CMS eyes Part D catastrophic coverage reforms that would shift risk to insurers

CMS Administrator Seema Verma speaking at a podium at the Commonwealth Fund on July 25, 2018
CMS Administrator Seema Verma said the current Part D structure creates a “perverse incentive" for insurers to shift members to catastrophic coverage without taking on risk. (YouTube)

The Trump administration is looking for ways to change the Medicare Part D drug program that would shift more risk to plan sponsors when members reach the final catastrophic coverage stage.

The catastrophic coverage tier of Part D kicks in when a member reaches $5,000 in out-of-pocket costs. At that point, patients pay a flat fee or 5% of the negotiated retail drug cost, and the federal government picks up 80% of the remaining costs and plan sponsors pay 15%.  

That could change. Catastrophic coverage under Part D was initially developed to encourage private insurers to participate, Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma said during an event hosted by the USC-Brookings Schaeffer Initiative for Health Policy Thursday. A lot has changed since then, and now it’s “one example where Part D could be updated or modernized.”

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“We’re at the point now where it would be better for Part D plans to manage that portion of the benefit,” she said. “That way we could bring competition and negation to that piece as well.”

RELATED: More Medicare Part D beneficiaries reaching catastrophic phase, likely setting up calls for reform

As drug spending has increased, so has the amount CMS pays for catastrophic coverage. In 2015, CMS paid $33.2 billion for Part D catastrophic coverage, a threefold increase from 2010, according to a 2017 report (PDF) by the Office of Inspector General. Nearly one-third of that total was associated with 10 high-cost drugs.

“Continued growth at this pace may pose a risk to the sustainability of the program,” the report stated.

It’s not the first time the administration has voiced its support for transferring more risk to insurers. The president’s 2019 budget included a proposal to increase plan sponsor risk from 15% to 80%, echoing previous recommendations (PDF) from MedPac.

kaiser part d
Kaiser Family Foundation

UnitedHealth, Humana and CVS had the largest market share of Part D plans in 2018, accounting for 55% of beneficiaries. As part of its deal with CVS, Aetna agreed to sell off its Part D plans to WellCare.

 The current structure creates a “perverse incentive to move people to catastrophic phase and not take on risk,” Verma said. She added that she’s hopeful Congress will act, but her agency is exploring ways it can make a change.

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