A Study of Options for
Making Prescription Drugs
More Affordable for Older Adults
Executive Summary
- Are Older Adults Able to Afford Prescription Drugs?
- What Do Older Adults Do When They Have Difficulty Paying for Needed Medications?
- What Is North Carolina Doing to See that Older Adults Who Cannot Afford Needed Drugs Receive Assistance?
- Recent Federal Actions That Could Enhance Prescription Drug Coverage for Older Adults
- Possible State Options to Improve Access to or Affordability of Prescription Drugs for Older Adults
- Conclusion
Are Older Adults Able to Afford Prescription Drugs?
Older adults rely on prescription drugs more than other age groups. Unofficial estimates developed by staff with the Health Care Financing Agency (HCFA) indicated that in 1997, about 89% of all older adults will use one or more prescription drugs. These unofficial estimates also indicate that on average, older adults will spend a total of $742 per person for prescription drugs in 1997. This amount is projected to increase to $1,009 by the year 2005.
Although older adults look to Medicare as their main source of health insurance coverage, generally, Medicare does not cover out-patient prescription drugs. Many older adults purchase a Medicare Supplement policy to cover gaps in Medicare coverage. However, only three of the ten nationally standardized plans include a drug benefit and the cost of these plans is out of reach for many low and moderate income older adults. To help illustrate this point, in 1996 only 14% of Medicare Supplement policyholders purchased a plan with a drug benefit.
In North Carolina, it is estimated that in 1995, approximately 47% of older adults had no coverage for prescription drugs. Even more alarming is the estimate that among those living at or below 200% of poverty, 56% were likely to be without coverage for prescription drugs. The number of older adults living at or below 200% of poverty without prescription drug coverage in 1997 is estimated to be about 258,000 increasing to about 333,000 by the year 2010. Lack of insurance coverage or insufficient financial resources can be a major barrier to purchasing prescription drugs, particularly for older adults living at or below 200% of poverty. Failure to take medications as prescribed can result in declining health as well as increase overall health care costs for the nation.
What Do Older Adults Do When They Have Difficulty Paying for Needed Medications?
A recent survey of more than 600 older adults living in eastern North Carolina was recently concluded by Dr. Jim Mitchell with the East Carolina University Center on Aging. This study looked at what specific strategies older adults use to help manage their prescription drug costs. Forty four percent of those taking prescription drugs said they used one or more of nine different strategies to help manage drug costs such as: asking for sample drugs; buying and/or taking less than the amount prescribed; only take when they think they need it or have pain; go without drugs because they cannot afford them; buy only the drug(s) they think are most important, etc. Nineteen percent of those taking prescription drugs said they used three or more of the strategies to help manage their drug costs. Some of the strategies affect compliance with prescribed regimens and, as a result, can negatively impact the individual's health.
A national study conducted in 1995 also showed that among persons aged 50 and over with an annual income of $10,000 or less, 40% reported they had to cut back on essentials such as food or heat to pay for a prescription drug(s).
What Is North Carolina Doing to See that Older Adults Who Cannot Afford Needed Drugs Receive Assistance?
There are several programs that provide at least some assistance with prescription drug costs for older adults and/or other populations. Key programs include the following:
Medicaid
Medicaid provides a relatively generous prescription drug benefit generally covering up to 6 prescriptions per month with a $1.00 copayment for each prescription. Income eligibility for Medicaid equates to about 74% of poverty for Supplemental Security Income (SSI) beneficiaries. Those not SSI eligible must spend down to $242 per month or about 37% of poverty. During Federal Fiscal Year 1995-96, approximately 116,500 older adults received prescription drugs through Medicaid at an average annual per person cost of $1,076. These costs do not take into consideration manufacturer rebates paid to the Medicaid program which average about 20% per prescription.
