“Nothin' from nothin' leaves nothin'
You gotta have somethin' if you wanna be with me
You gotta have somethin' if you wanna be with me
Billy Preston, Nothing From Nothing
“I love to talk about nothing. It's the only thing I know anything about.”
Oscar Wilde
Confused, vulnerable, and elderly Medicare enrollees are bombarded with insurance sales pitches touting the benefits of one insurer’s Part D product, over those of all other competitors. Each insurer croons the same siren song to draw these consumers onto the rocks of a policy switch: big savings, big savings!
In reality, the promise of big savings is pure balderdash. The structure of a Medicare Part D insurance contract is stipulated, closely regulated, and monitored by the federal government. The ante is fixed. The total annual out-of-pocket insurance costs to consumers from one insurance product to the next seldom differ. The only possibility of any true savings would need spring purely out of the goodness of an individual insurer’s heart… which presupposes the presence of an insurer’s heart. Risky business.
These contracts can be repackaged to smear annual costs out over the twelve month period of the policy, (think twelve easy payments), but the total of the costs incurred does not vary much from company to company. An understanding of how Medicare Part D contracts are assembled for mass consumption will help to demonstrate why this is true.
All Medicare Part D prescription products are built out of the same elemental list of federally designed and mandated ingredients:
• Initial prescription insurance benefit period (before entering the Donut Hole)
amounting to $3310.00
• Baseline monthly premium of $15.00 creating an annual patient cost obligation equal to $180.00
• Annual front end deductible (co-insurance) patient cost obligation
equal to $360.00
• Co-pay patient cost obligation of 25% of the $3310.00 initial prescription
benefit period equal to $827.50
• Prescription purchase patient cost obligation (before any Affordable Care Act Donut Hole discounts) while in the Donut Hole $3662.50
• It is worth mentioning here that all Medicare Part D enrollees currently qualify for American Affordable Care Act prescription drug discounts while in the Donut Hole, according to the schedule provided below. The discounts are left out of the arithmetic of the following examination of insurance benefits, because they would needlessly cloud the picture.
2016 Brand Co-Pay 45% (Discount 55%) Generic Co-Pay 58% (Discount 42%)
2017 Brand Co-Pay 40% (Discount 60%) Generic Co-Pay 51% (Discount 49%)
2018 Brand Co-Pay 35% (Discount 65%) Generic Co-Pay 44% (Discount 56%)
2019 Brand Co-Pay 30% (Discount 70%) Generic Co-Pay 37% (Discount 63%)
2020 Brand Co-Pay 25% (Discount 75%) Generic Co-Pay 25% (Discount 75%)
2017 Brand Co-Pay 40% (Discount 60%) Generic Co-Pay 51% (Discount 49%)
2018 Brand Co-Pay 35% (Discount 65%) Generic Co-Pay 44% (Discount 56%)
2019 Brand Co-Pay 30% (Discount 70%) Generic Co-Pay 37% (Discount 63%)
2020 Brand Co-Pay 25% (Discount 75%) Generic Co-Pay 25% (Discount 75%)
Insurers must offer insurance terms that are as good, or are better than, those detailed above. By definition, for a prescription insurance contract to offer big savings over other contracts, it would need to reduce annual patient cost obligation to some amount much less than the mandated standard $5030.00. That’s not what happens.
Instead what happens is arithmetical sleight of hand. Insurers use cost-shifting to spread out the patient cost obligation over the full twelve months of the contract by chopping it up into twelve easy pieces… and then tacking it on to the monthly premium. The annual front end deductible (co-insurance), part-or-all of the 25% co-pay from the initial prescription benefit period, or BOTH of these patient cost obligations… are converted into a twelve-easy-payments plan by cost-shifting them onto the monthly premium.
The total annual patient cost obligation for these insurance contract variants remains steady. Patient cost obligations are merely rendered more palatable… by stringing them out over a longer period of time. A spoonful of sugar. Convenience, however, does not equal big savings.
For the sake of demonstration four different cost-shifting schemes are demonstrated below. Notice that they all shake out the exact same annual out-of-pocket patient cost obligation. Other variations on the theme could be offered in place of these four very basic examples. The possibilities are limited only by degree of imagination. Each approach offers an advantage, (by increasing degrees), of ease of payment of costs… but none offer any big savings to the enrollee.
NOTE: multiple Co-pay tiers and/or prior authorization requirements may be in effect for these coverage plans to force enrollees to share cost burdens up front… for highly expensive drug products. The insurers do not like to risk being stuck with the cost of these drugs if an enrollee unexpectedly dies, stops paying premiums, or drops the drug plan at the start of the Donut Hole.
BASIC COVERAGE: Annual deductible of $360.00 NOT Cost Shifted to Premium and NO Portion of the 25% Co-Pay Cost Shifted to Premium
OOP PREMIUMBase Premium $15.00/month
Annual Deductible Expenditure: $360.00
Co-pay of 25% for initial $3310.00 benefit period: $827.50
Donut Hole Expenditure: $3662.50
TOTAL PREMIUM $15.00/month
OOP of $4850.00 plus premium @ $15.00/month ($180.00/yr)
TOTAL= $5030.00/yr
OOP PREMIUM
Base Premium $15.00/month
Annual Deductible Expenditure
Cost Shifted to Premium: $(360.00) $30.00/month
Co-pay of 25% for initial $3310.00 benefit period: $827.50
Donut Hole Expenditure: $3662.50
TOTAL PREMIUM $45.00/month
OOP of $4490.00 plus premium @ $45.00/month ($540.00/yr)
TOTAL= $5030.00/yr
SILVER-ish PLAN:
Annual Deductible of $360.00 AND a 15% Portion of the 25% Co-pay Both
Cost Shifted to Premium: 10% Co-pay with Minimum Co-pay of $6.00 for
Generics and $12.00 for Brand Name
OOP PREMIUMBase Premium $15.00/month
Annual Deductible Expenditure
Cost Shifted to Premium: $(360.00) $30.00/month
Co-pays of 10% portion of 25% for initial
$3310.00 Benefit: $331.00
Co-pays of 15% portion of 25% for initial
$3310.00.00 benefit Cost Shifted to Premium: $(496.50) $41.38/month
Donut Hole Expenditure: $3662.50
TOTAL PREMIUM $86.38/month
OOP of $3993.50 plus premium @ $86.38/month ($1036.56/yr)
TOTAL= $5030.00/yr
GOLD-ish PLAN:
Annual Deductible of $360.00 AND a 20% Portion of the 25% Co-pay Both
Cost Shifted to Premium: 5% Co-pay with Minimum Co-pay of $3.00 for
Generics and $6.00 for Brand Name
OOP PREMIUMBase Premium $15.00/month
Annual Deductible Expenditure
Cost Shifted to Premium: $(360.00) $30.00/month
Co-pays of 5% portion of 25% for initial
$3310.00 benefit: $165.50
Co-pays of 20% portion of 25% for initial
$3310.00 benefit Cost Shifted to Premium: $(662.00) $55.17/month
Donut Hole Expenditure: $3662.50
TOTAL PREMIUM $100.17/month
OOP of 3828.00 plus premium @ $100.17/month ($1202.04/yr)
TOTAL= $5030.00/yr
Medicare Part D insurance products are difficult enough to understand under the best of circumstances. They are doubly difficult for most elderly Medicare enrollees to comprehend. Peddling convenience in the guise of savings only makes things worse.
Marketing these Medicare Part D products to a bunch of old folks, based on an empty promise that they will save big money… is insincere at best, and dishonest at worst.
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