Are Medicare Beneficiaries Choosing Low-Cost Drug Plans?

Since 2006, Medicare beneficiaries have had the opportunity to choose from among dozens of plans to get the Part D prescription drug benefit, facing wide variation in benefits, premiums and cost-sharing.

The variety of choices, with more than 50 stand-alone drug plans in many states, could allow you to select a plan that provides the best value for your individual medical and economic needs.

The study uses actual pharmacy claims experiences, and premium and cost-sharing information about Medicare prescription drug plans, to look at whether seniors chose the lowest-cost plan for them, based on their drug claims for 2005.

The analysis models the approach seniors were advised to follow in choosing a plan based on their current medication regimen and finds that most Part D enrollees did not choose one of the lowest-cost drug plans offered in their area in 2006.

The study was written by Massachusetts Institute of Technology economist Jonathan Gruber on behalf of Foundation. It examines retail pharmacy claims from 2005 and 2006 for Part D enrollees ages 65 and older, gathered by the Wolters Kluwer company. In addition to examining 2006 plan choice based on 2005 claim experience, the study also examined the seniors' choices assuming "perfect foresight" in predicting their 2006 prescription needs, and in a hybrid methodology that evaluated the lowest-cost plans under either model.

According to the report, only 6 percent of 55,000 seniors chose the lowest cost plan offered in their area in 2006. Enrollees who didn't choose the lowest priced plan could have saved an average of $520 on their monthly premiums and out-of-pocket expenses if they had selected the lowest priced plan.

Only 10 percent of the seniors chose one of the five percent of plans with the lowest costs, which would typically have resulted in $400 in savings. About half of part D beneficiaries (53 percent) did enroll in one of the lowest cost 25 percent of drug plans. If the other seniors would have done the same, they could have saved an average of $220.

Gruber notes that other factors besides cost alone could have influenced the senior's decisions to enroll in higher priced plans including a strong brand name, good reputation, fewer utilization restrictions, or even a convenient in-network pharmacy.

The Centers for Medicare & Medicaid Services (CMS) has a tool that you can use to enter the drugs you expect to take next year and compare the expected out-of-pocket costs under the various plans in your area. "Basically, all I did in my analysis was to replicate their calculator and show how much better folks would have done if they had used that calculator to use the lowest cost plan," says Gruber. Retirees can switch into new plans once a year during the annual open enrollment period.