Medicaid is also responsible for paying Medicare Part B premiums (currently $43.80 per month), copays and deductibles for Medicare beneficiaries with an income at or below 100% of poverty and assets of $4,000 or less for an individual or $6,000 or less for a couple (QMBs). For Medicare beneficiaries between 101 and 120% of poverty who meet the same asset limits as QMBs, Medicaid pays the Medicare Part B premium only (SLIMBYs). There are estimated to be approximately 58,000 aged and disabled enrolled QMBs and SLIMBYs who do not have regular Medicaid coverage for prescription drugs. Given their low income and asset levels, these two groups are a particularly vulnerable group with regard to needing help with prescription drug costs.
Other State Administered Programs
There are known to be seven different programs in the state that help purchase prescription drugs for certain non-Medicaid eligible populations. These programs target non-Medicaid eligible persons with specific medical needs (e.g., epilepsy, HIV-AIDS) and persons in specialty care programs such as migrant health or vocational rehabilitation programs. It is estimated that approximately $4.5 million in state and federal funds was spent for drugs by these programs during State Fiscal Year 96-97.
Community Drug Assistance Programs
At least ten programs are known to have been established at the community level to help low-income persons obtain needed prescription drugs. These programs rely on manufacturer sample drugs, accessing manufacturer drug assistance programs and/or provide financial help to enable participants to purchase drugs from retail pharmacies. Providing consumer information and drug education counseling is another important component of some of these programs. This is a very important function considering some of the strategies used by older adults to manage drug costs, the potential complications and dangers that can result when physicians and pharmacists are not aware of all the prescriptions/over-the-counter medicines an individual is taking, and/or potential problems stemming from outdated prescribing practices by some physicians. Typically, these local programs survive on a shoe string budget.
Drug Manufacturer Assistance Programs
Many drug manufacturers have patient assistance programs that provide prescription drugs at no cost or reduced cost, on a time limited basis, to low-income patients in need. More than one million persons nationwide were reported to have received help from these programs in 1996. However, differing eligibility and application processes across manufacturers creates frustration for both health care providers and patients and prevents the efficient and perhaps more frequent use of these programs. Knowledge about the existence of these programs, particularly among low-income consumers, is reported to be another barrier to utilization of these programs.
Prescription Drug Discount Enrollment Programs
These programs offer a discount on prescription drugs that is presumably greater than any discount the enrollee could otherwise receive from a particular pharmacy for a particular drug. AARP's pilot "Member Choice" program is one such program. Currently about 18,000 of North Carolina's 846,000 members are enrolled in the program which requires a $10 annual enrollment fee. Information provided by Retired Member Services, Inc., the entity that administers this program for AARP, reports that the average annual savings on prescription drugs for enrollees is $198. Computerized tracking of purchases made by Member Choice enrollees at participating pharmacies enables pharmacists to be alerted to potential problems such as an adverse drug interaction so they can discuss any potential problem with the enrollees and their physicians before filling the prescription. Retired Member Services, Inc., will be making a recommendation to AARP concerning the continuation and possible expansion of this program in the near future.
Recent Federal Actions That Could Enhance Prescription Drug Coverage for Older Adults
The balanced budget bill recently signed by President Clinton includes several provisions that could indirectly increase the number of older adults with prescription drug coverage including:
Expanding Medicare Part B Premiums to More Low-Income Enrollees
Medicare enrollees between 121 and 135% of poverty with limited assets will be eligible to have their Medicare Part B premiums paid for them. The balanced budget bill includes $1.5 billion in block grants to states for this purpose. These funds will also be used to pay the premium increase amount only for persons between 136 and 175% of poverty with limited assets. While not an entitlement, eligible persons between 121 and 135% of poverty who are now paying Part B premiums out-of-pocket will have additional money to spend on other necessities such as prescription drugs. In 1998 it is estimated that approximately 31,709 olderadults will be eligible to have their Medicare Part B premiums paid as a result of this new provision, and this number is projected to grow to approximately 40,041 by the year 2010. The actual number that will be able to benefit will depend on the amount of block grant funds awarded to North Carolina and the number of eligible persons who actually seek this assistance.
