SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 4014 words

COMMITTEE: SENATE FINANCE

HEADLINE: TESTIMONY PRESCRIPTION DRUG COVERAGE

TESTIMONY-BY: DR. STEPHEN CRYSTAL , RESEARCH PROFESSOR

AFFILIATION: RUTGERS UNIVERSITY

BODY:
April 24, 2001 State Pharmacy Assistance Programs and Their Implications for a Medicare Prescription Drug Benefit Testimony Before the Senate Finance Committee Stephen Crystal Research Professor and Chair, Division on Aging Associate Director for Research, Center for State Health Policy Institute for Health, Health Care Policy, and Aging Research Rutgers University Chairman Grassley, Senator Baucus, and Members of the Committee: Thank you for the opportunity to testify today on Medicare reform issues. I want to thank as well my colleagues at Rutgers on our study currently in progress for the Commonwealth Fund on state pharmacy assistance programs- Kim Fox, Tom Trail, Mina Silberberg, Susan Reinhard, and Joel Cantor. Our work is at a preliminary stage since we are currently in the early stages of state case studies for the project. During the coming months we will have much more information on the questions I was asked to address. However, we do have some basic data reported to us by states with direct benefit pharmacy assistance programs in a mail survey that we conducted between September 2000 and January 200 1, and partial information from case studies in progress of several of these states that may be useful to you at this stage. We have included tables that reflect the information reported to us by the states; they are preliminary data since we are still in the process of double-checking with the states the data that they returned to us on the surveys, but they provide a good overall picture of the current landscape of state pharmacy assistance programs. Based on the mail survey, we estimate that total enrollment in state direct benefit pharmacy assistance programs operating throughout 2000 was approximately 860,000. These programs are typically targeted to individuals whose incomes are low but above Medicaid eligibility levels. They are of great importance to participants, since out-of-pocket health care costs and particularly prescription drug costs represent a significant burden to individuals in these income ranges. In a recent study with data from the Medicare Current Beneficiary Survey, we estimated that health care expenditures accounted for 32% of income for older persons in the lowest fifth of the income distribution and 24% for those in the second lowest fifth. In both quintiles, prescription drug costs accounted for 40% of out- of-pocket payments for health care goods and services, a higher proportion than for higher-income people. However, these programs are far from constituting a national drug safety net. While 14 states operated direct benefit programs throughout the year 2000, 49% of the enrollment was in just two states, Pennsylvania and New Jersey, and 72% was in these two states plus New York and Massachusetts. In six states -- Maine, Vermont, Rhode Island and Delaware, plus Pennsylvania and New Jersey - enrollments exceeded I 0% of Medicare enrollment in the state. Many of the programs are more limited, however; for example, some cover only certain types of drugs or persons with certain conditions. From a national perspective, the proportion of Medicare beneficiaries enrolled in state direct benefit programs is relatively small, less than 3%. It probably represents a somewhat higher proportion of Medicare beneficiaries' prescription drug spending, however, since those with high drug spending are likely to enroll disproportionately in the plans. The programs are highly popular and state legislators hear frequently from their constituents about the need to create or expand them. However, despite the fact that several states are launching new programs and several existing programs are expanding eligibility, existing programs report that they are under considerable financial pressure in the face of steadily rising pharmaceutical costs. Eligibility, cost-sharing, and other program characteristics vary widely across states. In addition to income-eligible persons aged 65 and over, seven of the programs also cover disabled residents, and two programs (Maryland and Wyoming) cover all residents who meet the income requirements regardless of age or disability. States that cover disabled residents generally find that the disabled enrollees use more prescription drugs and cost more per person to cover than do elderly enrollees. All the programs except Nevada's are operated directly by the states, with assistance of contracted pharmacy benefit managers in a few cases. Nevada, after considerable difficulty in securing an interested vendor, is just in the process of implementing a program under which state funds are used to subsidize private pharmacy insurance policies. Although we have not yet done a case study of Nevada, we urge the Committee to look at this experience carefully for its lessons for the Breaux-Frist 11 model. People we've interviewed with in the states have been concerned about consumers whose incomes put them just over the limit, but who have great need for prescription drug coverage. A few states have dealt with this issue by allowing individuals with incomes over the limits to qualify for the program if they spend a certain percentage of their income on prescription drugs (40% in Delaware and Maine, 10% in Massachusetts, 3% in Rhode Island). In addition, states report constant pressure from consumer groups to increase eligibility limits above