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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
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CCH® BENEFITS — 10/25/11

Medicare Part D Plan Premiums Expected To Rise An Average Of 4%

from Spencer’s Benefits Reports: In 2012, Medicare beneficiaries enrolled in Part D stand-alone prescription drug plans (PDPs), on average, will experience a 4% increase in monthly premiums, according to a recent study from the Kaiser Family Foundation (KFF) Program on Medicare Policy. More than 29 million beneficiaries are enrolled in Part D plans, about two-thirds of whom are in PDPs. The KFF Medicare Part D Data Spotlight, Medicare Part D: A First Look at Part D Plan Offerings in 2012, provides an overview of the 2012 stand-alone PDP options and key changes from prior years. The study was prepared by researchers from Georgetown University, KFF, and the National Opinion Research Center at the University of Chicago.

The 4% average premium increase is the lowest projected increase since the program began, although premium changes will vary widely across plans, KFF found. The majority of plans offered in 2012 will offer no gap coverage beyond the coverage required by the Patient Protection and Affordable Care Act (ACA), which phases down the coverage gap to 25% by 2020. For 2012, manufacturer prices for brand-name drugs purchased in the gap will be discounted by 50% (with enrollees paying the other 50%), and plans will pay 14% of the cost for generic drugs in the gap (with enrollees paying 86%).

A total of 1,041 PDPs will be offered nationwide in 2012, 6% fewer than the 1,109 PDPs in 2011, which was 834 fewer PDPs than the peak 1,875 plans in 2007. Medicare beneficiaries in 2012 will have a choice of 31 PDPs, on average, although fewer PDPs will be offered nationwide than in any year since the Part D inception in 2006. The reduction in PDP offerings between 2011 and 2012 results primarily from the different ways sponsors have responded to recent regulatory changes the Centers for Medicare and Medicaid Services (CMS) have implemented to eliminate duplicative plan offerings and plans with low enrollment, according to KFF. Mergers among plan sponsors also is responsible for the reduction in PDPs.

Most of the plan reductions in 2012 will result from local or regional plan sponsors dropping PDP offerings with low enrollments, the KFF study noted. On average, the exiting plans have about 500 enrollees in 2011, compared to nearly 18,000 in the continuing plans. About one-fourth of plans with 1,000 or fewer enrollees in 2011 will exit the program (versus only 4% of plans with bigger enrollment figures).

Several of the top national PDP sponsors reduced their offerings for 2012. Two sponsors (CVS Caremark and Aetna) dropped one of their PDP offerings, and two other sponsors will no longer offer an enhanced PDP in all regions. One national sponsor (Coventry) added an additional PDP in 32 of 34 regions, while several plans have added affiliations with pharmacy chains for 2012, similar to the alliance created last year between Humana and Walmart.

Monthly Premiums

The projected average monthly PDP premium will be $39.40 in 2012, assuming that beneficiaries reenroll in their current plan. This is a 4 % increase ($1.44) from the weighted average monthly premium of $37.96 in 2011, and a 52% increase from $25.93 in 2006, Part D’s inaugural year. While CMS reported a small decrease (4%) in the average premium for standard Part D coverage offered by PDPs and Medicare Advantage drug plans between 2011 and 2012, the increase the KFF study reported is based on all PDPs only, excluding Medicare Advantage drug plans, and includes PDPs offering enhanced coverage, which typically have higher premiums. Monthly premiums (weighted by enrollment) have risen every year since 2006 for PDPs, on average, but there is wide variation across plans in year-to-year premium changes, KFF reported.

About 510,000 beneficiaries (approximately 3%) enrolled in PDPs will experience an increase of at least $10 in their monthly plan premium in 2012 unless they select a less expensive plan. By contrast, approximately 370,000 beneficiaries (2%) will see premium reductions of at least $10 if they stay with their current PDPs in 2012. About 32% of all PDP enrollees would see at least a nominal premium reduction.

Variations across regions. Average weighted PDP monthly premiums will vary widely in 2012 across regions, ranging from $27.93 per month for PDPs in the New Mexico region (one of only three regions with an average under $35) to $44.17 and $44.38 per month for PDPs in the Idaho/Utah and Kansas regions, respectively. Changes from 2011 to 2012 vary considerably by region—for example, in three regions (Louisiana, Nevada, and southern New England) monthly premiums are projected to fall slightly, while they are projected to rise by at least 10% in California and the Maine/New Hampshire region.

These average and plan-level premium amounts do not take into account the income-related Part D premium that went into effect in 2011 for Part D enrollees with higher annual incomes ($85,000 for an individual and $170,000 for a couple). Established by the ACA, the income-related Part D premium requires higher-income enrollees to make an additional payment for Part D coverage, regardless of the plan selected. In 2012, the monthly surcharge will range from $11.60 to $66.40, in addition to the monthly premium payment by higher income enrollees for their specific Part D plan. An estimated 4% of Part D enrollees will be required to make these additional payments in 2012. Under current law, the income thresholds are not indexed to increase annually until 2020.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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