gutman - August 4, 2015

Just when some may have thought the years of big decline in the annual Part D benchmarks that determine how much plans are paid had to be nearing an end, the drop is accelerating. CMS on July 29 said the national average monthly bid amount for Part D in 2016 is $64.66, down from $70.18 for 2015, $75.88 for 2014 and $79.64 for 2013. And while the continuing increase in the federal reinsurance subsidy may cushion most of the blow, the nearly 8% year-to-year reduction in this figure, which is weighted based on the number of enrollees in the plans, means stand-alone Medicare Prescription Drug Plans (PDPs) may largely become a market just for industry giants.

Is that bad? CMS certainly didn’t give any indication that it thinks so, trumpeting in its news release the agency’s projection that the average monthly premium for a basic stand-alone Medicare Prescription Drug Plan (PDP) next year will remain virtually unchanged at about $32.50 after enrollees switch from higher-premium plans to lower ones. The Part D base beneficiary premium — before such switches — for 2016 is $34.10, up from $33.13 for 2015. CMS last summer had predicted the average 2015 premium would be about $32 after switches.

Since the rate of increase in specialty pharmaceutical costs is rising, how can the rate of decline in the average monthly bid be accelerating? The answer seems to lie mostly in the reinsurance subsidy, which now represents the largest portion of total Part D costs and is likely to continue climbing, points out Miryam Frieder, a vice president at consulting firm Avalere Health LLC. And while that is a good thing for Part D sponsors, it may not be seen as so good by federal officials, who have to find the money for this subsidy, Frieder notes.

To be sure, there are some more clearly beneficial trends. The filling of prescriptions with lower-cost generics is continuing to rise, plans’ use of what CMS now calls “preferred cost sharing pharmacies” may be limiting drug-cost increases, and profit margins obtained by aggressive contracting with drug producers seem to be large enough that at least the big players want to remain in the PDP market.

That apparently was the case for Aetna Inc., based on comments during its second-quarter 2015 earnings call with investors Aug. 4. “Product design” has helped bring down the bids year after year, said Chief Financial Officer Shawn Guertin, for example, and the 2016 figures came in about where the insurer expected. President Karen Rohan added that Aetna’s bids wound up below the benchmark in 33 of the 34 PDP regions, meaning that it stands to be assigned low-income subsidy beneficiaries in all but one of the regions for 2016.

But what about the smaller plans? Are their days in the PDP market coming to an end? Is that a good thing for consumers? And is this the end of the beginning or the beginning of the end of a highly competitive PDP market?

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