Medicare Drug Plans Often Not the Bargain Some Expect

Martin Brower was skeptical about the new Medicare prescription drug program and almost didn’t bother buying in.

But he couldn’t be sure he wouldn’t need it someday, and didn’t want to pay the financial penalties for missing the May 15 deadline for sign-ups. So he enrolled in a plan with a $278 annual premium and no deductible, hoping for immediate discounts.

When Brower, 77, plunked his official card on the counter at Costco to pick up his regular prescription, however, he got some disturbing news: His monthly supply of blood pressure medication would cost less if he didn’t use his Medicare plan.

The plan allowed him a maximum of 30 pills for $1.32 each. Without it, he could get 100 pills for $1.13 apiece.

Medicare Part D “doesn’t save anything,” grumbled Brower, who is no longer using the Medicare plan.

Some other seniors -- generally reasonably healthy, middle-class people who do not take a lot of costly drugs -- are coming to a similar realization: When premiums, co-payments, coverage gaps and other costs are figured in, the Medicare plans’ drug prices are sometimes little better, and sometimes worse, than those offered at low-margin pharmacies.

The finding has been borne out in a handful of surveys around the nation by program critics. For instance, a review by the Senior Action Network, a grass-roots advocacy group in San Francisco, found that Costco’s prices on the top 100 drugs used by Medicare beat prices of all 48 plans in California in more than half the cases.

“Seniors still ask, ‘How come the drugs cost more with insurance than if I just go to Costco and buy them?’ ” said David Grant, the network’s health policy director. “ ‘Why is it better to pay more and get less?’ ”

Some seniors are irked by other restrictions surfacing in the plans, including higher-than-expected co-payments, sudden price hikes, quantity limitations and requirements to try generic drugs before moving on to the higher-priced brands.

Officials at the U.S. Centers for Medicare and Medicaid Services, which runs the federal Medicare health program for the elderly and disabled, say that millions of new enrollees are saving money. In addition, they say, the plans’ value can’t be measured strictly by toting up individual prescription prices, but also must factor in the insurance coverage against future illness or injury.

A Washington Post-ABC poll, released last week, found that nearly two-thirds of seniors enrolled in the program said they were saving at least some money. But less than a third said they were saving a lot, and 26% said they had seen no savings, according to the findings, which were based on a subsample of 147 enrollees nationally.

As the May 15 deadline looms, about a third of Medicare’s estimated 23 million non-indigent beneficiaries who lack employer-funded prescription drug coverage have enrolled in Medicare plans, the Kaiser Family Foundation estimates.

On first blush, the possible savings appear enticing. The 2003 law that created the new program mandates that enrollees, after paying a $250 deductible, receive minimum annual benefits equivalent to 75% off total drug purchases up to $2,250. Enrollees also would save 95% off purchases of $5,100 or above.

For this coverage, the government agreed to pay the for-profit insurers running the plans an annual subsidy that now is at least $1,124 for each Medicare beneficiary who enrolls. The insurers also collect annual premiums from seniors averaging about $324 nationally plus whatever co-payments they charge.

Medicare is making a huge investment in the program -- nearly $700 billion over the next 10 years, according to the Kaiser Family Foundation.

Experts say the program clearly can benefit chronically or catastrophically ill people who take many costly medications, provided they carefully choose a plan that covers the drugs they need. Low-income people stand to benefit as well; a key provision of the Part D plan waives most premiums and co-payments for low-income people who earn up to 150% of federal poverty levels.

The plans offer “meaningful and affordable” coverage and catastrophic insurance protection for as little as $2 per month in some states, said Leslie Norwalk, deputy director of the Centers for Medicare and Medicaid Services. The plan covers two drugs in every class, including some expensive drugs such as Gleevec, a cancer drug that sells for $2,800 per month at Costco.

“Not all plans will be cheaper all the time, but we’re looking at the overall mix and the value of the insurance,” said Steve Hahn, a spokesman for the American Assn. of Retired Persons, which endorses the AARP MedicareRx Plan, operated by UnitedHealthcare, and obtains undisclosed royalties for enrollments. “It’s very difficult to come up with a program for 44 million that would provide the corporate coverage you or I are used to for $5 to $10” co-payments.

Brower and his wife, Tamar, knew they couldn’t get corporate-style coverage, but they avidly sought the best deal. The Corona del Mar couple are reasonably healthy and active, with a combined prescription drug bill of $3,100 last year.

They called various plans to inquire about charges for the specific drugs they needed, but no one would tell them, they said. So they settled on the AARP-endorsed plan, partly because it carried the name of an organization they knew.

