Advocates for Evidence-Based Health Policy Speakers
To switch or not to switch?
Very few Medicare Part D enrollees switch plans each year even though doing so could save them money.
The Kaiser Family Foundation recently released an issue brief discussing the occurrence of prescription drug plan switching among Medicare Part D beneficiaries. The authors note that the average beneficiary has a choice of 31 stand-alone prescription drug plans and 20 Medicare Advantage drug plans. How often would beneficiaries switch drug plans given the multitude of choices?
The analysis was based on a 5% random sample of Medicare beneficiaries obtained from CMS for years 2006-2010. A majority of seniors reviewed their plan options each year (about 6 out of 10); up to 25% of seniors rarely or never reviewed their options. Those individuals that actually switched plans from one year to the next were the subject of this study.
The vast majority of Medicare Part D enrollees did not make any changes to their annual plan enrollment. About 87% of prescription drug plan beneficiaries (including both Medicare Advantage and stand-alone plans) remained with the same plan from year to year. Over the entire 5 years, 72% of enrollees remained in the same plan. Nineteen percent switched only once and about 9% switched more than once.
Beneficiaries that did switch plans were more likely to have lower premiums than those who did not switch (46% vs. 8%). They also tended to receive lower out-of-pocket costs (47% vs. 42%). The findings from the study suggested that plan choice was driven by premium changes and not necessarily total out-of-pocket costs. Plans that decreased premiums (or increased by less than $10 per month) saw about 7% of their enrollees switch. Plans with premium increases of $10-$20 per month saw 21% of customers switch and plans with premium increases greater than $20 per month had over 28% of customers switch. Beneficiaries were also more likely to switch whenever the deductible would rise the following year.
Overall, the 13% of Part D beneficiaries who switched plans was comparable to switching among the privately insured.
Commentary
Medicare Part D, an exercise in managed competition, provides policy makers insight into what might also occur in regulated private insurance environments such as the Affordable Care Act’s Marketplaces.
As happens in the private sector elsewhere, most Medicare Part D enrollees do not switch plans even when it might make financial sense to do so. Of those that do switch, their premiums and total out-of-pocket costs tend to go down. For those individuals, managed competition works.
But what about the other 87%? Certainly some are satisfied with the prescription drug plans they have. However, others might not switch because they are overwhelmed with the number of choices (51 for the average enrollee). Behavioral economists note that those with too many choices make poor choices – if they are able to make any selection at all.
If enrollees do not make the decision to change plans when it financially benefits them, insurers have less incentive to be competitive. So how can we improve the competition aspect of managed competition? There must be a sweet-spot between and too many. How we arrive at that sweet-spot is the challenge ahead for Part D and for Obamacare’s Marketplaces.
by
Cedric Dark, MD, MPH
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