The Part D Dilemma

Unless you’re a giant, it’s hard to be enthusiastic about Medicare Part D. Costs are high, margins are low, and a handful of players dominate the field.

But Medicare prescription drug plans (PDPs) are also a critical piece of a Medicare portfolio and the key to working in the seniors market. How to solve the dilemma? Start by making sure you know why you’re playing and what you hope to accomplish. Then find a way out of Part D’s crippling fixed costs. (Hint: You may need to partner.)

Prescription Drug Plan Consolidation: More enrollees, fewer plans

Between 2009 and 2014, national PDP enrollment grew from approximately 17.4 million to 23.4 million. That represents an annual growth rate of 6.1 percent, roughly double the growth of the Medicare-eligible population. Yet many PDPs are suffering from falling enrollment, and the Kaiser Family Foundation found that three out of four PDPs that existed in 2006 are no longer in the market. Meanwhile, three companies collectively command 55 percent of PDP business.

1Why should health plans offer a prescription drug plan?

Remember, Part D is the only commercial product in Medicare that requires seniors to make a decision or face a penalty. For many, it is their first real contact with Medicare and the first time that they need to ask what they need out of Medicare and what other products they might require. In our research, 73 percent of seniors who buy a PDP plan buy some other product from the same payer. No one can pass up that kind of marketing opportunity.
2Why is Part D so hard for smaller health plans?

Part D plans don’t bring in much revenue—only about $75 per member per month, compared to $750 per member per month for Medicare fee-for-service. But it costs roughly as much to run a PDP plan as to run a Medicare Advantage program. You have similar regulatory costs, similar legal and actuarial costs, similar customer service costs. But you only have a dime to pay for them, where a Medicare Advantage plan would have a dollar.
3Is that why you say that health plans need partners for Part D?

Yes, though there are other reasons as well. For example, Humana partnered with Walmart on a Part D plan. That yielded access to drug sourcing, distribution methods, and preferred networks, plus the benefits of an instantly recognizable name. That kind of partnership is largely out of reach to individual PDPs, but there are real possibilities for health plans that band together in coalitions.