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For Medicare Drug Plans, the High Cost of Doing Nothing

There’s a steep price for doing nothing when it comes time for open enrollment for Medicare prescription drug plans.

Medicare’s Web site will search for competing prescription drug plans in your zip code.

My Thanksgiving ritual each year consists of heaps of turkey, corn casserole and apple pie — as well as quiet time devoted to helping relatives choose Medicare prescription drug plans for the following year.

Most people partake in similar gorging, but not enough spend the time to compare health plans for their relatives. My experience this past weekend is a particularly instructive example of how costly it can be to do nothing.

With open enrollment for 2014 drawing to a close this Saturday, there’s little time for delay. (The process of picking a drug plan in Medicare is totally different from using healthcare.gov, the federal health insurance exchange for people under age 65 who are not in Medicare.)

Unlike Medicare’s hospital and doctor benefits, which are managed by the federal government, seniors and disabled people needing drug coverage must choose a subsidized, privately run plan under contract with Medicare. The 36 million enrollees in the program usually have dozens of choices that offer an array of monthly premiums, deductibles and copayments. The plans have different preferred drugs and different requirements for prior approval for expensive generics.

Depending on the drugs each person takes, some plans are much cheaper than others.

Sounds good so far, but there’s a giant catch: Once a person signs up for a plan, his or her enrollment continues from year to year if the person does nothing — even if the plan raises its prices and tightens its requirements. It’s up to enrollees to determine if there’s a better choice, and they can switch plans once a year (during open enrollment).

Consider my in-laws, who live near Dallas.

Last year, I helped them pick a pretty awesome plan that cost each of them $31.10 per month. It has no drug deductible, meaning they didn’t have to pay out of their pockets before their drug coverage began. And generic drugs cost them nothing. Both only take generic drugs — several of them, mind you — and their annual drug costs were less than $375.

But if they had chosen to stay with their plan for next year, prices would have exploded. Their monthly premium would have increased to $47.10 and they would have had drug co-pays of at least $3 per prescription. When you add it all up, my mother-in-law’s annual costs would have more than tripled, to $1,146, and my father-in-law’s would have increased to $1,086.

That’s a steep price for doing nothing.

By shopping around, my father-in-law was able to select a plan that will cost him $415 (assuming his drugs remain the same.) My mother-in-law’s costs will increase to $691. Even though both will see their costs rise, by changing their plans, they cut their tab in half from what it would have been.

Comparison shopping sounds like a no-brainer, but for many reasons, it’s not. It is time consuming and eye glazing even for a health-care journalist to enter in drugs and review the resulting options. A study commissioned by the Kaiser Family Foundation in October found that only 13 percent of Part D enrollees, on average, switched plans each year between 2006 and 2010. Seven out of 10 people continuously enrolled in plans from 2006 to 2010 never switched.

(The analysis only looked at stand-alone drug plans, not Medicare Advantage plans in which drugs are offered in HMOs. It also excluded low-income beneficiaries, whose costs are heavily subsidized.)

One study found that 72 percent of enrollees had never changed Medicare drug plans.

“Only a small fraction of enrollees, however, are enrolled in the lowest-cost Part D plan available to them, based on the specific drugs they take,” the report said. “Therefore, many Part D enrollees incur higher out-of-pocket costs than would be the case with a different plan selection.”

“Part D enrollees often have difficulty with the plan selection process and find the decision-making complicated, especially because of the large number of available plans.”

What the study found, essentially, is that older people and the disabled may be lulled in by lower monthly premiums, only to find that their actual drug prices are much higher.

So why don’t people switch more regularly? The authors offer a few theories:

In one view, enrollment stability could be a sign of enrollees’ satisfaction with their plans. Another view is that beneficiaries avoid “rocking the boat,” by staying in their current plans, preferring the status quo (even at a higher cost) over the unknowns of a new plan. Alternatively, the low rate of switching plans could indicate that Medicare beneficiaries are not fully engaged in the Part D program’s choice-based system and that the task of reviewing and comparing plans in the face of many different options may be too difficult or may not seem worth the effort. This view is supported by some qualitative evidence from polls and focus groups, where beneficiaries have reported that they would prefer less choice and a simpler system.

