Low Enrollment Could Drive Up Medicare Drug Premiums, Kaiser Study Says

What happens if the sign-up rate for Medicare's new prescription drug benefit is far lower than the 29 million eligible beneficiaries that the Congressional Budget Office estimates will enroll?

If 2006 enrollment falls well short of that projection and is dominated by beneficiaries with the highest prescription drug expenses, the average premium in 2007 "could be as much as 42 percent higher," according a new study funded by the Kaiser Family Foundation.

That in turn could deter low-spending beneficiaries from enrolling in 2007, driving premiums even higher the following year, said the study prepared for Kaiser by Jonathan Blum, Jennifer Bowman, and Chiquita White of the Washington, D.C. consulting firm Avalere Health.

The study assumes that 12 million of the 29 million - those in Medicare Advantage plans (the managed care side of Medicare), state pharmacy assistance programs, and those also enrolled in Medicaid - will automatically be enrolled in the new drug benefit.

If, of the remaining 17 million people, only the 20 percent with the highest drug costs enroll, the average premium could be as much as 42 percent higher compared to the premium if all 17 million enrolled.

Similarly, if enrollment among the 17 million was limited to the 60 percent with the highest drug spending, premiums could be 24 percent higher in 2007 compared to premium levels that would result if full enrollment were to occur.

One hundred percent enrollment of the Medicare population not automatically enrolled in the benefit is not likely, nor is enrollment exclusively by the highest spenders. But the figures suggest the importance of having many beneficiaries with lower drug costs.

"The results point to the importance of relatively full participation in Medicare prescription drug plans, and in particular, of enrolling beneficiaries in relatively good health," said the study. Without a concerted effort to enroll those beneficiaries, premiums in the future "could quickly escalate."

That not only could deter future enrollment by low spenders not yet enrolled , but also cause low spenders who have already signed up for benefits to drop out the following year, the study said.

The study also suggests that there is not much of a silver lining if the enrollment picture is clouded by a relatively low sign-up rate overall. That would appear to suggest lower-than-projected spending for the Medicare drug benefit, pleasing those that worry about runaway costs.

But "even if only the highest spending 20 percent of beneficiaries enroll, net federal costs are only 2 percent lower than if all beneficiaries are assumed to enroll," the study said.