Medical Savings Accounts for Medicare Beneficiaries
Up to 390,000 Medicare beneficiaries nationwide will be able to participate in a Medicare Medical Savings Account (MSA) demonstration beginning in 1999. Those participating will be covered by a high-deductible (as much as $6,000 in 1999) catastrophic policy. A portion of the annually calculated managed care rate will be used to pay for the catastrophic policy. The amount remaining after paying the premium for the policy will be deposited in a tax free MSA account for the beneficiary to use to pay for medical care not covered by the catastrophic policy such as prescription drugs. Because of the high out-of-pocket deductibles required, it is expected that only moderate and upper income Medicare beneficiaries would select this option. The ability to accumulate MSA funds could provide a hedge against growing out-of-pocket costs down the road as well as having flexibility to determine what medical costs MSA funds will be used for and when (e.g., prescription drugs, long term care insurance).
Expanding Medicare Managed Care Options and Revising the Way Monthly Payment Rates for Managed Care Providers are Calculated
Medicare beneficiaries will be able to choose among an array of managed care options in addition to existing HMO and fee-for-service coverage options. New managed care options will more closely mirror private market managed care options such as: HMO Point-of-Service plans which will enable beneficiaries to receive some care outside of the defined network; Preferred Provider Organizations (PPOs); and Provider Sponsored Organizations (PSOs). These new options should result in more rapid expansion of managed care in North Carolina than might otherwise have occurred. Managed care should also expand in both urban and rural areas as a result of a provision to establish a minimum monthly payment rate of $367 for managed care providers. Currently, payment rates for many rural managed care providers nationally are less than $300 per month. Also, the method used to calculate payment rates will be revised to now give some weight to national costs as well as local health care costs which will help raise monthly payment rates in low cost and rural areas. Increased competition among providers, combined with the opportunity for higher payment rates, could result in plans offering at least some additional benefits such as prescription drugs at no cost or for a low additional cost as a way to attract enrollees. Provision of additional benefits could benefit Medicare enrollees of all income levels but is likely to provide the most benefit to lower income older adults.
Adding Two Nationally Standardized Medicare Supplement Policy Options
The balanced budget bill authorizes two new Medicare Supplement plans which are high-deductible versions of Plans F and J. Plan J is the most comprehensive plan and includes a drug benefit. These policies require a $1,500 deductible before the policy pays for any covered services. Once the deductible is met, there are no additional deductibles or copayments for covered services. The high-deductible provision could result in lower monthly premium costs thereby enabling some individuals to purchase a more comprehensive plan than they might have purchased otherwise. This new option is likely to benefit only new Medicare enrollees of moderate and upper income. It is estimated that if 10% of new policy purchasers in North Carolina purchased a Plan J who would not otherwise have done so, 862 persons would be impacted by this option.
Possible State Options to Improve Access to or Affordability of Prescription Drugs for Older Adults
Several options used or considered by other states have been reviewed as have several "home grown" options. The viability of each option will need to be considered in light of North Carolina's current economic and political environment.
Options Used/Considered by Other States
State-Funded Prescription Drug Assistance Programs. As of July 1997, eleven states were known to administer state funded prescription drug assistance programs. Each state's program is unique although there are several common features across programs such as: requiring copayments by participants; targeting older and disabled persons of limited income; and arrangements for rebates from drug manufacturers. As reported by Stuart Bratesman with the Duke Long Term Care Resources Program, controlling growth of program cost is a major concern for states. Establishing a state funded program in North Carolina to cover enrolled aged and disabled QMBs and SLIMBYs without Medicaid drug coverage is estimated to cost $17.4 million in 1998 increasing to $20.6 million in 2003. While this option could potentially impact large numbers of very low-income older and disabled adults, this option requires a significant and on-going investment of state funding to provide even a limited annual benefit of $300.
