Jack Hoadley

Laura Summer

Jennifer Thompson

Georgetown University

Elizabeth Hargrave

Katie Merrell

NORC at the

University of Chicago

MedPAC

601 New Jersey Avenue, NW

Suite 9000

Washington, DC 20001

(202) 220-3700

Fax: (202) 220-3759

www.medpac.gov

•

•

The views expressed in this report

are those of the authors.

No endorsement by MedPAC

is intended or should be inferred.

The Role of 

Beneficiary-Centered

Assignment for

A study conducted by staff from Georgetown University

and from NORC at the University of Chicago 

for the Medicare Payment Advisory Commission

June 2007 • No. 07–4

Medicare Part D
1

The Role of Beneficiary-Centered Assignment for Medicare Part D 

Final Report

Jack Hoadley, Laura Summer, and Jennifer Thompson 

Health Policy Institute, Georgetown University 

Elizabeth Hargrave and Katie Merrell 

NORC at the University of Chicago 

Submitted to the Medicare Payment Advisory Commission 

Joan Sokolovsky, Project Officer 

May 8, 2007 

The authors would like to acknowledge the contribution of David Barish (Georgetown 

University) for assistance with data collection and Lan Zhao (NORC) for assistance with 

data analysis.
2

The Role of Beneficiary-Centered Assignment for Medicare Part D

Executive Summary 

Under the Medicare Part D benefit, dually eligible beneficiaries and others who qualify for 

the low-income subsidy are assigned to a plan while maintaining the option of choosing one 

on their own. Under a policy of random assignment, beneficiaries are not steered to any 

particular plan and qualifying plans receive an equal share of beneficiaries. This report 

considers the potential impact on beneficiaries and the federal government of using random 

assignment, as compared to “intelligent random assignment” or “beneficiary-centered 

assignment.” The study was based on interviews with state officials who have experience 

with beneficiary-centered assignment and on an analysis of how Medicare drug plans cover 

100 drugs commonly used by Medicaid beneficiaries. 

Findings 

• Beneficiary-centered assignment is feasible for Medicaid and state pharmacy 

assistance program populations. States have found that it is not costly and has not 

had a disruptive effect on the markets in their states. 

• State officials believe that beneficiaries have better access to the drugs they are used 

to taking under this approach to assignment. They also see the potential for savings, 

although the extent of savings depends in part on how the programs wrap around 

Part D. 

• A substantial number of studied drugs were off formulary for at least one Part D 

plan in each of the regions used in this study. In addition, about one-third of 

covered drugs require either prior authorization or step therapy for at least one plan 

we studied. Both situations potentially cause access problems for beneficiaries but 

generally do not incur added costs for the federal government. 

• In each region, about half of studied drugs are covered on non-preferred tiers for at 

least one of the plans we studied. As a result, monthly cost sharing varies across 

plans in each region. We found that cost sharing for each drug is nearly always at 

least $5 per month higher in at least one plan, compared to the plan with the lowest 

cost sharing for that drug, and is at least $50 higher for one-tenth of the drugs in this 

study. These higher costs are not incurred by beneficiaries, but are paid to the plans 

by the federal government. 

• Beneficiary-centered assignment could be designed to avoid some of the situations 

where beneficiaries have prescriptions for drugs that are off formulary or face some 

type of utilization management. It could also be designed to reduce program costs 

for federal and state governments. Policymakers would need to decide how to 

balance these goals, as well as how to account for differences in plan premiums and 

deductibles. 

• In designing a new system of assigning beneficiaries, policymakers would also need 

to balance other factors, including the cost and disruption of revisiting plan 

assignments annually and implications for risk selection and payment fairness. 

• The analysis for this report was done on a drug-by-drug basis and does not take into 

account the complexity posed by beneficiaries taking multiple drugs. MedPAC’s 
3

ability to estimate the potential for savings if a mechanism other than random 

assignment were used.
4

The Role of Beneficiary-Centered Assignment for Medicare Part D 

Medicare’s new drug benefit was designed around a market-based model in which 

beneficiaries choose among private plans competing to enroll beneficiaries in their 

communities. By exploiting market incentives, the design is expected to help curb drug cost 

growth while providing the coverage packages that beneficiaries desire. In particular, 

beneficiaries face different financial incentives, in the form of premiums, deductibles, and 

copayment amounts, for plan benefits that differ in terms of covered drugs (formularies) and 

use of utilization management tools. As consumers, beneficiaries are encouraged to examine 

the plans available to them and pick that whose costs and benefits most closely relate to their 

expected drug needs. 

The new benefit also includes provisions designed to provide financial support to lowincome beneficiaries, including the dually eligible beneficiaries who formerly received 

coverage for prescription drugs from state Medicaid programs. In contrast to the individuallevel choice model described above, most of the beneficiaries eligible for this low-income 

subsidy (LIS) were randomly assigned to plans, although they are free to switch from their 

assigned plan. As described below, the use of random assignment helped ensure equity 

across participating plans, among other things. In this report, we examine the question of 

how well random assignment and alternatives such as a system of beneficiary-centered 

assignment address the needs of LIS beneficiaries and how they affect the costs to Medicare 

of subsidizing the drug spending for these beneficiaries.

Background: The Rules 

In creating the Medicare Part D benefit, the Congress chose to shift all dually eligible 

beneficiaries from receiving drug coverage from their state Medicaid programs to being 

enrolled in a Medicare Part D private plan. In order to ensure that all dual eligibles were 

enrolled in a plan in time for the January 1, 2006, start of the program, CMS chose to assign 

them to a plan. In most cases beneficiaries were assigned to standalone prescription drug 

plans (PDPs). Those already enrolled in a Medicare Advantage plan were assigned to that 

plan’s drug plan (MAPD). Beneficiaries always retained the option of rejecting that 

assignment and choosing a different plan. In fact, dual eligibles are the only beneficiaries 

that retain the option of switching plans throughout the year. 

In assigning these beneficiaries to plans, CMS was guided by two principles. One was to 

avoid steering beneficiaries into any particular plan. CMS viewed this as a core element in 

the choice-based design established by the law’s authors. A second goal was to assist in the 

establishment of a stable market for Part D plans by guaranteeing qualifying plans an equal 

share of beneficiaries – unless beneficiaries themselves made their own choices to favor 

certain plans. 

Assigning beneficiaries randomly and in equal numbers was part of a larger strategy to 

encourage health plans to participate in the new Medicare benefit and to ensure that the new 

market envisioned in the Medicare Modernization Act (MMA) would be successfully created. 

Health plans regularly used the number of dual eligibles they expected to enroll in statements 

to investors to demonstrate the value of their participation and investment in Part D. 
5

Random assignment ensured to some extent that plans’ assigned enrollees would not on 

average have higher drug utilization than those assigned to competing plans. These results 

were considered important for obtaining plan participation and a degree of predictability for 

plans in the program’s first year. It also was seen as relieving some of the pressure on the 

risk adjustment system. 

For a plan to qualify for a share of randomly assigned beneficiaries, it must meet both design 

and cost requirements. First, only plans that are designed as a standard benefit, or actuarially 

equivalent to the standard benefit, are eligible for assignment of LIS beneficiaries. Second, 

plans must have a premium below a benchmark premium level in their region. By law, 

premium benchmarks are supposed to be based on an enrollment-weighted average of the 

PDPs and MAPDs for a particular region. For the program’s first year, an unweighted 

average was used since there was no enrollment. As described below, CMS has continued 

use of an unweighted average for at least one additional year. 

Any beneficiary qualifying for the low-income subsidy (including all full dual eligibles) will 

pay no premium for a plan with a premium below the benchmark. Each of the 

organizations offering below-bnchmark plans received an equal share of the low-income 

beneficiaries who were randomly assigned. Beneficiaries qualifying for the low-income 

subsidy can choose to enroll in plans with higher premiums, but must pay the difference 

between the plan’s premium and the benchmark. 

About 30 percent of all plans had premiums below their regional benchmarks in 2006. The 

number of qualifying plans varied considerably by region. Regions with a higher penetration 

of Medicare Advantage plans tended to have lower benchmarks and fewer qualifying PDPs.1

Implementation of random assignment for dual eligibles occurred early in the first open 

season (the fall of 2005), with the intention of ensuring that beneficiaries were enrolled in 

plans by January 1, 2006. Beneficiaries other than dual eligibles who qualified for the lowincome subsidy were given the opportunity to enroll in a plan on their own. Those not 

doing so after a period of time were given facilitated enrollment whereby they were assigned 

randomly to a qualifying plan. 

For 2007, new benchmarks were calculated in each region. The list of plans eligible for 

random assignment grew in 2007, in part because the overall number of plans participating 

in Part D was higher and in part because of steps taken by CMS to minimize disruption to 

beneficiaries. The agency used its demonstration authority to continue using an unweighted 

average of premiums, which allowed more plans to remain below the benchmark. In 

addition, CMS established a de minimis rule whereby plans could retain enrollees by waiving 

up to $2.00 in premium charges above the benchmark amount. The proportion qualifying 

based on the benchmark fell to a little over 25 percent without the de minimis policy, but 

was a little over 30 percent with that policy in force. 

