FOCUS | January 27, 2006

Omar Abdel-Wahab, an internal medicine resident at Massachusetts General Hospital, recalled a conversation he had recently with an elderly patient. Like millions of other senior Americans, she viewed the new, complex Medicare prescription drug benefit with both optimism and trepidation. “There are so many drug plans to choose from, Doctor. How will I know which to pick?”

Indeed, the Medicare drug benefit, the centerpiece of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), is extraordinarily complex. Seniors face a dizzying array of choices on private, competing drug plans and must decipher elaborate benefit designs, all under the pressure of a sign-up deadline. But within this complexity lies opportunity: the opportunity to demonstrate the power and potential of competition, choice, and informed consumerism, tenets of the so-called consumer-driven health care (CDHC) model of medicine.

The Market’s Promise
Spurred by rising drug costs and mounting pressure from senior organizations like the American Association of Retired Persons (AARP), the Medicare prescription drug benefit is the biggest expansion of Medicare since its inception 41 years ago. Medicare continues to work as before, covering hospital care and physician visits. Yet until the MMA was signed into law by President Bush, Medicare did not generally cover outpatient medications. Seniors using prescription drugs typically enrolled in supplemental plans or Medicaid for coverage. Some had no prescription drug coverage at all. But no longer.

The new drug benefit is federally subsidized and gives seniors the choice of enrolling in stand-alone private drug plans or integrated plans that manage medical care and drugs. Though each plan is unique, the basic model is the same. Most plans require beneficiaries to pay a modest monthly premium and a $250 deductible. After the deductible is met, beneficiaries face a 25 percent coinsurance rate up to $2,250 in total drug spending. Between $2,250 and $5,100, beneficiaries fall into the dreaded “doughnut hole,” a gap in coverage in which they bear full costs. Afterwards, Medicare pays 95 percent of costs.

Ultimately, seniors who sign up will save at least a modicum of money, particularly those with very high prescription drug costs. According to the Medicare cost calculator, a Massachusetts senior spending $600 annually can expect to save $182; savings amount to $640 if spending is $1,200 and $2,282 if spending is $6,000.

Seniors will only maximize their savings, though, if they take the time and effort to make sense of the information before them and choose the plan best suited to their needs. Therein lies the challenge—and the promise—of CDHC.

A Tangled Web
On average, each state is offering dozens of competing plans, which vary in every dimension from the size of deductibles, copays, and premiums to whether medications are picked up at the pharmacy or delivered in the mail. In theory, a senior who selected the “wrong” plan could potentially end up paying more.

To make good decisions, seniors must consider their anticipated drug needs, chances of falling into the abysmal doughnut hole, and ability to switch away from brand name drugs to more cost-effective generics. A man who anticipates drug costs in excess of $2,000, for example, should choose a plan that provides some coverage in the doughnut hole. A woman with brand-sensitive medication needs should opt for a plan with low penalties for straying from formularies. Everyone should select generics when they are comparably effective.

Decision support tools are available. Formal sources include AARP, Medicare’s website and 800 number, and physicians. Informal sources include friends and children. Despite these resources, the challenges facing beneficiaries in this information age are daunting: three quarters of Medicare seniors do not surf the web. Many have difficulty reading small fonts. Even navigating with a mouse can be arduous. These technical hitches interfere with web-based information gathering, a critical force that helps drive CDHC markets to efficiency.

So far, only half of the 42 million Americans on Medicare are enrolled in a prescription drug plan. Medicare administrator Mark McClellan (HMS ’89), anticipates the number will rise and expects that “millions more people are going to be using more prescription drugs because they can now afford them.” As data on drug usage patterns and coverage plan choices trickle in, we will learn whether seniors were able to integrate information, save themselves money, and make better and more conscientious decisions about their health care.

If beneficiaries with limited access to the internet, a crucial decision support tool, can make more efficient health care decisions, there is yet much promise for CDHC. Contrary results would not derail consumer-driven health care, but would lend ammunition to opponents. A grand experiment is under way.

—Joseph Ladapo is a Harvard medical student
and a PhD student in health policy.

The opinions expressed in this column are not necessarily those of Harvard Medical School, its affiliated institutions, or Harvard University.

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