So far, they say, it hasn’t proved such a great bargain. Martin Brower is back to buying his medications the old way, at Costco, sans Medicare.

His wife fared better -- at least in the short term.

In March, for instance, she saved $58 on four prescriptions ($35, if the monthly premium is subtracted ) using the AARP-endorsed plan, paying $117 compared with $175 she would have paid at Costco without using her Medicare plan.

But her savings were hardly as dramatic as she had hoped -- nowhere close to 75% off the Costco price. And should her prescription costs rise somewhat, her savings could be wiped out. If she spends more than $2,250 a year, she lands in the so-called “doughnut hole,” wherein she would be fully responsible for the plan’s list price for the drugs (more than $200 a month). Under most plans, the gap in coverage lasts until a senior has spent up to $5,100.

A study last year sponsored by the Commonwealth Fund, a nonprofit, nonpartisan foundation, predicted about 38% of enrollees would fall into this gap in any given year.

After expenditures of $5,100 or more, enrollees must pay just 5% of the costs of covered drugs. But the Commonwealth Fund-sponsored study found that just 14% of enrollees are expected to need catastrophic coverage in any year.

A variety of surveys, though small, have suggested that better discounts overall are available outside of Medicare, at outlets such as Costco, Drugstore.com, and particularly in government programs operated by the Department of Veterans Affairs and Medicaid, which negotiate volume discounts.

A comparison by the Democratic staff of the House Committee on Government Reform found that in January, 10 leading Medicare drug plans were charging prices for 10 top brand-name drugs that averaged 2% more than at Costco in Los Feliz, 4% more than at Drugstore.com, 61% more than in Canada (which caps prescription prices) and 78% more than the other federal programs.

And a survey by Stephen W. Schondelmeyer, a professor of pharmaceutical management and economics at the University of Minnesota, found in the first two weeks of the plans’ rollout that Medicare plans’ prices did not differ much from those of typical retailers, at least in one Minnesota ZIP Code.

Costco executives say the warehouse keeps its prices low because storewide policy prohibits markups of more than about 15% above acquisition costs, possible because of lean overhead with few frills.

Charles Burnett, Costco’s senior vice president of pharmacy, said many Costco customers are choosing not to enroll in Medicare. “They buy two-thirds of their drugs [the generics] from us, and the rest from Canada,” where brand-name drugs typically are cheaper because of government price caps, he said.

Other pharmacies have an incentive to charge higher cash prices because it helps them to receive higher reimbursements from insurers, he said. But because 60% of Costco patients are uninsured, “we’re not going to do that to penalize the person who pays cash,” Burnett said.

Joining Costco costs $45 per year, although membership isn’t required to buy from the pharmacy.

In general, seniors who opt to join Medicare’s plans may find that the best buy is not easily discernible.

Even pharmacists can’t tell what a plan’s so called “negotiated price” is until the order is run through the computer. Prices differ substantially according to a host of variables -- such as which plan it is, whether a drug is on a plan’s preferred list, whether it’s obtained via mail order and whether it is generic.

Some plans’ co-pays alone are more than Costco’s price -- and occasionally the retail price -- of the drug.

Ralph Saroyan of Stockton, a former president of the California Pharmacists Assn., thought he had selected a Cadillac plan for his mother, who needed some expensive name-brand drugs. But the plan’s affiliated pharmacy claimed its reimbursement under the plan wasn’t sufficient to cover name brands, so he had to accept generic versions.

Then Saroyan discovered he would have to shell out co-pays of $18 for each monthly maximum of 30 pills. The cost for 100 pills outside the plan was $25.

He took the best deal.

The writer can be reached at Valerie.Reitman@latimes.com.

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About Medicare sign-ups

The deadline for purchasing a Medicare Part D prescription drug plan is May 15. Those who enroll later face a small, permanent penalty for each month of delay, calculated at 1% of the average national premium (now $32) atop regular monthly premiums. Those opting to buy at the start of the next open enrollment in November, for example, would face a permanent surcharge of about $2 monthly.

* To enroll or get more information on available plans, call (800) MEDICARE (633-4227) or go to www.medicare.gov where an online tool is available to help sort out the available plans offered by private insurers under Medicare’s auspices.

* Free individual counseling about the Medicare Part D prescription benefit is available in every county in California through the state Department of Aging’s Health Insurance Counseling and Advocacy Program. For appointments, call (800) 434-0222 or go to www.calmedicare.org/counseling/counseling.html.

Los Angeles Times