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Growing Reinsurance Payments Weaken Competitive Bidding in Medicare Part D

Objectives: To examine variation in riskadjusted reinsurance payments across Part D plans, analyze its implications for the program, and explore options to reduce reinsurance payments.

Data/Study Design: 2007–2015 Part D Plan Payment and Premium data; 2010–2013 Part D Prescription Drug Event data; and 2013 Part D Plan Formulary Files.

Principal Findings: Riskadjusted reinsurance payments varied widely across plans at a given outofpocket (OOP) premium. The variance in riskadjusted reinsurance in common OOP premium ranges increased between 2010 and 2015. High riskadjusted reinsurance payments were negatively correlated with use of utilization management tools for highcost drugs.

Conclusions: Growing reinsurance payments shrink plans’ liability for managing drug spending for highcost enrollees, creating plan moral hazard, and making OOP premiums a noisy signal of plans’ total costs.

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