The Med Diva

An insider's guide to Medicare Part D and more

The Blind Leading the Blind: Anatomy of a Medicare Part D Monthly Premium

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At least once a week one of my coworkers on our Medicare Part D team will come to me with what they think is a simple job. ‘I just need you to write a short apology letter. It should be simple,” Karen will tell me. “I have a simple project for you. All you have to do is edit this web page for Medicare Open Enrollment,” Tina will say. “We just need to ‘Medicarize’ this brochure, so it will be simple,” Chris will state.

Inevitably, I always respond, “Nothing is simple with Medicare Part D.” And then as what appeared to be an easy project becomes more complex with each new logistical problem that arises, I say, “I told you so.”

One of the most complicated “parts” of Part D – and thankfully, one that I have absolutely nothing to deal with – is what we call the annual Medicare bidding process. As our director of actuarial services notes, the process of bidding on Medicare prescription drug plans is a lot like putting together a giant puzzle. When the puzzle is completed, you end up with a monthly Part D premium of $32.07 or $41.29 or some other odd amount that seems completely random.

Unlike the commercial insurance market where providers set the premiums for a plan, Medicare Part D premiums are determined as part of a blind bidding process that begins in June of each year. Every Part D provider submits bids to the Centers for Medicare & Medicaid Services (CMS) without knowing what the competitors will offer. Then CMS sets premiums based on how the bids average out. Premiums may vary from what providers submitted depending on what their competitors bid and how they differ from expectations.

A few large competitors dominate the marketplace, so the ability to predict premiums, profitability and potential membership growth requires an educated guess as to how other Part D providers will bid. The guesswork can be quite complex and requires a detailed understanding of trends and potential growth strategies in the marketplace.

For example, is a large Part D provider going to try to maximize profits by bidding a higher number or are they looking to increase membership and so plan on submitting a lower bid to CMS? Data and historical trends are helpful, but it’s really more of an art than a science when it comes to making a good bid that has competitive premiums and features that Medicare beneficiaries want in a Part D plan.

During the next two months, CMS will thoroughly review each bid. In August, CMS will release the bid results, giving marketing departments and employees like me just barely enough time to create all the plan materials and marketing communications for Medicare Open Enrollment in mid-October.

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