Move over copayments. "Coinsurance" is the new kid in town for many senior citizens.
A majority of drugs covered by stand-alone Medicare Part D prescription plans — which have nearly 25 million enrollees — now require patients to spend money out of pocket for coinsurance payments, according an analysis released Thursday.
And plans are increasingly likely to apply coinsurance requirements to even lower-priced drugs, the report by the Avalere Health consultancy found.
Coinsurance requires patients to pay a certain percentage of the price of the drug out of pocket, as opposed to a flat amount in the form of a copayment. The remaining cost of the drug is covered by the Part D plan.
The percentage of Medicare Part D drugs that require coinsurance has skyrocketed from 35 percent in 2014 up to 58 percent his year, Avalere Health said in its report. Most Part D beneficiaries are senior citizens.
The report also found that 96 percent of all Part D plan customers in 2016 are in plans that impose coinsurance across more than just one tier of drugs covered by the plans. That is up from just 39 percent of all beneficiaries in 2014, when coinsurance was apt to be applied for higher-cost specialty drugs.
"Coinsurance often leads to patients paying more out of pocket compared to fixed dollar amount copayments," Avalere noted in its report.
The research also found that coinsurance is less likely to be used in Medicare Advantage plans, most of which have prescription drug components, along with covering doctor visits and hospital stays for enrollees. Just 26 percent of the drugs in Medicare Advantage plans — which cover almost 14 million people — have a coinsurance requirement for 2016, according to the analysis.
Changes in coinsurance use by Medicare Part D prescription drug plans (PDPs) Source: Avalere Health
Avalere's findings suggest that many senior citizens in Medicare Part D plans will be in for a rude awakening this year after learning that their drugs, even generic prescriptions, will now have coinsurance requirements.
"Definitely, I"m sure there will be some surprises," said Colin Shannon, a senior manager at Avalere. And, "it's possible this is going to lead to some confusion," he said.
A number of people will be paying more out of pocket for their drugs as a result of the shift to coinsurance. But some people will actually see a reduction in their net out-of-pocket costs because of the change.
Insurers that participate in the Part D program are required by the federal government to cover a fixed percentage of total drug costs for enrollees. But they can design their plans to cover the costs of individual drugs at different rates. That means that enrolllees in a given plan can face different levels of cost-sharing requirements, due to varying copayment and coinsurance charges.
Shannon said the shift toward coinsurance requirements for many Medicare Part D drugs will mean that customers will have "a lot of work" to do in evaluating drug plans, by checking to see if a plan subjects medication to coinsurance, and to what extent.
"As coinsurance becomes more common in Part D plans, consumers will find their drug costs are less predictable and will need to rely more on tools like the Medicare Plan Finder to help estimate out-of-pocket costs," Shannon said. The shift to coinsurance "could lead to significant changes year over year in what patients are paying out of pocket."
Medicare Part D plans typically sort their covered drugs into five tiers, with different rates of cost sharing for each tier. This system is designed to encourage customers to use lower-cost drugs, and to help health plans negotiate better rebates from pharmaceutical companies in exchange for placement of their drugs on lower tiers.
Historically, Avalere's report noted, most plans applied coinsurance requirements to the specialty drug tier, which covers higher-priced medications.
But in the past several years, coinsurance has been increasingly applied to drugs in lower-priced tiers, including preferred and nonpreferred brand tiers, the report said.
Shannon said it can be "startling to people" to see coinsurance applied to lower-priced drugs.
Medicare rules require plans to charge coinsurance rates of no higher than 33 percent for drugs in the specialty tier. But the maximum coinsurance rate is 50 percent for nonpreferred brand tiers this year.
He said that about 11 million people enrolled in Medicare Part D plans have incomes low enough that they get federal subsidies to cover their out-of-pocket drug costs, which will mean they won't feel all or more of the effects of the shift to coinsurance requirements.
But the remaining beneficiaries will be likely to see the effects, he said.