 

1 The benchmarks are based on premium averages across both PDPs and MAPDs. In general, MAPD 

premiums are lower, in part because they can lower premiums using so-called rebate dollars (amounts by which 

its premium bid for Parts A and B services are below the plan’s payment amount). 
6

For 2007, CMS used random assignment for 1.1 million beneficiaries who had been 

randomly assigned to plans that no longer qualified under the benchmark (including the $2 

de minimis waiver) in 2007. Random assignment is used on an ongoing basis when 

Medicaid beneficiaries become eligible for Medicare and their prescription drug coverage 

changes to Part D and for others who become newly eligible for Medicaid and Medicare. 

Key Questions 

The use of random assignment has raised two critical policy concerns. One is whether 

beneficiaries end up in plans that best serve their needs. A second is whether the federal 

government faces higher costs when beneficiaries are randomly assigned. 

Beneficiaries eligible for the low-income subsidy (LIS beneficiaries) pay lower cost sharing 

than other beneficiaries enrolled in the same plans. For drugs on a plan’s formulary, lowincome copayments for each drug are between $1 and $5.35, depending on the type of drug, 

the beneficiary’s income, and Medicaid status (Table 1). In addition, LIS beneficiaries do not 

face a deductible or coverage gap – they continue to pay between $1 and $5.35 during these 

periods, and they have no cost sharing once they reach catastrophic coverage. The federal 

government pays plans for these costs on behalf of the subsidized beneficiaries, covering any 

difference between what the LIS beneficiary pays and what a non-subsidized beneficiary 

would pay in the same plan. 

Table 1. LIS Copayments in 2007 

 Copayment 

Full Dual Eligibles Under 100% of Poverty 

Generic drugs $1.00 

Brand name drugs $3.10 

Other LIS Beneficiaries 

Generic drugs $2.00 

Brand name drugs $5.35 

The government, however, does not cover any drugs that are off the plan’s formulary or 

when the drug does not meet the plan’s standards for prior authorization or other utilization 

management measures. In these cases, a beneficiary is faced with either paying the full cost 

of the drug, changing drugs, obtaining an exception, or going without the drug altogether. 

In the context of these cost sharing rules, the use of random assignment, while helping 

provide stability for plans, does not guarantee that individual beneficiaries are assigned to a 

plan that covers all of their drugs without restrictions. A study in the fall of 2005 by the 

Office of the Inspector General found that drug plan formularies for the program’s first year 

included between 76 percent and 100 percent of the commonly used drugs they reviewed.2 

 

2 In some cases, plans may omit these drugs from plan formularies because they cover therapeutic alternatives 

that are preferred either for clinical safety or effectiveness reasons or because they are able to negotiate lower 

prices. 
7

The report further found that about half of the 178 commonly used drugs that they reviewed 

were included by all formularies.3

Although beneficiaries have the right to change plans to find a better fit, many have not 

done so (although data are not available on how many dually eligible beneficiaries actually 

made a switch from their randomly assigned plan). As described below, a few states stepped 

in to help their beneficiaries improve the match between their drug needs and the available 

plans using a process know as “intelligent random assignment” or “beneficiary-centered 

assignment.” Most states did not. 

The use of random assignment may increase costs incurred by the federal government 

because the federal government incurs costs for the difference between the minimal 

copayments paid by beneficiaries and the full copayments charged by plans. The 

government’s costs increase significantly as the difference between the subsidized 

copayment and the plan’s full copayment grows (Table 2). 

Table 2. Copayment Subsidies in a Typical Four-Tier Plan 

 Full Dual Eligible 

Beneficiary 

Copayment 

Median Plan 

Copayment 

Federal Government 

Share 

Generic Drug $1 $7 $6 

Preferred Brand Drug $3.10 $22 $18.90 

Nonpreferred Brand Drug $3.10 $55 $51.90 

Specialty Drug ($500) $3.10 $125 $121.90 

NOTE: Median plan copayments are based on 2006 data, which probably have not changed appreciably for 

2007; the LIS copayments are 2007 levels. Higher copayment amounts ($2 and $5.35) apply for those full duals 

over 100% of the federal poverty level and other LIS-eligible beneficiaries. For specialty drugs, we use the 

minimum cost level established by CMS in this illustration – and the typical 25 percent coinsurance.

Differential copayments provide other beneficiaries a significant incentive to switch to a 

preferred drug, provided they and their physicians agree that it represents an acceptable 

therapeutic alternative. But the low-income beneficiary faces no financial incentive to 

switch, or to request a tiering exception from the plan. Low-income subsidy beneficiaries do 

face a modest incentive to switch from a brand-name drug to a generic alternative – 

including therapeutic alternatives that are available in the same drug class as the sole-source 

drug they are currently taking. Although the dollar magnitude of the incentive is less than 

for other beneficiaries, the $2.10 difference may be as important to them as the larger 

difference is to beneficiaries with less modest means. 

This report considers the potential impact on beneficiaries and the federal government of 

random assignment, as compared to “intelligent random assignment” or “beneficiarycentered assignment.” First, we examine the ways that a few states have approached this 

problem, either in Medicaid or in state pharmacy assistance programs (SPAPs). We then 

examine the coverage of 100 commonly used drugs to show the differences among plans 

that received randomly assigned beneficiaries in three regions. 

 

3 Office of the Inspector General, Dual Eligibles’ Transition: Part D Formularies’ Inclusion of Commonly Used Drugs, 

OEI-05-06-00090, January 2006. 
8

Current Experience with Beneficiary-Centered Assignment 

Recognizing that random assignment might create challenges for beneficiaries as their drug 

coverage transitioned from Medicaid to Medicare or as their SPAP coverage changed, several 

states considered ways to help beneficiaries find a plan that fit their drug use. 

State Medicaid Programs 

Maine is the one state that has used beneficiary-centered assignment for dual eligibles. 

Legislation passed in 2005 gave the administration emergency rulemaking authority to 

reassign dually eligible beneficiaries who already had been randomly assigned to Part D plans 

by CMS. It also allows the state’s Department of Health and Human Services to serve as an 

“authorized representative” for the purposes of enrollment into a Part D plan. Initially, 

three months of drug utilization data from MaineCare for all duals (excluding those in 

nursing homes) was compared to plan formularies for ten plans that contracted with the 

state (as with Maine’s SPAP, described below, not all plans met the criteria for contracting 

with the state for this purpose). Individuals’ drug needs were matched with formularies and 

pharmacy networks for the plans. In addition, potential out-of-pocket costs associated with 

the plans were considered for each beneficiary (Maine covers Part D copayments and pays 

for Part D excluded drugs that are covered by MaineCare). The state switched plans on 

behalf of beneficiaries who had been auto-assigned to plans that covered less than 85 

percent of the drugs they take.4

 Each received a letter indicating that their drug plan had 

been changed and instructions with a number to call if they preferred not to be switched. 

Another group of beneficiaries received letters indicating that the plans to which they had 

been auto-assigned were adequate, but not the best fit. Alternate plans that provided better 

options were listed and beneficiaries were told to contact the state if they wanted help 

switching plans. Plan assignment for dually eligible beneficiaries in the SPAP was reassessed 

for 2007; the state has contracts with five plans for 2007. The state conducts monthly 

matches to reassign any randomly assigned beneficiaries who have just become eligible for 

Medicare Part D. 

New Jersey also planned to conduct beneficiary-centered assignment for dual eligibles by 

matching claims data for Medicaid beneficiaries with plan formularies, but ultimately did not 

receive permission from CMS. They did conduct manual reviews from one group of dually 

eligible beneficiaries, those in psychiatric hospitals and developmental centers, to identify 

optimal plans for those patients. 

At least three other states took some steps to assist beneficiaries in evaluating their plan 

options, but did not attempt to assign dual beneficiaries to plans. For example, Florida’s 

Medicaid program worked with an outside firm, GoldStandard, which matched historical 

prescription data for duals with data on plan formularies to produce personalized Medicare 

Part D reports for participants.5 Beneficiaries then had the option to switch from their 

 

4 The initial match indicated that one of four duals had been randomly assigned to plans that covered less than 

60 percent of the drugs they take. 

5 GoldStandard offered its software more generally to states without charge. It received grant funding from 

pharmaceutical manufacturers (without strings attached) to develop the software. Other states were 
9

randomly assigned plan to another. Connecticut sent 65,000 dual eligibles vouchers to 

redeem at their local pharmacy for assistance in evaluating the plan to which they had been 

assigned or in selecting a plan that better suited their prescription drug needs. Pharmacies 

were paid a stipend by the state to perform this service. Some dual eligibles used this 

voucher, but most did not. In New York, where the Medicaid program provided full 

wraparound benefits for the first year of the Part D program, pharmacists and counselors 

were urged to help seniors get into the plans that were best for them before January 2007, 

when the wrap was eliminated. 

State Pharmacy Assistance Programs 

Before the creation of Part D, several states had pharmacy assistance programs (SPAPs) that 

provided financial assistance to non-dual beneficiaries with their drug costs. SPAPs were 

created by over 20 states to subsidize prescription drug costs for over 1 million Medicare 

beneficiaries.6 Prior to the passage of the MMA, SPAPs filled a significant gap in Medicare – 

its lack of outpatient prescription drug coverage – for certain low- and modest-income 

Medicare beneficiaries lacking supplemental drug coverage either from Medicaid or through 

retiree benefits. 