the current levels. The majority of beneficiaries are enrolled in programs whose financial eligibility requirements are more generous than the requirements for fully subsidized benefits under Breaux-Frist 11. Only two of the states, Minnesota and Maryland, report that they impose asset limits for eligibility, and Minnesota recently substantially raised their asset limit. These two states, along with Wyoming and new programs in Indiana and Florida, have income threshholds at or below 135% of the poverty line, which as I understand it is the threshhold for full subsidy under Breaux- Frist 11. In these states, current beneficiaries would generally be income-eligible for fully-subsidized pharmaceutical insurance, although many might not be - or might not apply - if an asset test similar to the QMB/SLMB level is included. In the other states with direct benefit programs, however, including the largest ones, income eligibility extends higher, often considerably higher. New Jersey, for example, covers up to about 230% of the poverty line and is considering legislation to provide another tier of benefits, at a higher copayment, to those with higher incomes. In these states, beneficiaries and their families would expect the state to, in effect, make up the difference in income eligibility. Other provisions of the pharmacy benefits to be offered under the Breaux-Frist 11 type of approach, such as deductibles, copayments, and formulary limitations, are also likely to be less generous than those of the existing state programs. Again, there would be strong expectations that states would make up the difference. However, state program administrators are concerned that this could involve very difficult coordination of benefits problems, as I will discuss further in a moment. The more generous programs, such as those in New Jersey, Pennsylvania, and Vermont, operate on a drug benefit model similar to that of Medicaid: almost all drugs are covered for a nominal ($6 or less) co-pay with no fees, no deductible, and no maximum benefit. Other programs have slightly less generous benefits, but still cover most prescription drugs available under Medicaid. These programs use various combinations of deductibles, coinsurance, fees, and/or benefit maximums, although the experience with programs with high up-front fees has been that this strategy substantially depresses enrollment. These lessons need to be seriously considered in thinking about adverse selection for Prescription Plus plans, and we will be doing analyses of the benefit takeup issue in coming months. Generally, however, programs report that considerable outreach and consumer education is necessary for consumers to understand the plans and to encourage those eligible to apply. Several programs have substantial deductibles, particularly for those above the lowest eligible income tier. South Carolina and Pennsylvania's PACENET program have a $500 annual deductible, and Minnesota has a $35 monthly deductible. Both Massachusetts and New York offer coverage with sliding scale fees and/or deductibles based on income. In New York, enrollees either pay an annual fee ranging from $8 to $230 (singles) if they are in a lower income bracket or an annual deductible ranging from $530 to $1,230 (singles) if they are in a higher income bracket. Massachusetts enrollees pay both a monthly fee ranging up to $82 and an annual deductible ranging up to $500. Both of these programs also have tiered co-pays based on the cost or type of drug, and both have annual out of pocket maximums - $2,000 or IO% of annual income in Massachusetts and 6% of annual income (singles) in New York (8% for couples). A few active programs have annual caps on benefits: Delaware has a $2,500 annual cap, Indiana has a $500 to $1,000 tiered benefit cap, Florida has an $80 monthly benefit cap, and Michigan has had a limit of three months worth of prescriptions up to three times a year, which we understand is being modified. Nevada's program, just being implemented, will have monthly premiums and a $5,000 annual benefit cap. In thinking about the challenges faced by these programs and their implications for a Medicare benefit, perhaps the most recurrent challenge cited by state officials we interviewed is the tension between ever-increasing pharmacy costs and pressures to maintain and expand program coverage driven by the high level of need. The trend in per-participant annual program costs has been sharply upwards. Programs that have made dedicated funds available to pharmacy programs and other health programs, such as lottery revenues in Pennsylvania and casino revenues in New Jersey, have seen the pharmacy programs outstripping the revenue sources and crowding out other programs or spilling over into general revenues. The stability of funding for the programs in the future is uncertain, particularly if very recent trends suggesting a deterioration of state budgetary outlooks continue. Cost containment is a constant struggle for the programs, who have pursued a variety of avenues, often in the face of opposition either from manufacturers, pharmacist organizations or consumer advocates, depending on who is impacted by a particular strategy. At the same time, there are chronic pressures to expand coverage to the groups just above the eligibility limit, wherever it is set. Another significant challenge involves coordination of benefits. Program administrators are concerned that they could face severe coordination of benefits problems under an approach like that envisioned in Breaux-Frist 11, problems that one respondent