Specialty tiers: Benefit design considerations for Medicare Part D

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By Bruce S. Pyenson, Gabriela Dieguez, Rebecca L. Johnson | 26 June 2013

Today’s specialty drugs include the latest product innovations used to treat complex, chronic, rare, and life-threatening conditions and are used by thousands of patients. However, the costs of these medical treatments can range from several hundred to thousands of dollars. For people with health insurance, this cost may be split between the patient and the patient’s prescription drug coverage. In the Medicare prescription drug program (Medicare Part D), most Part D sponsors have established benefit designs with coinsurance from 25% to as much as 33% for specialty drugs (as defined by the Centers for Medicare and Medicaid Services). Part D plans normally include these drugs in a separate tier, known as the specialty tier.

This paper considers the following questions:

  • How much do specialty-tier drugs add to costs for Medicare Part D plans (PDPs)?
  • What are benefit design alternatives to covering specialty-tier drugs without utilizing specialty tiers?
  • How will individuals’ out-of-pocket costs vary with coverage design?
  • What are the demographic characteristics of Part D users of specialty-tier drugs?
  • What is the impact to members, Part D sponsors, and federal reinsurance from eliminating specialty tiers?

This paper was commissioned by Pfizer, Inc.