The 260 Page 2018 Annual Medicare Trustees Report and the Part D Rx Share of the Pie

By Clive Riddle, June 7, 2018

This week CMS released the 2018 Annual Medicare Trustees Report, which provides a financial/actuarial analysis of the current state of the Medicare Fund, and projections regarding the Fund solvency going into the future.  The big takeaway always emphasized from the report is at what year in the future will the Fund become insolvent, but there really is a lot of historical information in the report worth a gander.

In regard to when the Fund is projected down, we are told the “Trust Fund will be able to pay full benefits until 2026, which is three years earlier than last year’s projections, attributable to adverse changes in program income. The Trustees project that total Medicare costs (including both HI and SMI expenditures) will grow from approximately 3.7 percent of GDP in 2017 to 5.8 percent of GDP by 2038, and then increase gradually thereafter to about 6.2 percent of GDP by 2092.”

But in addition to the voluminous portion of the report dedicated to projections taking us to near the end of the century, there’s plenty of history and present tense buried in the 260 page report as well. Here’s a snapshot from the report of Medicare in 2017:

It’s interesting to look out what portion of the expenditures are from Part D. On a gross basis, $100.1 Billion in Prescription Drug expenditures out of $702.1 Billion in benefits represents 14.3% of benefit expenditures.

But not all beneficiaries have Part D coverage, so that’s not an apples to apples percentage.

Looking at 2017 benefits for Part A, Part B, Part C and Part D combined, total benefits were $702.1 Billion, of which 29.9% ($209.7 Billion) was spent through Part C, the Medicare Advantage program. Given the analysis doesn’t break down the benefit expenditure categories for the contracting Part C Medicare Advantage plans, here’s a breakdown of the Regular Medicare expenditures including Part D (backing out Part C):

• Hospital:  43.6% ($197.9 Billion)
• SNF: 6.2% ($28.3 Billion)
• Home Health Care: 4.1% ($18.4 Billion )
• Physician Fees: 15.2% ($69.1 Billion)
• Prescription Drugs (gross adjusted): 13.5% ($61.6 Billion)
• Other: 17.4% ($78.8 Billion)

Regarding the Gross Prescription Drugs adjustment: You will note the above Prescription Drugs total $61.6 instead of the $100.1 Billion in the above snapshot. That’s because the Medicare Advantage Part C enrollees with Part D enrollment were backed out, given that the other benefit expenditure categories didn’t include a breakdown from Part C. So the Part C enrollment in Part D plans, as a percentage of total Part D enrollment – taken from the December 2017 Medicare Advantage/Part D Contract and Enrollment Data Summary Report - was extrapolated (61.5% of Part D Enrollees are not enrolled in Part C; 61.5% of $100.1 Billion in total Prescription Drugs expenditures = $61.6 Billion.)

But the only problem with stopping there, is not all regular Medicare beneficiaries are enrolled in Part D. There were 43.2 million PDP enrollees at the end of 2107, while there are 58.5 million total Medicare beneficiaries. Of the 15.3 million 2017 beneficiaries with no Part D, 1.9 million were from Part C, leaving 13.4 million regular(non-part C)  Medicare beneficiaries with no Part D, and 26.2 million with Part D, out of a total 39.6 million regular Medicare beneficiaries. Now if we extrapolate 66% (26.2/39.6 million) for regular Medicare with Part D, from the other benefit expenditure categories (reducing the expenditures by one third for the other categories) we can get an apples to apples look.

This will reflect the percentage benefit expenditures extrapolated for Regular Medicare beneficiaries with Part D coverage:        

• Hospital:  40.7% ($130.6 Billion)
• SNF: 5.8%  ($18.7 Billion)
• Home Health Care: 3.8% ($12.4 Billion )
• Physician Fees: 14.2% ($45.6 Billion)
• Prescription Drugs (net adjusted): 19.2% ($61.6 Billion)
• Other: 16.2% ($52.0 Billion)

19.2% of the Medicare benefit pie for prescription drugs, get us a lot closer to the Milliman analysis just conducted for AHIP in the commercial population, which found Rx representing 23.3% of total costs including administration. If we add in the extrapolated portion (66%) of the $8.2 Medicare administrative expenses from the above snapshot, the regular Medicare prescription drug portion represents 18.9% including administration.