By Leila Sullivan and Samantha Hagberg

While the weather may be cooling down, the research is not! This month we read about Medicare Advantage quality bonus payments, out-of-pocket drug costs for consumers, effects of enhanced premium tax credits on older adults, and strategies to increase eligibility verification and receipt of Marketplace subsidies.

Enhanced PTCs Help Older Adults and Those in High-Premium States Afford Coverage

Jessica Banthin, Laura Skopec, and Michael Simpson. Urban Institute. September 2024. Available here.

In March of 2021, as part of the American Rescue Plan Act (ARPA), Congress passed enhanced premium tax credits (PTCs) and later extended them through 2025 in the Inflation Reduction Act. In this analysis, researchers examined the anticipated distribution of enhanced PTCs among nonelderly people with incomes over 400% of the FPL by age, income, and state. This report focuses on illustrative adults aged 30, 60, and 64 and income groups by state. Using the Urban Institute’s Health Insurance Policy Simulation Model, researchers estimated the effects of the enhanced PTCs on coverage in 2025 and out-of-pocket premium spending in 2024. 

What it Finds

• Less than 10% of the 17.4 million Marketplace enrollees who will receive an enhanced PTC in 2025 have income above 400% of FPL.
• Enhanced PTCs reduce net premiums for older adults; the most impacted are those ages 50 (35% reduction in net premiums with enhanced PTCs), 60 (57% reduction in net premiums), and 64 (60% reduction in net premiums).
• Enhanced PTCs also reduce net premiums for people living in high-premium states; in six states with the highest total premiums in 2024, for 60-year-olds with income just above 400% FPL, enhanced PTCs reduced net premiums by 65% or more.
• If a 60-year-old with income just above 400% FPL did not have access to enhanced PTCs, they would pay, on average, $986 per month for a Marketplace plan in 2024.
• Among adults with individual incomes just above 400% of FPL, enhanced PTCs lower average out-of-pocket premiums by 11% for 40-year-olds and 57% for 60-year-olds.

Why it Matters

The enhanced PTCs are scheduled to expire in 2026 if Congress does not act to extend them. This study demonstrates how the enhanced PTCs have improved coverage affordability for older adults, those living in high-premium areas, and for middle-income people who, prior to ARPA, would not have been eligible for PTCs. If Congress does not act in a timely manner to extend enhanced PTCs, these individuals could be forced out of coverage. Older individuals in particular will face high premiums for coverage without enhanced PTCs. For example, a 60-year-old couple with a household income of $81,761 (just above 400% of FPL) would have to pay more than 30% of their income to maintain health insurance in 20 states.

Medicare Advantage Quality Bonus Payments Will Total at Least $11.8 Billion in 2024

Jeannie Fugleston Biniek, Meredith Freed, and Tricia Neuman. KFF. September 2024. Available here.

The Affordable Care Act established a quality bonus program that increases Medicare payments to Medicare Advantage (MA) plans that have higher quality rankings based on a five-star rating system. These star ratings are intended to help consumers make more informed decisions based on plan quality, but the Medicare Payment Advisory Commission and others contend that the stars are not useful indicators of plan quality. Spending on MA quality bonus payments has grown dramatically in recent years. In this study, researchers at KFF looked at publicly available information to examine trends in bonus payments to MA plans, enrollment in plans with bonus status, and how these measures vary across plans.

What it Finds

• Total spending on MA plan bonuses is higher in 2024 than in every year between 2015 ($3B) and 2022 ($10B). Payments increased to $12.8B in 2023 due to pandemic-era policies, which have now expired, bringing this spending down to $11.8B in 2024. This estimate is a lower bound because bonus payments are risk adjusted, which is likely to increase the amount.
• In 2024, a large majority of MA enrollees (72%) are in plans that are receiving bonus payments. This is a marked increase from 2015, when just 55% of MA enrollees were in plans receiving bonuses, but it is lower than in 2023 when 85% of plans did so.
• The average annual bonus paid to plans per MA enrollee increased dramatically from $184 in 2015 to $417 in 2023, before declining to $361 in 2024. 
• Bonuses per enrollee vary by plan, with bonuses for enrollees in group employer- or union-sponsored MA plans averaging $456 compared to $345 for individual plans, and $330 for special needs plans (SNPs) (all 2024 data). This inconsistent distribution raises questions about the implications of the quality bonus program for equity.

Why it Matters

The quality bonus program is significant because it directly influences payments to MA plans based on CMS’s five-star rating system. As of 2024, over 72% of MA enrollees are in plans receiving these bonuses, impacting the benefits they receive including reduced cost sharing and additional services not covered by traditional Medicare. However, disparities are becoming more apparent, with employer-sponsored plans receiving higher average bonuses compared to SNPs, which cater to more vulnerable populations. With MA spending projected to reach $462 billion in 2024, understanding how different funds are allocated is critical in addressing equity issues and managing the program’s sustainability.