Several SPAPs wanted to continue providing assistance to Part D enrollees after creation of 

the program. The MMA defined a “qualified SPAP” and indicated how these state-funded 

pharmacy assistance programs could operate relative to Part D. Payments made by a 

qualified SPAP on behalf of Part D beneficiaries for covered drugs count towards the 

beneficiaries' true out-of-pocket costs, shortening the time the beneficiary spends in the 

coverage gap or “donut hole.” Qualified SPAPS also received transitional funds to educate 

beneficiaries about Medicare Part D. 

In general, the SPAPs achieved savings through the use of wrap-around coverage, since 

Medicare Part D now covers some of the drugs costs previously paid by the state programs. 

By offering subsidies to help beneficiaries cover their cost sharing, the SPAPs are in a similar 

position as the federal government. They can save money by finding plans that charge lower 

copays. In addition, when SPAPs help cover the costs of off-formulary drugs, their interests 

align with the beneficiaries’ interests to find plans that place all the drugs an individual is 

taking on their formulary. 

One important point of discussion between SPAPs and CMS at the start of the Part D 

program concerned the extent to which SPAPs could assist their enrollees in choosing drug 

plans. SPAPs’ main concerns were to assure continued access to prescription drugs for 

beneficiaries and to maintain their own abilities to manage their programs. Several states 

suggested and continue to suggest that their beneficiaries should be enrolled in a limited 

number of plans. CMS voiced concerns about the possibility that programs might steer their 

enrollees into one plan or a limited number of plans and thus restrict choice. 

 considering use of the software, but a lawsuit (eventually settled), together with the limited time available, 

apparently convinced other states to abandon this approach. 

6 The largest enrollment is in five SPAPs – Illinois, Massachusetts, New Jersey, New York, and Pennsylvania. 
10

As of early 2006, six SPAPs – Connecticut, Maine, New Jersey, New York, Nevada, and 

Pennsylvania – had made decisions to provide assistance in choosing plans by using 

beneficiary-centered assignment for some of their enrollees. Beneficiary-centered 

assignment was conducted in all six states for large groups of beneficiaries for the 2006 plan 

year.7

 Maine and Pennsylvania repeated the process for 2007 as did New York for a 

smaller group of SPAP enrollees. We interviewed representatives from each program to 

learn more details about the process in each state. The programs are listed in Table 3 with 

information about the type of Part D wraparound benefits the SPAPs provide. 

Table 3. SPAP Provisions for Wrap-Around Coverage for Part D, Selected States 

Program provides assistance with: 

Program 

Part D 

enrollment 

required Premiums Deductible 

Cost 

sharing 

Coverage 

gap 

Nonformulary 

coverage 

Excluded 

drugs 

CT Connecticut 

Pharmaceutical Assistance 

Program to the Elderly and 

the Disabled 

(ConnPACE ) 

Y Y Y Y Y Y (1) Y 

ME Low Cost Drugs for the 

Elderly and Disabled 

Program (DEL) 

Y Y Y Y Y N Y 

NJ Pharmaceutical Assistance 

for Aged and Disabled 

(PAAD) 

Y Y Y Y Y Y Y 

NY Elderly Pharmaceutical 

Insurance Coverage 

(EPIC) 

N (2) N N Y Y Y Y 

NV Senior Rx Y Y N N Y N N 

PA Pharmaceutical Assistance 

Contract for the Elderly 

(PACE) 

N Y Y Y Y Y Y 

NOTE: Based on state decisions available as of early 2006. Unpublished paper of Hoadley, O’Brien, et al. 

(1) Non-formulary drugs that ConnPACe covered before Part D 

(2) Legislation pending

Issues SPAPs had to consider in developing the process for beneficiary-centered 

assignment 

The design of SPAPs and circumstances in states differ considerably. Therefore, each state 

used a different approach to beneficiary-centered assignment. All of the states had to 

consider similar issues, however. 

Do SPAPs Have the Authority to Make Assignments on Behalf of Beneficiaries?

Legislatures in Connecticut, Maine, and Pennsylvania granted authority to their SPAPs to 

act as authorized representatives so the programs could make determinations about the best 

plan assignment, and could switch plans on behalf of beneficiaries. In Nevada, where the 

 

7 Pennsylvania’s PACE program did not finalize its decisions until the latter part of 2006 and implemented its 

beneficiary-centered assignment process as of September 2006. 
11

legislature was not in session, the SPAP sent letters to all of its members asking them to 

complete and return an authorization form if they wanted assistance choosing a plan.

What are the Processes Used for Beneficiary-Centered Assignment?

For the initial beneficiary centered assignment, Maine, New Jersey, and Pennsylvania each 

relied on the pharmacy benefit administrator they contract with to develop computer 

programs and conduct the matches. New York worked with an outside group – 

GoldStandard – that had developed a program for matching. Connecticut and Nevada

conducted matches using the CMS Plan Finder. They had some extra help. Pharmacy 

students from the University of Connecticut and members of the Pharmacy Association 

assisted the process in Connecticut. Additional staff supported by the SPAP transition 

grant helped in Nevada. 

In the program’s second year, Maine and Pennsylvania used essentially the same approach. 

New York developed its own program, based on the one provided by GoldStandard and used 

it for a small number of enrollees, those who have the full low-income subsidy. New Jersey

recommended that beneficiaries stay in their plans. Re-assignment did not occur in 

Connecticut or Nevada. 

On an ongoing basis, New Jersey’s SPAP asks new enrollees to send a current drug use 

profile with the name and location of the pharmacy they use. The program then uses the 

CMS Plan Finder to recommend a plan. Officials note that with the Plan Finder they can 

consider tiers as well as formulary restrictions, especially for higher priced items. 

The current ConnPACE application asks, “Do you have a Medicare part D prescription drug 

plan? If NO, would you like ConnPACE to select a Medicare part D PDP for you?” In 

Maine, plan assignments are reviewed as individuals with Medicaid coverage become eligible 

for Medicare Part D, as they qualify for the LIS, or as they apply for the SPAP. 

What Criteria are Used in Making Assignments?

All six SPAPs matched data on individuals’ current drug use with data on each plan’s 

formulary. New York did not include generic drugs in the match – they assumed that 

generics would be available – but they did consider whether plans had prior authorization 

rules for drugs (The state’s EPIC program is a secondary payer for drugs that are not 

available to beneficiaries). Pennsylvania’s assessment looks first at specialty drugs, then 

other drugs, and looks at whether there are tier designations for drugs. (Pennsylvania’s 

PACE pays all cost-sharing for beneficiaries). The focus in New Jersey was on 

maintenance medications. All of the states considered whether plans’ pharmacy networks 

included the pharmacies that beneficiaries had been using. In a few of the states, marital 

status is taken into account and couples are treated as a unit when plan assignments were 

made. 

In most states, information about prescription drug and pharmacy use was available from 

historical program data. Maine and New York examined three months and Pennsylvania

looked at 12 months of data. In Nevada, where computerized records were not available, 

enrollees received a letter that asked them to provide this information if they wanted help 

choosing a plan. 
12

Officials mentioned some technical challenges related to the matching process. In New 

Jersey and New York, for example, matching drugs from prescription records at the NDC 

code level with plan formulary files was difficult, especially before the introduction by CMS 

of a system of reference NDC codes.8 One problem that Maine encountered is that their 

historical data for SPAP enrollees is incomplete because the program covers only drugs for 

certain health conditions. Therefore, in some cases, they could not make optimal matches 

with the new plans. 

Decisions about which criteria to use depend in part on program design and other 

circumstances in the state. An SPAP that covers cost sharing, for example, will have more 

interest in examining whether certain drugs are on formulary tiers than does a program that 

provides coverage only when beneficiaries are in the coverage gap. More precise matches 

occur when more criteria are used, but the process also becomes more complicated. 

For Whom Should Assignments be Made? 

The number of SPAP beneficiaries for whom some sort of beneficiary-centered assignment 

was done ranged from fewer than 1,000 in Nevada (where only about 10 percent of 

beneficiaries returned the form to ask for assistance) to about 150,000 in Pennsylvania. 

Maine made assignments for about 10,000 SPAP and 12,000 Medicaid beneficiaries. 

Differences among states in the number of people assigned reflect not only the size of the 

state populations and the numbers of people participating in the SPAPs, but also the 

proportion of enrollees that the program assigned. New York, for example, noted that they 

were late in making assignments the first year and therefore assigned only about 12 percent 

of program participants. About three-quarters of SPAP members received assistance in 

Connecticut. 

Beneficiary-centered assignment has not been used for certain groups of SPAP enrollees. 

Initially, none of the states assigned individuals with Medicare Advantage coverage because 

they did not want to interrupt these individuals’ broader health insurance coverage. 

(Pennsylvania is beginning to look at assignments for beneficiaries who have Medicare 

Advantage). SPAP members who have retiree or other types of coverage that preclude their 

use of Part D are not included in the pool to be assigned.9 Pennsylvania also excludes 

those with no drug utilization in the previous year. And Nevada worked only with 

members who returned the initial letter the program sent offering to help with beneficiarycentered assignment. 

Can Beneficiaries Opt Out? Is Beneficiary-Centered Assignment Disruptive?

