MedPAC: Reforms to Part D LIS Could Produce Savings

by Lauren Flynn Kelly

Although the Medicare Part D program's low-income subsidy is designed to ensure all beneficiaries have access to drug coverage, the Medicare Payment Advisory Commission (MedPAC) is concerned that the LIS in its current format has the potential to limit competition among benchmark plans and result in higher Medicare spending.

The LIS subsidizes premiums for nearly 13 million Medicare Part D beneficiaries, and spending for LIS premiums in 2019 totaled $3.8 billion, according to a Sept. 2 presentation by MedPAC Principal Policy Analyst Eric Rollins.

Reforms are needed:

• As the system is currently structured, the benchmark — which is designed to promote enrollment into lower-cost plans — equals the average premium for basic coverage across all stand-alone Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug (MA-PD) plans in a region, and the premium for each plan is weighted by its LIS enrollment. Enrollees who sign up for basic plans that cost less than the benchmark do not have to pay a premium.
• Without knowing what the benchmark will be when they submit their bids each June, Part D plans make projections based on the current benchmark and anticipated spending growth, explained Rollins. The incentive for plans to keep premiums below the benchmark is that they qualify for the auto-enrollment of eligible LIS beneficiaries in their region, he said, but "once a plan qualifies as a benchmark plan, it has no marginal incentive to lower its premium any further," and plans aim to "set their premiums as close to the benchmark as they can without going over."

MedPAC presents potential changes:

• Replace the current system of equally distributing auto-assigned beneficiaries across plans with a new process that assigns more beneficiaries to plans with lower premiums. In effect, the lower a plan bids, the larger a share of auto-enrollees it would receive, Rollins explained.
• Lower the benchmark without making changes to the auto-enrollment process. MedPAC evaluated three potential alternatives — use non-LIS enrollment to weight premiums; include Part C rebates that MA-PDs use to lower premiums; and use overall Part D enrollment to weight premiums and include Part C rebates that MA-PDs use to lower premiums — and found that the second and third formulas would reduce benchmarks.

From RADAR on Medicare Advantage