Every Picture Tells a Story: Pills, Profits, Ploys and the Economics of Medicare Part D

All Medicare beneficiaries must have some form of Part D prescription drug coverage, either as a standalone product (PDP) or as part of a Medicare Advantage program (MA-PD). In Medicare Part D, co-payments are fixed amounts you pay for a specific prescription. In contrast, co-insurance is a percentage of the total cost of the service that you're responsible for after meeting your deductible.

Part D programs have drug formularies, lists of drugs they cover, typically divided into three tiers where costs are increasingly offset onto the beneficiary rather than the insurer. 

Tier 1 – preferred generics

Tier 2 – generics

Tier 3 – branded drugs

Generally, co-pays cover tier 1 drugs, and tier 3 drugs are covered by co-insurance. The more significant distinction is that co-pays are more protective against list prices; co-insurance exposes you to greater out-of-pocket costs as those list prices rise. 

A study in JAMA Network Open looked at the cost of tier 3 branded drugs between 2020 and 2024 for standalone and Medicare Advantage drug plans. 

• Figure A shows that roughly 5% of MA-PD programs used co-insurance over those four years, while the percentage of PDPs using co-insurance rose from approximately 10% to 72%.
• Figure B shows the impact of that change on the most widely prescribed Tier 3 medication, Eliquis or apixaban. The out-of-pocket cost to beneficiaries in a Medicare Advantage program rose about 5% to $46.93. On the other hand, the cost to beneficiaries in standalone programs rose 118% to $102.32

They present additional data showing that these increases “were consistent across drugs.” During the time frame surveyed, the price of apixaban rose 22% while the standalone share more than doubled. Costs were shifted onto beneficiaries and more so for the standalone programs. 

Why might that be?

It could mean that PDP programs pay more than MA-PD programs pay for the same medication. However, the same insurance company offers both plans, so I think this possibility is less likely. It might mean that MA-PD programs are getting greater rebates, which they pass on to consumers, or are so adequate that MA-PD programs do not need to take more from their beneficiaries. Again, when these insurers purchase in bulk, often from themselves, this price discrimination makes little sense. 

The researchers end with a bit of MBA speech

“These findings reinforce broader evidence of differentiation between the PDP and MA-PD markets…”

For the business impaired, differentiation is meant to nudge demand. In this case, the high out-of-pocket costs to the standalones are another “stick” used to move them into MA programs where the insurer can control more of the costs and continue to keep the “golden crumbs” alluded to in the Bonfire of the Vanities. It is part of the grift. You are funding a well-oiled machine on an uneven playing field where they have all the information, and you bear the costs. 

Medicare Part D was supposed to make prescription drugs more affordable, but it's just another rigged financial maze where insurers and PBMs profit and beneficiaries pay more for the same medications. Meanwhile, the illusion of "choice" in Medicare drug coverage remains just that—an illusion. Until policymakers address the deeper incentives driving these pricing games, the only thing guaranteed in Part D is that someone is making money off you.

Source: Cost Sharing for Preferred Branded Drugs in Medicare Part D JAMA Network Open DOI: 10.1001/jama.2024.28092