All of the SPAPs give beneficiaries opportunities to opt out of their assignment. In New 

York, for example, the EPIC program sent a letter to certain enrollees, which specified the 

 

8 For 2007 plan formulary submissions, CMS introduced a system of reference NDC codes so that all plan 

formularies refer to the same code to indicate that a particular drug is covered. This system, for example, 

allows states to match generic drugs from different manufacturers to plan formulary listings. 9 SPAPs did encounter some difficulties when they conducted matches for these beneficiaries because the 

information they received from CMS did not indicate that the beneficiaries already had other coverage. 
13

best plan choice and indicated that the beneficiary would automatically be enrolled in the 

plan unless they informed the plan that they wanted to opt out. Very few – less than two 

percent – asked not to be assigned. In Pennsylvania, beneficiaries receive a letter informing 

them that they are being assigned to a particular plan and that they have ten days to notify 

the SPAP if they are not in agreement with that assignment. They can call and ask for 

another plan, or ask not to be assigned at all. The vast majority of members assigned stay in 

their assigned plans. The experience in Maine has been similar. 

Officials in both Maine and Pennsylvania note that while some disruption occurs at reassignment it is minimal. Also, enrollees became much more comfortable with the process 

when it was used the second time. In Pennsylvania, for example, the SPAP received almost 

80,000 calls when re-assignment occurred for 2006, but only 27,500 for 2007. In both years, 

the three main reasons for the calls were that enrollees wanted to know what was happening, 

they wanted to be sure they were not losing their SPAP coverage, or they wanted to check to 

be sure they did not have to take any additional action. The Maine and Pennsylvania SPAPs 

are well established programs that are generally trusted by enrollees and in Maine, additional 

trust was fostered by the members of a Part D Stakeholders Group, which was established in 

response to a legislative directive and participated not only in making policy but also in 

helping to explain it. Both states have provided beneficiaries with explanations about the reassignment process and with assurances that they would not see changes or would see 

improvements in their coverage. 

Are Assignments Made to All Plans?

For the most part, beneficiary-centered assignments are made to plans with premiums at or 

below the benchmark, or within the de minimis amount beyond the benchmark. Initially, 

the Nevada SPAP ran a report on the top 100 drugs used by their members and entered the 

data into the Medicare website to identify the plans that covered most of the drugs. The 

intent was to enroll all members in one of the plans by January 1 and then, because their 

members could switch, to conduct individual analyses. CMS did not approve that plan, 

however, contending that it did not fit the definition of “random.” Therefore, Nevada

simply used the Plan Finder to make assignments. Connecticut used a similar approach. 

New Jersey “co-brands” with a particular plan and Pennsylvania has “partner plans” 

chosen because they have broad formularies suited to many of their enrollees, good 

pharmacy networks, and are willing to work with the SPAPs to effect smooth transitions. 

For example, they have agreements to honor prior authorization agreements that already had 

been established for SPAP members. Maine has contracts with a limited number of plans 

that accept assigned MaineCare and SPAP enrollees. The state sent an RFP to all plans, but 

only signed contracts with plans that met certain criteria. Ten participated the first year and 

five have contracts in the second year.10 

 

10 The Draft 2008 Call Letter issued by CMS to drug plans on March 22, 2007, makes explicit the CMS nondiscrimination policy for SPAPs, stating that SPAPs with authorized representative status may facilitate 

enrollment of their beneficiaries into plans that agree to state-specific coordination criteria approved by CMS. 

In addition, SPAPs must allow beneficiaries to enroll in Part D plans that do not meet the coordinating criteria 

if they wish to do so and must provide these beneficiaries the same wraparound benefits or assistance. 
14

Findings and Implications Based on SPAP Practices 

The review of SPAP operations in six states suggests that beneficiary-centered assignment is 

a process that could be used on a national basis. 

• Beneficiary-centered assignment is feasible for Medicaid and SPAP populations. Larger 

programs that contract already with pharmacy benefit administrators report that the 

process is not costly; it falls within the scope of their current contracts. 

• The practice has not had a major market impact. Officials report that there is some 

clustering among certain plans when beneficiary-centered assignment is used. In 

Pennsylvania, for example, about 70 percent of assigned beneficiaries were enrolled in 

three plans. But several officials note that the enrollment patterns among those they 

assign correspond with the patterns for other Part D enrollees in the state and nationally, 

with the larger better known plans having more members. 

• Significant changes in premiums did not occur between 2006 and 2007 for the plans to 

which beneficiaries were more commonly assigned, though three states reported that one 

plan no longer met benchmark requirements and so reassignment was necessary or 

beneficiaries switched plans. Formulary changes were even less frequent. The 

Pennsylvania SPAP reported that one of the more popular plans expanded its 

formulary. 

• State officials believe that beneficiaries have better access to needed drugs with 

beneficiary-centered assignment. They say that if the assignment is right the first time 

fewer beneficiaries will have to either file for exceptions or appeals or switch plans. And 

they note that it can take 17 days to get to the first level of appeal and can take two to 

three months to switch plans. Officials report that the process of assigning beneficiaries 

to a certain group of plans fosters cooperation between the SPAP and the plans so that 

before exception requests or appeals are filed, designated individuals at the plans can 

resolve coverage issues with SPAP staff on behalf of beneficiaries. When beneficiarycentered assignment is used, the level of appeals that SPAPs have filed on behalf of 

beneficiaries is lower than had been anticipated originally. 

• States see the potential for savings associated with beneficiary-centered assignment. The 

savings that SPAPs realize depends in part on what the programs cover. States have not 

systematically determined whether program savings are associated with beneficiarycentered assignment, but there are some indications of savings. For example, New Jersey 

reports that the wrap-around costs for non-formulary drugs were lower than had been 

anticipated prior to beneficiary-centered assignment.11 Several officials – from states that 

 

11 Initially the state budgeted $50 million, but spent only about $3 million for wraparound costs associated with 

non-formulary drugs. Several factors account for the difference: the need to make an early estimate based on 

incomplete information about plan formularies; the willingness of pharmacists and physicians to work with 

patients to switch to formulary drugs; beneficiary-centered assignment. 
15

have more generous wraparound benefits – noted that research in this area would be 

helpful. 

• Accurate real-time electronic information systems are needed to make beneficiary 

assignment efficient and effective on a larger scale. Some states report difficulties 

because they did not have accurate information about beneficiaries’ current coverage. As 

a result, they were not able to initiate the beneficiary-centered assignment process at the 

optimal time. Some made plan assignments for individuals who already had chosen 

plans because data on their current status was not available. Better data systems would 

help in this regard. 

Different Assignment Methods: Potential Costs for Beneficiaries and the 

Government

The state experience suggests that a system of beneficiary-centered assignment is feasible. 

This section considers the implications of different approaches to assignment by studying 

the placement of commonly used drugs on plan formularies and the degree to which cost 

sharing varies among the plans to which beneficiaries may be assigned. As outlined earlier in 

the report, the structure of the low-income subsidy means that beneficiaries are shielded 

from most of the cost-sharing differences, but that the federal government is responsible for 

paying the remaining costs. 

Methodology for Looking at Plan Formularies 

Data on drug coverage and prices were collected from the Medicare Plan Finder website. 

We selected three PDP regions in different parts of the country: Region 3 (New York), 

Region 20 (Mississippi), and Region 25 (Iowa, Minnesota, Montana, Nebraska, North 

Dakota, South Dakota, and Wyoming). In each region, we identified the plans eligible for 

LIS auto-enrollment (see Table A-1 in the appendix). The result was a list of 29 plans, of 

which 16 are LIS eligible in New York, 21 are LIS eligible in Mississippi, and 20 are LIS 

eligible in Region 25. However, Simply Prescriptions (eligible only in New York) was 

excluded from the study because data were not available on the Medicare Plan Finder 

website at the time we collected the data. 

From a list of the 200 drugs most commonly used by Medicaid beneficiaries published by 

the Office of the Inspector General, we selected the first 100 covered by Part D for which 

data were available on the Plan Finder website (see Table A-2 in the appendix).12 In general, 

we used the most common form, strength, and monthly dose offered by the Plan Finder as 

the amount for which we collected price information. Among the 100 drugs in our study, 47 

are single-source brand-name drugs, while the remaining 53 are available in generic form. 

The next several sections consider first situations where plans omit drugs from their 

formularies or require measures such as prior authorization before they pay for a drug. 

These are circumstances that affect the beneficiary’s access to specific drugs, but not the 

federal government’s cost in subsidizing drug purchases. Second, we consider situations 

 

12 Office of the Inspector General, Dual Eligibles’ Transition: Part D Formularies’ Inclusion of Commonly Used Drugs, 

OEI-05-06-00090, January 2006. 
16

where drugs have higher cost-sharing levels because of tier placement or the structure of 

their cost sharing. In these cases, beneficiary access to drugs is normally not affected, but 

the government’s costs may be higher. In any of these situations, it is important to 

remember that plans often have clinical reasons for how particular drugs are treated on their 

formularies and that some patients’ drug regimens may benefit from being reviewed by their 

physicians. 

How Often Are Commonly Used Drugs Off Formulary for LIS Plans? 

To examine the effects of random assignment on beneficiaries, we asked how often our 

sample drugs are omitted from the formularies of any of the LIS-eligible plans. Offformulary drugs do not directly lead to any added costs for the federal government, because 

the subsidy does not apply to these drugs. Beneficiaries in these cases may choose to pay for 

the drug out of pocket if they can afford to do so, or they may seek other assistance in 

obtaining these drugs. Such assistance in some cases is available wrap-around coverage by 

Medicaid programs such as MaineCare or some SPAPs, through manufacturer-run 

prescription assistance programs, or from other safety-net programs. Alternatively, 

beneficiaries may work with their physicians to find an alternative therapy that is covered by 

their plan or to make a formal request to the plan for a formulary exception, or they may 

switch to another plan. Beneficiaries unaware of or unsuccessful with these other options 

may choose to stop taking the particular drug (with or without the concurrence of the 

prescribing physician). 

