Protected Classes and Protected Interests: An Analysis of Benefit Design and Profitability in Medicare Part D

Abstract

My analysis focuses on insurer benefit design of the protected classes. I use prescription profitability data from Carey (2017) and formulary data from the Center of Medicaid and Medicare Services (CMS) to estimate coverage generosity for the six protected classes across plan types. Medicare Advantage plans include both prescription drug and medical coverage. Stand Alone Plans only include prescription coverage. I find that Stand Alone Prescription Drug Plans (PDP) and Regional Medicare Advantage plans have the least favorable benefits for the most unprofitable classes, and include profitable drugs on earlier tiers. Local Medicare Advantage includes profitable drugs on earlier tiers, but also has more generous coverage for some of the least profitable classes. That can be due to my data which only uses prescription drug profits and not full medical costs, and medical profit maximization by MA plans, which has been suggested in the literature. Lastly, I find branded drugs are discouraged by insurers and coverage generosity decreases, on average, over time.