Growing Reinsurance Payments Weaken Competitive Bidding in Medicare Part D.

OBJECTIVES: To examine variation in risk-adjusted reinsurance payments across Part D plans, analyze its implications for the program, and explore options to reduce reinsurance payments.

DATA/STUDY DESIGN: 2007-2015 Part D Plan Payment and Premium data; 2010-2013 Part D Prescription Drug Event data; and 2013 Part D Plan Formulary Files.

PRINCIPAL FINDINGS: Risk-adjusted reinsurance payments varied widely across plans at a given out-of-pocket (OOP) premium. The variance in risk-adjusted reinsurance in common OOP premium ranges increased between 2010 and 2015. High risk-adjusted reinsurance payments were negatively correlated with use of utilization management tools for high-cost drugs.

CONCLUSIONS: Growing reinsurance payments shrink plans' liability for managing drug spending for high-cost enrollees, creating plan moral hazard, and making OOP premiums a noisy signal of plans' total costs.