Based on my experience helping my family members, I find the last explanation the most plausible.

Either way, whether you are a Medicare enrollee or you are friends or relatives with one, compare options. Open enrollment for 2014 ends Saturday, Dec. 7.

Plenty of help is available from Medicare and others. Here’s one place to start:

Editor’s Note: This post is adapted from Ornstein’s “Healthy buzz” blog. Have you tried signing up for health care coverage through the new exchanges? Help us cover the Affordable Care Act by sharing your insurance story.

“So why don’t people switch more regularly?”

A book called “The Paradox of Choice” by Barry Schwartz explains this. Watch his TED talk if you don’t have time to read the book.

“Alternatively, the low rate of switching plans could indicate that ... the task of reviewing and comparing plans in the face of many different options may be too difficult or may not seem worth the effort.”

This is true for most human beings, not just for Medicare Beneficiaries. The problem is that the system is not designed for human beings to use. It’s good enough so that those running it can pretend that it serves users, but not good enough to actually serve them well.

If Medicare Part D had been single payer with government allowed to negotiate drug prices, all drug prices would be much lower.. 

Medicare Part D and ACA benefit and serve the insurance and pharmaceutical companies—not the people.

The system is deliberately designed to be confusing, and even intimidating. Most people don’t do the “comparison” shopping among plans, simply because it’s too confusing. And, it’s all about selling as many drugs as possible. Getting folks on as many drugs as possible. If you don’t believe me, then explain why even the much-vaunted “Obamacare” has NO provisions for assessing whether or not people actually NEED all the drugs they are given….and NO provisions for bulk purchase, or price reductions. Pharma is a drug racket, and it’s financed by the financial racket known as “health insurance”. That includes Medicare, AND Obamacare….

Richard Ferry

Dec. 2, 2013, 2:38 p.m.

Until the Feds can negotiate drug prices with Big Pharma for Medicare (as it routinely does for the Veteran’s Administration), having several choices is really just nibbling around the edges.

Evelyn Martindale

Dec. 2, 2013, 8:45 p.m.

Medicare Part D appeased drug companies, but puts the onus on the senior consumer to keep up with yearly price changes or inclusion of new medications in the plan they subscribe to….Ridiculous system.

Why exactly should I be using drugs now ? When I haven’t before ?

As far as I’m concerned the Medicare system is much too confusing. It seems to be designed that way on purpose, so it isn’t used in the best way for those enrolled.

Steve Waldron

Dec. 8, 2013, 1:48 a.m.

I’ve had a lot of friends and acquaintances ask me to help them choose and enroll in Part D and Medicare Advantage plans. These are unsophisticated individuals with a high school or lower level of education. I am a Social Security advocate, but don’t charge for Part D or Medicare Advantage assistance.

For this category of beneficiaries, understanding how to use the web site and the differences in the alternatives is very challenging. Reviewing their Part D and Medicare options every year during the enrollment period, is just too complicated for them. They’ve already got a plan and fear trying to review and choose a different plan. Thus, once I’ve helped them initially enroll, I usually don’t get future requests for assistance. They’ve got a plan and they’re sticking with it unless forced to change anything.

However, last year, one Part D provider ended it’s plan. It was a low cost plan to which I had helped enroll a number of beneficiaries. They all called and asked me to help them because they didn’t know what to do or feared trying to choose a new plan.

I’m also on Medicare and will save myself several hundred dollars in prescription co-payments because I researched and changed Medicare Advantage plans for myself for 2014. The web site does have a good comparison tool to compare different plans. But, it can be very confusing for unsophisticated users.

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