referred to as potentially 64 astounding". Coordination of benefits is already a difficult problem for state pharmacy programs; it has been difficult for them even to coordinate benefits with the existing limited outpatient pharmacy coverage in fee-for-service Medicare or with Medicare+Choice and employer- based plans. While they are typically mandated to be the payer of last resort, they often are unable to recover from other payers due to lack of accurate information and the technical difficulties of coordinating benefits. This may currently be seen as a tolerable problem given their low-income core constituency, but under the Breaux-Frist II approach, it would appear that the problem could be much increased. Coordinating benefits with Prescription Plus plans, for which beneficiaries were eligible for various levels of subsidy, would add an additional layer of complexity, perhaps involving direct computer links and coordination at the point of sale. Such interfacing would require considerable cooperation from the private plans, which states are concerned might not necessarily be a priority for private plans which will have many other administrative challenges on their plate. If this process became too difficult, it could act as a disincentive to states to maintain their financial efforts. Alternatively, states could drop their existing programs and shift to a supplemental premium support role, but how this would work is uncertain and it could also involve considerable challenges of coordination. Based on experience with their programs, some state staff expressed concern about Breaux-Frist It s assignment of responsibility for financial eligibility determination to state Medicaid agencies. They were concerned that this could be a significant barrier to participation because of the perceptions of welfare stigma that Medicaid and the Medicaid agencies carry for many older people. They were also concerned about the possibility of eligibility being restricted to individuals who meet the asset limitations of the QMB program, which are perceived as extremely restrictive and as barring many low-income individuals who are severely burdened by pharmacy costs. Such an asset test might be strongly unpopular with beneficiaries and limit enrollment in the new programs. A final area of concern has to do with the issue of consumer confussion over complex plan requirements. Beneficiaries are often confused about even basic concepts in the state programs such as the difference between a deductible and a premium. States are concerned that beneficiaries, already challenged by the complexity of Medicare, Medicare+Choice plans and supplementary insurance, will find it very difficult to effectively evaluate, in addition, a variety of choices for pharmacy coverage. They anticipate that this would engender considerable additional burden on already-overburdened health insurance counseling services such as those offered through area agencies on aging. Clearly, your Committee is struggling with a most challenging and complex policy problem, in a system with many moving parts. The absence of outpatient prescription drug coverage in the traditional Medicare program is by now widely seen as a serious problem for many beneficiaries. The traditional program is still where most beneficiaries are, either by their own choice or because Medicare+Choice plans are not available in their areas. Many states have struggled, each in their own way, with the attempt to fill this gap, but have felt under considerable financial pressure in attempting to address this very expensive problem at the state level. Although the Breaux-Frist II approach does not appear to create much of a role for the states, many of the states have acquired a great deal of valuable experience which should be built on as the provision of pharmacy coverage evolves. For example, the prospective drug utilization review systems developed by Pennsylvania serve not only cost containment purposes but important health care quality and medical error reduction purposes. The effort to provide both a universal voluntary benefit with some subsidy, and more significant financial protection to lower- income individuals, within limited funds is indeed a great challenge. In thinking about how to address this problem, a broad concern that grows out of our interviews with state stakeholders is the impact of existing complexity and fragmentation in the financing of health care for Medicare beneficiaries, and the desirability of attempting to minimize rather than increase it. As people in state agencies, who interact with elderly and disabled consumers on an ongoing basis are only too well aware, many consumers find it difficult to understand the coverage choices and multiple payers involved in the existing system as it is. In this context, the impact of adding another, separate set of Prescription Plus policies to the system, as well as the associated administrative complexities and costs, should be carefully examined. As we move forward with our study in the coming months, complete additional state case studies, and prepare analyses on the process of program implementation and the impact of alternative benefit designs for state pharmacy assistance programs, variation in benefit takeup, and program management strategies including drug utilization review, we will be happy to be of any further service we can be to the Committee. In conclusion, I would like to thank the Committee again for the opportunity to testify, and will be happy to address any questions.

LOAD-DATE: April 25, 2001, Wednesday