Health insurers upcharged Medicare $9B for prescription drug plans

Medicare overpaid health insurers $9.1 billion for providing prescription drug plans after they overestimated how much it would cost to administer the benefits, according to a Wall Street Journal investigation.

Here are nine things to know:

1. Health insurers provide prescription drug benefits, or Part D coverage, to more than 40 million Medicare beneficiaries. Each year, these health insurers send the federal government cost forecasts for the plans.

2. The Wall Street Journal found the health insurers have consistently overshot these estimates. As a result, from 2006-15, health insurers kept more than $9.1 billion in taxpayer funds, according to Medicare data reviewed by the publication.

3. An analysis by The Wall Street Journal shows that 69 percent of Part D beneficiaries were in plans that overestimated costs by at least 5 percent from 2009-13.

4. For example, UnitedHealth overestimated costs by at least 5 percent for 93 percent of its members, while Anthem did the same for 76 percent of its members. Humana overestimated costs by at least 5 percent for plans covering 74 percent of its policyholders.

5. While the Part D program was designed to help lower drug costs through insurer management, costs for the program have climbed 49 percent from $62.9 billion in 2010 to $93.8 billion in 2017, according to the report.

6. Some Medicare experts are pointing to the program's payment rules as the reason for the growing costs. Under the system, private health plans and pharmacy benefit managers like CVS Health, UnitedHealth Group and Humana send bids to the federal government. These bids estimate how much it will cost to manage the Part D benefits, including administrative expenses and profits.

7. While insurers say they try their best to enter correct estimates — and note that professional actuaries certify the bids and Medicare approves and sometimes audits them — pharmaceutical companies' drug prices change unpredictably. 

8. Medicare compares a plans' bids to their actual spending each year. If the health insurer overestimated its costs, it can keep a portion of the money. If the difference is greater than 5 percent of the original bid, the health insurer has to pay some of the funds back to Medicare.

9. In a statement to The Wall Street Journal, CMS said the part of the formula that allows payers to pocket overpayments, or risk sharing, is "based on a statutory formula." The agency said it has "taken action to bolster Part D plans' negotiating power so that they can get the best deal for patients from prescription-drug manufacturers."

For the full analysis from The Wall Street Journal, click here.

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