In each of the three regions we studied, we found that a substantial subset of drugs were off 

formulary for at least one plan (Table 4). In the New York region, over half (60 drugs) are 

covered by all plans, while just under half are covered by all plans in the other two regions. 

Some additional drugs are listed on formulary by all but a single plan (this might be due in 

some cases to errors on the CMS website). But there is a small set of specific drugs that are 

more systematically left off of plan formularies. For example, nine of our 100 sample drugs 

fail to appear on the formularies of at least five of the New York region’s LIS-eligible plans. 

Table 4. Coverage of Selected Drugs on Plan Formularies for LIS-Eligible Plans, By 

Region, 2007. 

 Region 3 (New 

York) 

Region 20 

(Mississippi) 

Region 25 (Iowa and 

others) 

How many of 100 drugs are ever not 

covered by a plan? 

40 56 55 

How many of 100 drugs are not 

covered by 1/3 or more plans? 

9 8 7 

NOTE: Based on 100 drugs commonly used by dual eligibles. 

In general, the drugs covered by all formularies are more likely to be generics. About half 

the generics (27 drugs) are always covered in each state, and about a third of brands (16 

drugs) are always covered in each state. In most cases, the drugs most commonly left off 

formularies are drugs for which the status has changed since the original list was created by 

the OIG. For example, Zithromax (an antibiotic) and Amaryl (a drug used to treat diabetes) 

both became available generically in late 2005, and Miralax is a laxative formerly available by 

prescription only that was approved for over-the-counter sale in 2006. 
17

The differences seen in patterns of formulary coverage vary systematically by plan. Some 

plans have made decisions to cover all drugs, while others are much more selective in which 

drugs they list on their formulary. In the three regions we studied, the least generous plan 

formulary covers between 72 and 77 of the 100 drugs in our sample, while the median plan 

covers just over 90 drugs. 

Overall, these results are consistent with those reported by the Office of the Inspector 

General for 2006. As in our analysis, that study found that about half the drugs studied were 

covered by all plans. That study reported that plans on average covered 92 percent of 

studied drugs and that the smallest formulary covered 76 percent of the drugs – results quite 

similar to our study.13

How Often Do Utilization Management Restrictions Apply to Commonly Used 

Drugs? 

From the beneficiary’s perspective, the fact that a drug is listed on the formulary does not 

guarantee that the drug is covered for his or her specific circumstances. Certain drugs may 

be subject to utilization management requirements – tools used by plans to help manage 

drug use and total costs. Plans use these tools to steer beneficiaries to specific drugs as well 

as to control the use of certain drugs. Under prior authorization, plans may ask for 

assurance that a particular drug is medically necessary before granting permission to fill the 

prescription. Step therapy requirements (sometimes referred to as “fail first” policies) 

restrict coverage of a particular drug unless and until certain other drug therapies have been 

tried first. With quantity limits, a plan may limit the number of drugs covered over a certain 

time period, such as limiting a prescription to a 30-day supply or to just 7 migraine pills per 

month. 

Plan enrollees and the physicians who prescribe their drugs may find these requirements an 

obstacle that blocks or delays the ability to get a prescription filled. If a patient is unable to 

obtain authorization from the plan to fill a prescription, their options are similar to those 

when a drug is off formulary. The federal government is at risk for costs only if the 

requirements are fulfilled and the plan agrees to pay for the prescription. Thus from a pure 

cost perspective this is not an important factor to the Medicare program. 

For those SPAPs that provide coverage of non-formulary drugs as part of their wrap-around 

coverage, the failure to get prior authorization for a drug means that the state will pay for it 

as not covered on the formulary. In most cases, states did not take the presence of 

utilization management flags into account in their procedure for assigning beneficiaries, but 

some indicated that it might have been helpful to do so. Some state officials also indicated 

that they sometimes got involved helping beneficiaries get the necessary approval to receive 

these drugs, so the presence of these flags was a potential drain on state staffing resources as 

well. 

Our data show that about one-fourth of drugs in each region have a prior authorization 

requirement for at least one of the LIS-eligible plans (Table 5). Similarly, about one-fifth of 

 

13 Office of the Inspector General, Dual Eligibles’ Transition: Part D Formularies’ Inclusion of Commonly Used Drugs, 

OEI-05-06-00090, January 2006. 
18

drugs in each region have a step therapy requirement for at least one plan. There is some 

overlap in the application of these two requirements, so up to one-third of the 100 studied 

drugs have one of these two requirements imposed by at least one plan. Quantity limits are 

applied considerably more often. Based on other research, we have found that certain plans 

apply quantity limits on a large proportion of all drugs – apparently because they use this 

requirement to apply routine limits such as limiting prescriptions to a 30-day supply. 

Plans typically choose to impose utilization management requirements on a small subset of 

drugs. For example, no plan in this study applies prior authorization or step therapy to more 

than 15 drugs. The overlap among plans is even smaller: only a handful of drugs have prior 

authorization or step therapy in as many as one-third of LIS-eligible plans in Regions 3 and 

25 – with none reaching that level in Mississippi’s region. 

Table 5. Presence of Utilization Management Restrictions for Selected Drugs on 

Plan Formularies for LIS-Eligible Plans, By Region, 2007.

 Region 3 (New 

York) 

Region 20 

(Mississippi) 

Region 25 (Iowa 

and others) 

How many of 100 drugs have a prior 

authorization requirement in at least one plan?

23 26 24 

How many of 100 drugs have a step therapy 

requirement in at least one plan? 

22 20 20 

How many of 100 drugs have either a PA or 

ST requirement in at least one plan? 

33 31 29 

How many of 100 drugs have a quantity limit 

in at least one plan? 

65 69 64 

How many of 100 drugs have any UM 

requirement in at least one plan? 

68 74 68 

How many of 100 drugs have either PA or ST 

in 1/3 of plans? 

5 0 3 

NOTE: Based on 100 drugs commonly used by dual eligibles. 

Some of the drugs that are most likely to require prior authorization are Prevacid and 

Nexium (proton pump inhibitors used to treat gastrointestinal conditions and for which 

there are less-expensive alternative treatments), Celebrex (a Cox-2 pain medication where 

there are significant questions about appropriate usage), and Aricept (the most commonly 

used drug for Alzheimer’s disease). Step therapy is most commonly required for some of 

these same drugs as well as Singulair (an asthma medication) and Diovan (a drug for high 

blood pressure). Both of the latter represent drugs where it is not unusual to start patients 

on less costly alternative treatments. 

How Often Are Commonly Prescribed Drugs on Plans’ Non-Preferred or Specialty 

Tiers? 

When a drug is not listed on a plan’s formulary or when it has utilization management 

restrictions, access to that drug for beneficiaries may be limited. But these situations do not 

lead to higher costs to the federal government. By contrast, when a brand-name drug has 

higher cost sharing as a result of its tier placement, subsidized low-income beneficiaries are 

not affected since their cost sharing amounts are the same regardless of the drug’s tier 

assignment. The federal government, however, incurs these higher costs because it pays the 
19

difference between the plan’s normal cost sharing amount and the amount paid by the 

beneficiary. 

To assess the potential for the government to be in this situation, we considered how often 

our 100 drugs are on formulary but on non-preferred tiers or specialty tiers for the LISeligible plans. In each region, about half the drugs appear on a non-preferred tier for at least 

one plan (Table 6). Since the generic drugs are unlikely ever to appear on a non-preferred 

tier, this means that nearly every brand-name drug in our sample appears on the nonpreferred tier of at least one plan. A small handful of drugs appear occasionally on specialty 

tiers as well. 

Table 6. Tier Placement of Selected Drugs on Plan Formularies for LIS-Eligible 

Plans, By Region, 2007.

 Region 3 (New 

York) 

Region 20 

(Mississippi) 

Region 25 (Iowa and 

others) 

How many of 100 drugs are ever on a 

plan’s non-preferred tier? 

45 51 48 

How many of 100 drugs are ever on a 

plan’s specialty tier? 

2 4 4 

NOTE: Based on 100 drugs commonly used by dual eligibles. 

In addition to creating the likelihood of higher costs to the federal government, plans may 

also be affected when they are assigned beneficiaries who use drugs on nonpreferred tiers. 

Plans place drugs on these tiers because they seek to create a financial incentive to shift 

utilization to other drugs in the same drug class. These utilization shifts in turn create the 

leverage plans use to negotiate for higher rebates from pharmaceutical manufacturers. 

Because low-income beneficiaries are shielded from these financial incentives, plans may see 

smaller shifts in utilization, and receive lower-than-expected rebates. 

Some of the drugs that appear frequently on a nonpreferred tier include Celebrex (Cox-2 

inhibitor for pain management), Lexapro (antidepressant), Detrol (overactive bladder), 

Cozaar (hypertension), Altace (hypertension), and Abilify (bipolar disorder and 

schizophrenia). All these drugs are relatively expensive brand-name drugs for which there 

are alternative medications available. 

