Researchers Statistically Analyze Market Entry and Costs of New Medicare Prescription

Modeling decisions of Medicare health plans and determining if regional competitive bidding will work

The Medicare Prescription Drug Improvement and Modernization Act of 2003 created prescription drug coverage for Medicare beneficiaries (Medicare Part D) through regional stand-alone prescription drug plans and regional preferred provider organizations (PPOs).

In this 2004 to 2006 project, Steven D. Pizer, PhD, led a team of researchers in analyzing entry, enrollment and risk selection (the process by which health plans seek to enroll healthy, low-cost subscribers) of Medicare prescription drug plans. The researchers built statistical models and used them to simulate market entry and costs for the new plans.

The project was part of the Robert Wood Johnson Foundation (RWJF) Changes in Health Care Financing and Organization (HCFO) national program. HCFO supports policy analysis, research, evaluation and demonstration projects that provide public and private decision leaders with usable and timely information on health care policy and financing issues.

Two Findings Briefs on the project are available at the HCFO website, one on regional PPOs in Medicare and the other on premium subsidies in Medicare prescription drug plans.

Key Findings

  • The Findings Briefs report the following key findings:

    • Regional PPOs entered the Medicare market unevenly and in small numbers.
    • Regional PPOs enrolled less than 1 percent of the 22.5 million Medicare Part D beneficiaries in 2006. This compares with 22 percent enrollment for local health maintenance organizations and 72 percent for prescription drug plans.
    • Prescription drug plans will attract significant enrollment from beneficiaries who previously did not have prescription drug coverage through retiree benefits or state Medicaid programs.
    • All prescription drug plans experienced severely adverse selection (a tendency for use of health services to be higher than average in a population group) in drug spending.