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Medicare Part D: A Boon for Industry and Insurers Alike

May 6, 2010

Issak_SmithIssak Smith

University of Florida PharmD Candidate



In 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) with the hope of reducing prescription drug costs for the nation’s seniors. It was implemented on January 1st, 2006. Now several years removed, and with healthcare reform again a hot topic, it is important to look at who really benefited from the legislation.

In 2006, there were approximately six million dual eligible beneficiaries (eligible for both Part D and Medicaid). With the passing of the MMA, these dual eligible beneficiaries were moved to Part D plans for their drug coverage. 

Previously drug companies were required to offer their lowest price on brand name drugs to the Medicaid program in order to be included in the program. Upon implementation of the MMA, Part D control shifted to private insurers as opposed to the government. This gave drug companies the ability to negotiate prices for their drugs directly with the insurers, thus allowing them to no longer offer their lowest price. As a result, in 2006 and 2007 alone, drug companies profited an additional $3.7 billion dollars from these new contracts. This can be a concern for patients as their insurance company is now paying a higher cost for the drug, thus sending these patients hurtling rapidly towards their "donut-hole."   

In the past, these low income patients would not have paid anything for their medications, but they now face the dilemma of what medications to take due to cost as opposed to what medications they should be taking for health. So while drug companies are benefitting from increased usage, there are also many dual eligible patients (significantly higher than 6 million today due to the economic climate) who are paying for their profits.  

Private insurers have benefited to a larger extent. Because one part of the MMA directed billions of taxpayer dollars to the private sector to help them with the "burden" of offering these plans to the influx of new patients, the three insurers with the largest market share, United Health, Humana, and Wellpoint, have done well. 

A study done one year after the implementation of Part D showed that United and Humana’s revenues increased more than 50%, while WellPoint’s rose 25%. Additionally, United’s profits rose 25%, Humana’s 10%, and WellPoint’s 33%.

It could be argued that they are simply making more money due to the government’s financial support and the increase in the size of patient pools. However, if you look closer you will see that these insurers are not paying any money out while patients are in the "donut-hole," but they are continuing to collect monthly premiums from these patients. When coupled with the now higher drug costs they are paying out initially, more patients end up in the gap, thus increasing the profitability of providing Part D coverage significantly for these companies. In addition many insurers receive rebates from pharmaceutical manufacturers and these rebates are not passed on to the patient or the federal government. 

It should be said that Part D has allowed many seniors access to prescription drugs they previously could not have afforded, but it is clear changes should be made to save taxpayers money and to ensure our seniors are not left helpless in the "donut-hole." 

The current health care reform bill that was signed on March 23, 2010, has several significant changes that will affect patients that fall into the "donut-hole." The first to be implemented immediately is providing Part D beneficiaries a $250 dollar rebate to help offset the impact of falling into the gap. The second and more profound is to be implemented in 2011. The pharmaceutical industry is stepping up and is reducing the cost of brand name drugs by 50% to patients that have fallen into the gap. One other aspect of this change is that though the patient is only paying 50% of the cost, the entire cost of the drug will be applied to the gap and will therefore bring patients out of the gap quicker. Generic drug prices will be reduced through a grant from the government. Additionally, this benefit is to increase to a 75% reduction by the year 2020 on both brand name and generic drugs. 

While these changes can potentially help many seniors who fall into the gap, it is important to note that the new health care bill did not address the current rates of drug company pricing for their drugs to the insurance companies. Thus the patient will arrive at the gap in the same amount of time. However they will not have as high a cost once there. Also, since the insurers will still be collecting the premiums while the patients make their way through the gap and receive drug rebates it appears that the companies will be profiting very well. Hopefully, as we move forward, more can be done to ensure that our seniors and dual-eligible patients are taken care of and given the best possible medical care without worrying about sacrificing financially.

  1. http://www.familiesusa.org/assets/pdfs/medicare-privatization-oct.pdf accessed on March 25th, 2010
  2. http://www.cmhda.org/breaking_news/documents/0807_Breaking%20News_Medicare%20Part%20D%20report%20house%20of%20reps%207-08.pdf accessed March 25th, 2010
  3. http://www.healthreform.gov/ accessed March 25th, 2010; new page (2014) is http://www.healthcare.gov/