In each region, there is one LIS plan that covers all 100 studied drugs on one tier with 

standard 25 percent coinsurance (Table 7). Although all drugs in these plans are considered 

“preferred,” cost sharing will be more expensive for those drugs with a higher negotiated 

price. There are other plans that cover all drugs but place some of them on nonpreferred 

tiers. 

Table 7. Number of Covered Drugs on a Generic or Preferred Tier, by Plans, 2007.

Number of drugs on a generic or 

preferred tier for: 

Region 3 (New 

York) 

Region 20 

(Mississippi) 

Region 25 (Iowa and 

others) 

Plan with the least drugs on these tiers 71 68 68 

Plan with the median number of drugs 

on these tiers 

86 87 88 

Plan with the most drugs on these tiers 100 100 100 

NOTE: Based on 100 drugs commonly used by dual eligibles. 
20

At the other extreme, each region has multiple plans with fewer than three-fourths of the 

drugs on a generic or preferred tier (2 plans in Region 3, and 4 plans in Regions 20 and 25). 

These plans create the potential for overall higher cost sharing. We explore this dynamic 

further in the following section. 

How Often Do Commonly Prescribed Drugs Have Higher Cost Sharing? 

The appearance of a drug on a nonpreferred or specialty tier, for the purposes of this 

analysis, is a crude indicator of the potential added costs to the federal government for 

paying the additional portion of the normal plan cost sharing. In this section, we look 

directly at cost sharing differences. In each region, we calculated the minimum monthly cost 

sharing level for each drug among all the eligible plans that cover the drug. We then 

compared the monthly cost sharing in each plan to this minimum amount. In showing these 

costs, we are considering only the cost sharing during the initial coverage period, that is, after 

any applicable deductible and before the coverage gap. In addition, we are considering each 

drug individually and not taking into account the overall set of drugs obtained by any one 

beneficiary. Dual eligibles often take a large number of drugs. Any one person thus might 

have a mix of preferred, nonpreferred drugs, and uncovered drugs. Depending on the mix, 

there may or not be an ideal plan assignment for that beneficiary.14 In this section, we 

consider the difference in prices only when drugs are covered, as an attempt to describe the 

costs that would be paid by the federal government when subsidizing beneficiary copays. 

For nearly every one of the 100 drugs in our sample, there is at least one plan where cost 

sharing is at least $5 per month above that in the plan with the lowest cost sharing (Table 8). 

For about half the drugs, there is at least one plan where cost sharing is at least $25 above 

the minimum in the region. Even larger differences of $50 or more above the minimum 

monthly cost sharing occur for about a tenth of the drugs. 

Table 8. Cost Sharing for Selected Drugs on Plan Formularies for LIS-Eligible 

Plans, By Region, 2007.

How many of 100 drugs ever have cost 

sharing (when covered) more than this 

amount above the plan with the lowest 

cost sharing? 

Region 3 (New 

York) 

Region 20 

(Mississippi) 

Region 25 (Iowa and 

others) 

$5 per month above the minimum 95 98 95 

$10 per month above the minimum 60 61 61 

$25 per month above the minimum 50 43 43 

$50 per month above the minimum 13 8 7 

NOTE: Based on 100 drugs commonly used by dual eligibles. 

Four drugs are by far the most likely to have cost sharing differences of $50 or more per 

month among the eligible plans, and the differences are sometimes much more than $50 

(Table 9). Seroquel and Abilify are treatments for bipolar disorder and schizophrenia, 

Levaquin is a quinolone antibiotic, and Topamax is a migraine medication. For these drugs, 

 

14 This situation is directly comparable to any beneficiary who uses the Part D Plan Finder and learns that 

different drugs currently being taken are covered by different plans. One of the plans will have the lowest 

overall costs, but not necessarily as low as the hypothetical plan that has all of his or her drugs on a preferred 

tier. 
21

the cost variation may be driven both by tier placement (i.e., placement on a higher cost, 

nonpreferred tier) and by the underlying high cost of the drug (which raises cost sharing 

particularly in plans that use coinsurance). 

Table 9. Four Drugs Most Likely to Have Cost Sharing $50 Over the Minimum, and 

Maximum Difference in Cost Sharing, 2007. 

Drug Region 3 (New York) Region 20 (Mississippi) Region 25 (Iowa and others) 

Plans $50 

above the 

minimum 

Difference 

between 

highest and 

lowest copay 

Plans $50 

above the 

minimum

Difference 

between highest 

and lowest 

copay 

Plans $50 

above the 

minimum 

Difference 

between 

highest and 

lowest copay 

Seroquel 8 $108.07 5 $74.79 5 $74.79 

Abilify 9 $98.15 6 $242.46 5 $68.51 

Topamax 8 $144.21 5 $152.21 5 $152.21 

Levaquin 8 $127.85 6 $86.58 6 $86.58 

For beneficiaries who use these drugs and other drugs with high cost sharing, random 

assignment into the more expensive plans will generate significantly higher costs for the 

federal government. In the worst case scenario in Table 9, all other things being equal, a 

beneficiary taking Abilify and randomly assigned to the highest-cost plan for that drug would 

cost the federal government $242 per month more than if they were randomly assigned to 

the plan with the lowest copay for that drug. 

Because a beneficiary enrolls in a single plan and thus must get all his or her drugs through 

that plan, it is interesting to look at these data from a plan perspective. In this case, we 

present data from one of the three regions – but results would look similar for other regions 

(Table 10). 

Table 10. Cost Sharing for Selected Drugs for Four LIS-Eligible Plans, Region 3 

(New York), 2007.

Plan A Plan B Plan C Plan D 

Number of drugs on formulary 100 100 94 90 

Of 100 covered drugs, how many have cost 

sharing...

 

 At the minimum monthly amount 2 1 53 50 

 Within $5 per month of minimum 71 9 77 55 

 $5 per month above the minimum 29 91 17 35 

 $10 per month above the minimum 22 28 15 30 

 $25 per month above the minimum 12 11 8 1 

 $50 per month above the minimum 7 1 4 0 

Maximum difference for a single drug 

from the minimum 

$127.85 $50.67 $144.21 $32.00 

Sum of monthly differences from 

minimum for all covered drugs 

$1,280.49 $1,158.79 $654.85 $509.63 

Sum as a percentage of the total cost 

for all 100 drugs 

19% 17% 10% 8% 

NOTE: Based on 100 drugs commonly used by dual eligibles. 

At one extreme, one plan (plan B) has only 9 of the sample drugs with cost sharing within $5 

of the minimum monthly cost sharing available in this region. Thus, for 91 of 100 drugs, 

that plan will cost the federal government more than another plan in the region. In fact, that 
22

plan has a cumulatively higher cost sharing per month of just over $1,150 – or 17 percent of 

total costs for the 100 drugs in our sample. Another plan (plan A) is within $5 of the 

minimum copay more often, but has cumulatively slightly higher cost sharing at 19 percent 

of total costs. It appears that this particular plan has several drugs with very high cost 

sharing that drives up total costs. 

At the other extreme, one plan (plan D) has only one drug as much as $25 per month above 

the minimum cost sharing in the region. In this plan, cost sharing higher than the minimum 

adds up to only 8 percent of total drug costs. Similarly, another plan (plan C) has higher cost 

sharing that adds up to just 10 percent of total drug costs – and keeps 77 of its drugs within 

$5 of the minimum cost sharing. These two plans set the minimum cost sharing for about 

half the drugs in our sample because they offer $0 copays for all covered generics. 

Other Costs to the Federal Government 

Choosing the least expensive plan for each beneficiary is further complicated by the 

consideration of the other costs that the federal government subsidizes. Even though 

subsidy-eligible beneficiaries do not face a premium or deductible, the federal government 

incurs these costs on the beneficiary’s behalf. Thus, it may be fiscally advantageous to the 

government to see someone enrolled in a plan with higher cost sharing if it has a lower 

premium and charges no deductible. In fact, it may be cheaper to pay higher premiums for 

an enhanced plan if it results in lower cost sharing.15 Similarly, depending on which parts of 

the benefit are covered in the wrap-around benefits provided by a state, there are potential 

savings to an SPAP depending on the plan in which a beneficiary is enrolled. 

Looking at the same four plans as in the previous section, for example, the plans that tend to 

have higher cost sharing also have lower premiums (Table 11). Even though the premiums 

amounts are dwarfed by the cost sharing differences for all covered drugs in our sample, the 

added cost for one beneficiary’s set of drugs may be less than the premium difference. All 

four of the plans selected for this example have the standard $265 deductible, but there are 

others in the same region with no deductible. A system designed to minimize federal costs 

for each beneficiary would also have to take these costs into account. 

Table 11. Cost Sharing for Selected Drugs, Premiums, and Deductibles for Four LISEligible Plans, Region 3 (New York), 2007.

Plan A Plan B Plan C Plan D 

Number of drugs on formulary 100 100 94 90 

Sum of monthly differences 

from minimum for all covered 

drugs 

$1,280.49 $1,158.79 $654.85 $509.63 

Sum as a percentage of the total 

cost for all 100 drugs 

19% 17% 10% 8% 

Monthly Premium $9.50 $16.40 $24.80 $25.40 

Annual Deductible $265 $265 $265 $265 

 

15 Maine currently assigns beneficiaries to one of the enhanced plans. 
23

Policy Implications 

The formulary analysis in this report focuses on a set of drugs most commonly used by 

dually eligible beneficiaries. Our findings suggest that random assignment into plans can 

have a significant impact on three important stakeholders: beneficiaries, state programs that 

provide wrap-around coverage, and the federal government. 