Medicaid 1115 Waivers. If approved by HCFA, these waivers enable states to provide otherwise disallowed services and/or coverage for an otherwise uncovered group, so long as the state can demonstrate the program will be budget neutral to Medicaid. Vermont is the only state known to have obtained an 1115 waiver to provide prescription drug coverage only to a previously uncovered population (QMBs). Budget neutrality for this new coverage group was achieved from savings projected as part of their overall capitated managed care waiver. Demonstrating budget neutrality for a prescription drug benefit only for QMBs and SLIMBYs, for example, would be extremely difficult in the absence of a broader waiver that would use capitated fees to achieve savings to demonstrate budget neutrality for this additional coverage. It is unlikely that HCFA would accept the rationale that hospitalizations could be reduced as a result of providing a prescription drug benefit for an older population. Even if HCFA would accept this rationale, since Medicaid is only responsible for paying the first day of a hospitalization for QMBs (Medicare is primary payer), the Division of Medical Assistance could only identify $3.2 million in Medicaid costs paid for first day hospital costs for all enrolled QMBs. This amount falls far short of the $20.2 million in state funds needed to offset the cost of providing a Medicaid funded prescription drug benefit only for aged QMBs and SLIMBYs in SFY 98-99. Due to budget neutrality requirements imposed by HCFA, this is not a viable option for North Carolina to pursue at this time.
Extending Multi-State Purchasing Alliances. North Carolina is one of twenty-nine states that participates in a drug purchasing alliance administered by the Minnesota Department of Administration. This alliance is intended to reduce administrative duplication for contracting as well as obtain lower "best prices" from drug manufacturers for certain coverage groups as a result of volume buying. Aging advocates in Minnesota promoted legislation to enable general public consumers to benefit from drug prices negotiated through the alliance. Such an action could negatively impact other member states since general public consumers are not a covered class of business served by the alliance. As a result, legislation was modified and ratified requiring Minnesota's Department of Administration to set up a separate state administered alliance to negotiate drug discounts for general public consumers through pharmacies that would voluntarily enroll in this new alliance. The Governor vetoed funds accompanying the legislation. Even if such an alliance were pursued, Minnesota's Department of Administration does not expect much, if any, interest from pharmacies since they would be required to pass on to all consumers, 75% of any price savings negotiated by the alliance. This alternate option does not seem feasible either but it will be interesting to see what Minnesota does with regard to establishing a state administered alliance to benefit all consumers of prescription drugs.
"Home Grown" Options
Extending Medicaid Discounts to QMBs and SLIMBYs. Rebates from manufacturers for drugs purchased for Medicaid enrollees currently average about 20% per prescription. Extending similar discounts to enrolled aged and disabled QMBs and SLIMBYs could result in a considerable savings for these two vulnerable groups who would continue to be personally responsible for prescription drug purchases. Manufacturers would have to agree to provide rebates to pharmacies and pharmacies would have to agree to pass on discounts to QMBs and SLIMBYs. Manufacturers may be willing to offer rebates since this is a finite group and Medicaid already has some financial responsibility for these individuals. Initial discussions between Medicaid staff and Pharmacy Network National Corporation, which includes 99% of pharmacies in the state, indicate this network is willing to consider such an arrangement.
Because payment of rebates by manufacturers can take up to eight months, the issue of cash flow would be of concern to pharmacies. One time start-up funds could alleviate the cash flow problem provided that a written agreement established with the network included, among other issues, a commitment to make discounts available for a specified period to protect start-up funds invested. A small claims processing fee (e.g., $.40 to $.50 per prescription) charged by the network to cover their administrative costs could be paid by the consumer. Other costs associated with implementing this option are likely to be minimal, if any. The Department of Health and Human Services and the Division of Medical Assistance would need to take a lead role in identifying and negotiating all details that would need to be considered in developing a written agreement with the pharmacy network to implement this option. For instance, the network would likely want to be protected from any potential financial loss resulting from a particular manufacturer failing to pay rebates for all reported sales. To address this possibility, only manufacturers with excellent rebate payment histories for Medicaid sales could be asked to participate and/or some limited amount of stop loss funds could be guaranteed over the life of the agreement. It is estimated that one time start-up funds of $9.2 million would be needed to extend discounts to both aged and disabled QMBs and SLIMBYs. This option could be modified to limit drugs discounted to medications that treat specific diseases (e.g., diabetes, heart disease, asthma) as a way to reduce start-up costs. Such action would, however, also reduce the number of QMBs and SLIMBYs who could benefit from the discounts.