Email Nudges Increased Eligibility Verification And Subsidy Receipt In California’s ACA Marketplace

Rebecca Myerson and Andrew Feher. Health Affairs. September 2024. Available here.

In the Affordable Care Act (ACA) Marketplaces, health insurance premiums for households with income below certain thresholds can be reduced or eliminated through premium tax credits, but the household must demonstrate eligibility by verifying income and other relevant personal information. Researchers for Health Affairs conducted a randomized experiment to determine the percentage of households that did not update their consent for edibility verification in Covered California after the standard email reminder, to determine whether sending additional reminders would lead to higher rates of consent updating.

What it Finds

• Under the standard procedure of sending one email reminder to update consent, 41% of households did not update their consent by the end of the open enrollment period. 
• When one email was sent (standard procedure) 26% of households opened it. When two or three emails were sent the open rate increased by 11.3% and 19%, respectively. 
• Consent verification significantly increased (+2.4 percentage points) for consumers receiving two email nudges, and by +5.7 percentage points for consumers receiving three email nudges.
• When compared with those who updated consent, consumers who did not update consent were nearly five times as likely to have received no premium tax credits at baseline, and more than twice as likely to have income higher than 250% of poverty at baseline. Consumers who did not update consent were also more likely to identify as non-Hispanic White, were more likely to prefer communications in English, and were on average younger than those who did update consent.
• In each iteration of the intervention, the proportion of households updating their consent increased on days when email nudges were sent.

Why it Matters

In 2022, about 80% of Marketplace enrollees received premium tax credits, and as premiums have risen over time, so has the generosity of the tax credits. This study demonstrates that a minor administrative task such as renewing consent for eligibility verification can cause eligible people to lose their premium tax credits. This study found that reminders not only increased the percentage of consumers who updated consent but also caused some consumers to do so earlier than they would have under the standard procedure of one email. Like many Americans, Marketplace enrollees lead busy lives and can be inundated with email and other communications. This study suggests that Marketplaces can retain more enrollment—and more people can hang onto their subsidies—through the simple, low-cost step of sending multiple reminder emails.

Consumer Out-of-Pocket Drug Prices Grew Faster Than Prices Faced By Insurers After Accounting For Rebates, 2007-20

Justine Mallatt, Abe Dunn, and Lasanthi Fernando. Health Affairs. September 2024. Available here.

In this article published by Health Affairs, researchers from the Bureau of Economic Analysis analyzed the intricacies of pharmaceutical drug pricing, focusing on manufacturer rebates, negotiated prices, and consumers’ out-of-pocket (OOP) costs. The goal of this study was to increase public understanding of price trends in the branded prescription drug market for the commercially insured population. Combining prescription claims data from the Merative MarketScan Research Commercial Database and rebate estimates using SSR Health LCC’s US Brand Rx Net Pricing Tool, researchers set new price index measures based on pharmacy prices, negotiated prices, and out-of-pocket costs for the commercially insured population during 2007-2020. 

What it Finds

• There is a positive relationship between rebates and out-of-pocket (OOP) consumer expenses.
• Pharmacy list prices experienced an average annual growth rate of 9.1%, while negotiated prices grew 4.3%, and OOP costs rose by 5.8% during the period 2007-2020. Growth in overall OOP costs seems to have been driven by large increases in consumers’ coinsurance and deductible payments.
• Both insurer and negotiated prices began to decrease in 2016; this divergence in price raises concern about the disconnect between estimates of negotiated prices and the actual costs borne by consumers. These results suggest that rebates drive down negotiated prices and increasing pharmacy prices drive up OOP costs.
• OOP payments constituted a minority share of the total cost in 2020, accounting for 14% of net sales. New drugs made up most of the sales, accounting for approximately 75% of sales. These drugs have high list prices and high rebates ($117 billion in 2020) that continue to grow over time.

Why it Matters

This study highlights the influence of rebates on branded prescription drug prices. This research indicates that rebates lead to a gap between negotiated prices and consumers’ OOP costs since rebates decrease negotiated prices but raise pharmacy prices, which, in turn, increases OOP consumer cost. This study also implies that consumer OOP expenses depend on the structure of individual plans, since OOP expenses rise due to increased deductibles and coinsurance payments. Therefore, consumers with high deductible plans may be at greater risk of experiencing higher OOP spending compared to those with low deductible plans. This can result in coverage inequities, particularly for lower income who choose high-deductible plans and cannot afford higher OOP costs. The study highlights that, when it comes to understanding prescription drug pricing and designing policies to address high costs, rebates need to be taken into account.