The findings from our examination of state experiences using different types of beneficiarycentered assignment suggest that such approaches are feasible for use on a national basis. 

State pharmacy assistance programs have used these approaches with little disruption to the 

market and without incurring large costs. Officials see the potential for savings and believe 

that beneficiaries have better access to drugs. 

In general, the use of beneficiary-centered assignment has the potential to avoid situations 

where beneficiaries discover that the drugs they need are off formulary or face some type of 

utilization management. This also reduces the need to use exceptions and appeals processes 

to maintain the use of current medications and can potentially increase adherence to 

regimens that control beneficiaries’ health conditions. 

Beneficiary-centered assignment also has the potential to reduce program costs for the 

federal and state governments. Our data show that a few drugs can incur additional cost 

sharing of more than $50 per month, depending on plan assignment, and a majority of our 

sample drugs can lead to at least $10 higher monthly cost sharing when a plan other than the 

one with the lowest cost sharing for that drug is selected. 

Plans may have appropriate reasons for the formulary placement of drugs, and in some cases 

beneficiaries may be better off clinically or financially by switching medications. But at the 

very least, a change in prescription drug use will require consultation with the beneficiary’s 

physician and a disruption of current patterns of treatment. 

There are differences in the design of approaches to beneficiary assignment between those 

that maximize the matching of plans to the beneficiary’s needs (e.g., avoiding drugs that are 

off formulary or are subject to utilization management) and those plan assignments that 

minimize the government’s costs. Either approach is easy to design, but will lead to 

different assignments for at least some beneficiaries. In addition, there could be differences 

between an approach that identifies certain plans that are better in general and finding the 

single plan that is best for each beneficiary. In addition, the implementation of any such 

system should take into account the beneficiary’s preferred pharmacy. 

The federal government might also want to consider a potential role for quality or 

performance measures in designing a system of beneficiary-centered assignment. If some 

plans have better records on important performance measures, it might be appropriate for 

them to receive higher numbers of assigned beneficiaries. Ideally, performance measures 

relevant to the needs of low-income beneficiaries would be used for this purpose. 

It is important to remember that the concept of beneficiary-centered assignment was first 

considered and used when large numbers of beneficiaries had to transition from SPAP to 

Part D coverage and, in Maine, when the transition occurred for dual eligible beneficiaries. 
24

There are many situations in which assignment still needs to occur on an ongoing basis. For 

example, when Medicaid beneficiaries first become eligible for Medicare, when individuals 

are newly approved for the low-income subsidy, and when individuals apply for SPAP 

benefits, they are making a transition that requires selecting a Part D plan. Beneficiarycentered assignment could also be used on an annual basis to re-assign beneficiaries if plans 

in which low-income beneficiaries are participating raise their premiums so that they are no 

longer below the benchmark. 

One potential concern is that re-assigning beneficiaries who are already enrolled in a plan 

that is eligible for the LIS subsidy might result in significant disruption. The benefits of a 

policy of reconsidering plan assignments for all low-income beneficiaries would have to be 

weighed against the costs of this disruption. Likewise, any policy to determine whether 

changes in plan design, changes in formularies, or changes in individuals’ circumstances 

warrant assignment to a different drug plan might find resistance if they occur frequently or 

are not requested. Nevertheless, it might be beneficial to consider re-assignment in some 

such circumstances, such as when a beneficiary begins taking a new expensive drug. 

Another potential downside to consider is the potential impact of beneficiary-centered 

assignment on plans participating in the program. In the program’s first year, a new market 

was being created where none had existed. Had this approach been used nationally for the 

initial transition into Part D, participating plans might not have enrolled the share of 

enrollees guaranteed by random assignment. Without this guarantee, fewer organizations 

might have entered the part D market and they would have had less incentive to submit low 

premium bids with the goal of ending up below the benchmark for the subsidy. From the 

perspective of CMS, it was important in the first year to be a reliable business partner. 

Now that a Part D market has been created, the circumstances have changed. Moving 

forward, widespread use of beneficiary-centered assignment might hasten the exit of some 

plans from the market. But at the same time, it could increase the competition over 

enrollment and strengthen the bargaining leverage of plans that achieve larger market shares. 

The dynamics of any marketplace are complex, and any approach to future assignments of 

beneficiaries to plans will have an impact on the market. CMS still needs to be a reliable 

business partner for the plans, but it also needs to consider the best interests of beneficiaries 

and of the federal treasury. 

It is likely that the use of beneficiary-centered assignment would lead to greater risk selection 

since it will tend to cluster the enrollment of those with similar patterns of drug use into a 

single plan. Doing so will make plans’ enrollment of beneficiaries less random and will 

heighten both the need for good risk adjustment and the consequences of flaws in that 

system. 

Steps that could lessen the consequences of risk selection start with making sure that the risk 

adjustment system works as well as possible. As drug claims data become available, CMS 

will be able to recalibrate the current system with more complete data than were available 

before Part D was implemented. In addition, it probably does not make sense to reconsider 

the assignment of all subsidized beneficiaries with a system of beneficiary-centered 

assignment system each year. As noted above, reassignment to new plans tends to be 

disruptive to beneficiaries while also increasing the potential for risk selection problems. It 
25

may make sense to use beneficiary-centered assignment only for newly eligible beneficiaries 

and for those in need of reassignment because their plans have left the Part D program or 

the premiums have risen above the regional benchmark. Although the number of 

beneficiaries requiring reassignment during the fall 2006 open season was low, the numbers 

could be higher in future years depending on decisions made by CMS about the 

demonstrations and guidelines for determining regional benchmarks. CMS announced in 

April that it would continue the demonstration and base the 2008 benchmarks on a blend 

half based on the enrollment-weighted average and half on the approach used in 2006 and 

2007 (and would reduce the de minimis rule to a $1 premium waiver). 

The experience of the states suggests that to date the use of beneficiary-centered assignment 

has tended to assign beneficiaries in the same pattern as those chosen by voluntary enrollees. 

As such, it may simply reinforce the role of beneficiary selection in a market-based system. 

 

Limitations of This Analysis and Next Steps 

Because this analysis was done on a drug-by-drug basis, it does not take into account the 

greater complexity represented in identifying plans where all the drugs taken by a particular 

patient are covered and have low cost sharing in a given plan. Nor does it take into account 

the impact of premiums and annual deductibles. 

The most important next step in the data analysis would be to take into account the overall 

array of drug use for a particular beneficiary and thus consider the cost impact of the 

deductible, coverage gap, and other features of the Part D benefit. In future work, we might 

create a set of drug portfolios based on common patterns of use by low-income 

beneficiaries. For each portfolio of drugs, we would determine total cost sharing under each 

LIS plan in 3 states, including the shares of cost sharing incurred by the beneficiary and by 

the government. These findings would increase MedPAC’s ability to estimate the 

government’s costs resulting from random assignment of duals into Part D plans and the 

potential for savings if a different mechanism were used. 

One could take this analysis a step further by considering the potential savings if 

beneficiaries switch drugs, especially if they switch to generic alternatives in the same drug 

class instead of more expensive brand-name drugs. Subsidized beneficiaries have only a 

limited financial incentive to make this switch. This additional step is more challenging, 

however, from both a clinical and an analytical perspective. Such substitutions are not 

appropriate in all drug classes; therefore, identifying the potential savings would require 

decisions about which substitutions are appropriate. 
26

APPENDIX

Table A-1. Plans (and Contract Numbers) Eligible for Low-Income Subsidy AutoEnrollment in Three Regions 