Encouraging AARP to Institutionalize and Market Their Member Choice Program. A decision to continue and widely market this program in North Carolina could potentially benefit all 846,000 North Carolina AARP members of whom about 54% are age 65 and older. At a total cost of $18 per year ($8 dues and $10 discount program fee), this is a relatively low cost option for consumers. Annual savings for prescription drugs by members is reported to be about $200. While it is likely that persons of moderate to upper income would be most likely to enroll, this option could also benefit lower income persons. There may be other similar programs that could be equally beneficial to consumers.
Promoting Efforts to Streamline and Standardize Drug Manufacturer Assistance Programs. As important as these programs are to persons with no other source of help for obtaining needed prescription drugs, red tape and differing procedures result in inefficiencies and delays for health care providers and patients trying to access help. While recognizing that each manufacturer tailors program requirements to meet their unique needs, there may be ways to streamline and/or standardize at least some aspects of these programs. North Carolina's Medical Society might be willing to pursue this issue with drug manufacturers. Successful efforts to make these programs more user friendly could result in more health care providers tapping this important source of assistance for non-Medicaid eligible low-income patients.
Promoting Additional Medicare Supplement Policies to Offer a Drug Benefit with Lower Cost Plans. Including a drug benefit with one or more lower cost plans could make prescription drug coverage more affordable for many more older adults. The Insurance Commissioner has the authority to approve the sale of additional Medicare Supplement Plans that include a new or innovative benefit. Initial discussions between the Seniors' Health Insurance Information Program and HCFA indicate that HCFA would view such additional plans as an innovative benefit. The additional premium cost of adding a prescription drug benefit to plans that do not currently include a drug benefit (Plans A to G) is estimated to be about $31 per month. Since increased age and medical underwriting requirements would affect the cost of these new policies for current policyholders, this option would primarily benefit new Medicare beneficiaries of moderate income. If 20% of new policyholders in 1998 purchased one of these new plans who would not otherwise have purchased a plan with a drug benefit, approximately 1,700 persons would be impacted. Likewise, 25% would equate to about 2,150 persons. Efforts by the Insurance Commissioner to promote the offering of such plans would likely help spark interest among insurers to offer these additional plans. The Department of Insurance is pursuing participation interest by the industry and written approval from HCFA concerning this potential option.
Conclusion
Purchasing needed drugs to treat acute or chronic conditions can be a serious problem for many low and moderate income older adults. In addition to the issue of affordability, cost-wise buying and the safe and appropriate use of prescription drugs can be an issue of concern for older adults irrespective of income. Given the complexity and extent of the problem, there is no magic pill to treat this health care ill. An array of options that build upon both the successes and set-backs of other states as well as consider how North Carolina might be uniquely positioned to respond to this issue have been outlined as a starting point for discussion by policymakers. Determining what is/are the most appropriate role(s) for state government is a fundamental question. Certainly efforts that support increased personal responsibility for prescription drug costs is an important consideration. Determining to what extent the public sector has a responsibility to ensure that all older adult consumers, regardless of income, have access to information they need to maximize buying power and ensure the safe use of all medicines used is another important consideration. It will also be important to consider what populations of older and disabled adults might benefit from recent federal actions which could increase access to or the affordability of prescription drugs. The options outlined in this report provide opportunities for both public and/or private sector support. The strengths, barriers, and potential impact of each option will need to be viewed in light of North Carolina's current economic and political environment.