Plan 

Region 3 – 

New York 

Region 20 –

Mississippi 

Region 25 – 

Iowa and 

Other States 

AARP MedicareRx Plan S5820_019 S5820_024 

AARP MedicareRx Plan Saver S5921_203 S5921_321 S5921_247 

Advantage Freedom S5644_181 S5644_059 

Advantage Star S5644_004 S5644_195 S5644_080 

Aetna Medicare Rx Essentials S5810_054 S5810_059 

Bravo Rx II S5998_001 

Cignature Rx Value S5617_013 S5617_098 S5617_123 

Community Care Rx Basic S5803_072 S5803_089 S5803_094 

First Health Premier S5569_003 

Fox Rx Care Choice S5557_003 

HealthNet Orange Option 1 S5678_003 S5678_046 S5678_056 

HealthNet Orange Option 2 S5678_045 S5678_055 

HealthSpring PDP S5932_004 S5932_019 S5932_024 

HIP Standard S5741_001 

Humana PDP Standard S5552_003 S5884_078 S5884_083 

Medco YOURx Plan S5660_020 

Medicare Rx Rewards Value S5960_003 S5960_020 S5960_025 

NMHC Medicare PDP Gold S8841_020 S88241_025 

Prescription Pathway Bronze S5825_045 S5597_085 S5597_090 

SilverScript S5601_040 S5601_050 

Simply Prescriptions Rx 1 S3521_001 

Sterling Rx S4802_024 

United American Silver S5755_058 

UnitedHealth Rx Basic S5921_322 S5921_248 

WellCare Classic S5967_140 S5967_157 S5967_162 

WellCare Signature S5967_037 S5967_054 S5967_059 

Wellmark MedicareBlue Rx 1 S5743_001 

Windsor Rx S2505_005 
27

Table A-2. Drugs and Dosages Included in this Study: 100 of the Drugs Most 

Commonly Used by Medicaid Beneficiaries 

Rank Generic Name Brand Name Dose collected 

1 FUROSEMIDE Lasix FUROSEMIDE TAB 40MG 

2 ATORVASTATIN Lipitor Lipitor TAB 10mg 

3 POTASSIUM CHLORIDE ORAL Klotrix POTASSIUM CHLORIDE CR TAB 20MEQ CR 

4 METOPROLOL Lopressor METOPROLOL TARTRATE TAB 50MG 

5 LANSOPRAZOLE SR Prevacid Prevacid CAP 30mg DR 

6 AMLODIPINE BESYLATE Norvasc Norvasc TAB 10mg 

7 LEVOTHYROXINE SODIUM Levoxyl LEVOTHYROXINE SODIUM TAB 100MCG 

8 LISINOPRIL Prinivil LISINOPRIL TAB 10MG 

9 HYDROCODONE/APAP Vicodin HYDROCODONE/ACETAMINOPHEN TAB 

5-500MG 

10 CLOPIDOGREL BISULFATE Plavix Plavix TAB 75mg 

11 WARFARIN SODIUM Coumadin WARFARIN SODIUM TAB 5MG 

12 ATENOLOL Tenormin ATENOLOL TAB 50MG 

13 OLANZAPINE Zyprexa Zyprexa TAB 5MG 

14 RISPERIDONE Risperdal Risperdal TAB 1MG 

15 HYDROCHLOROTHIAZIDE Microzide HYDROCHLOROTHIAZIDE TAB 25MG 

16 SERTRALINE Zoloft SERTRALINE HCL TAB 100MG 

17 QUETIAPINE Seroquel Seroquel TAB 200mg 

18 SIMVASTATIN Zocor SIMVASTATIN TAB 20MG 

21 RANITIDINE Zantac Zantac SYP 75mg/5ml 

22 METFORMIN HCL Glucophage METFORMIN HCL TAB 500MG 

23 DIGOXIN Digitek DIGOXIN TAB 0.125MG 

24 DIVALPROEX SODIUM Depakote Depakote TAB 500mg DR 

25 DONEPEZIL Aricept Aricept TAB 10mg 

26 ESOMEPRAZOLE MAGNESIUM Nexium Nexium CAP 40mg 

27 ZOLPIDEM TARTRATE Ambien Ambien TAB 10mg 

28 ESCITALOPRAM OXALATE Lexapro Lexapro TAB 10mg 

29 PHENYTOIN SODIUM Dilantin PHENYTOIN SODIUM INJ 50MG/ML 

30 ALENDRONATE SODIUM Fosamax Fosamax TAB 70mg 

32 ALBUTEROL INHALER Ventolin ALBUTEROL AER 90MCG 

33 PANTOPRAZOLE Protonix Protonix TAB 40mg 

34 CELECOXIB Celebrex Celebrex CAP 200mg 

35 GLIPIZIDE Glucotrol GLIPIZIDE TAB 5MG 

36 ISOSORBIDE MONONITRATE Ismo ISOSORBIDE MONONITRATE TAB 20MG 

37 PROPOXYPHENE NAP/APAP Darvocet PROPOXYPHENE-N/ACETAMINOPHEN 

TAB 100-650 

38 GABAPENTIN Neurontin GABAPENTIN TAB 600MG 

39 TRAZODONE Desyrel TRAZODONE HCL TAB 100MG 

41 VALSARTAN Diovan Diovan TAB 80mg 

42 RISEDRONATE SODIUM Actonel Actonel TAB 35mg 

43 ROSIGLITAZONE MALEATE Avandia Avandia TAB 4MG 

44 AZITHROMYCIN ORAL Zithromax Zithromax Z-Pak TAB Z-PAK 

45 SALMETEROL XINAFOATE/ 

FLUTICASONE PROPIONATE 

XINAFOATE/ FLUTICASONE 

PROPIONATE 

Advair Diskus Advair Diskus MIS 250/50 

46 PIOGLITAZONE Actos Actos TAB 30mg 

47 MONTELUKAST SODIUM Singulair Singulair TAB 10mg 

48 PAROXETINE HCL Paxil PAROXETINE HCL TAB 30MG 

50 LEVOFLOXACIN Levaquin Levaquin TAB 500mg 

51 TRAMADOL Ultram TRAMADOL HCL TAB 50MG 

52 CARVEDILOL Coreg Coreg TAB 25mg 

53 TOLTERODINE TARTRATE Detrol Detrol TAB 2MG 

54 VENLAFAXINE HCL Effexor Effexor TAB 75mg 

56 TRIAMTERENE/HCTZ Dyazide TRIAMTERENE/HCTZ CAP 37.5-25 

59 CLONIDINE HCL Catapres CLONIDINE HCL TAB 0.1MG 
28

60 INSULIN 70/30 Humulin Humulin 70/30 INJ 70/30 

61 TAMSULOSIN HCL Flomax Flomax CAP 0.4mg 

62 LOSARTAN POTASSIUM Cozaar Cozaar TAB 50mg 

63 ALBUTEROL/IPRATROPIUM Combivent Combivent AER 

64 FLUOXETINE HCL Prozac FLUOXETINE HCL CAP 20MG 

65 AMLODIPINE/BENAZEPRIL Lotrel Lotrel CAP 5-20mg 

66 PREDNISONE Deltasone PREDNISONE TAB 5MG 

67 PRAVASTATIN SODIUM Pravachol PRAVASTATIN SODIUM TAB 40MG 

68 GLYBURIDE Micronase GLYBURIDE TAB 5MG 

69 NIFEDIPINE Adalat NIFEDIPINE CAP 10MG 

70 LATANOPROST Xalatan Xalatan SOL 0.005% 

71 CLOZAPINE Clozaril CLOZAPINE TAB 100MG 

72 FAMOTIDINE Pepcid Pepcid SUS 40mg/5ml 

73 FLUTICASONE PROIONATE Flonase FLUTICASONE PROPIONATE SPR 50MCG 

74 METOCLOPRAMIDE Reglan METOCLOPRAMIDE HCL TAB 10MG 

75 DILTIAZEM Cartia XT DILTIAZEM HCL CAP 360MG 

76 VALSARTAN/HCT Diovan HCT Diovan HCT TAB 160/12.5 

78 OXYBUTYNIN CHLORIDE Ditropan OXYBUTYNIN CHLORIDE TAB 5MG 

79 OXYCODONE/ACETAMINOPHEN Endocet Endocet TAB 5-325mg 

80 ACETAMINOPHEN/CODEINE Tylenol #3 ACETAMINOPHEN/CODEINE #3 TAB 300-

30MG 

81 IBUPROFEN Advil IBUPROFEN TAB 800MG 

82 INSULIN N, INSULIN NPH Humulin N Humulin N INJ U-100 

84 POLYETHYLENE GLYCOL 3350 Miralax Miralax POW 3350 NF 

85 MELOXICAM Mobic MELOXICAM TAB 7.5MG 

86 ARIPIPRAZOLE Abilify Abilify TAB 10mg 

87 INSULIN R, INSULIN REGULAR Humulin R Humulin R INJ U-100 

88 BENZTROPINE MESYLATE Cogentin BENZTROPINE MESYLATE TAB 1MG 

89 ESTROGENS CONJUGATED ORAL Premarin Premarin TAB 0.625mg 

90 AMITRIPTYLINE HCL Elavil AMITRIPTYLINE HCL TAB 25MG 

91 CEPHALEXIN Keflex CEPHALEXIN CAP 500MG 

92 RAMIPRIL Altace Altace CAP 10mg 

93 OXYCODONE OxyContin OXYCODONE HCL TAB 5MG 

95 FENTANYL TRANSDERMAL Duragesic FENTANYL DIS 50MCG/HR 

96 EZETIMIBE Zetia Zetia TAB 10mg 

97 SPIRONOLACTONE Aldactone SPIRONOLACTONE TAB 25MG 

98 MECLIZINE Antivert MECLIZINE HCL TAB 25MG 

99 CYCLOBENZAPRINE Flexeril CYCLOBENZAPRINE HCL TAB 10MG 

100 MIRTAZAPINE Remeron MIRTAZAPINE TAB 15MG 

101 SULFAMETHOXAZOLE/TMP Bactrim SULFAMETHOXAZOLE/TRIMETHOPRIM 

SUS 200-40/5 

102 GLIMEPIRIDE Amaryl Amaryl TAB 4MG 

103 NITROFURANTOIN MCR Macrobid NITROFURANTOIN MACROCRYSTALLINE 

CAP 50MG 

104 LOVASTATIN Mevacor LOVASTATIN TAB 40MG 

105 FENOFIBRATE Tricor Tricor TAB 145mg 

106 TOPIRAMATE Topamax Topamax TAB 200mg 

107 CARBIDOPA/LEVODOPA Sinemet CARBIDOPA/LEVODOPA TAB 25-100MG 

109 ENALAPRIL MALEATE Vasotec ENALAPRIL MALEATE TAB 10MG 

111 RALOXIFENE Evista Evista TAB 60mg 

112 NITROGLYCERIN PATCH Nitrodur NITROGLYCERIN TRANSDERMAL DIS 

0.4MG/HR 

114 PROMETHAZINE Phenergan PROMETHAZINE HCL TAB 25MG 

NOTE: Rank indicates position of the drug in the OIG’s list.