Avalere Health’s initial analysis highlights the continued impact of payment reforms imposed by the Affordable Care Act (ACA) on MA plans, as well as the growing use of low-cost PDPs with preferred pharmacy networks.

• MA Plan Participation: On the MA front, plan participation has remained strong in recent years despite substantial payment cuts imposed by the ACA. However, for 2015, MA plans face new financial pressures, including the end of the Quality Bonus Payment (QBP) demonstration, which allowed more plans to earn bonus payments for achieving quality and performance targets.

• End of the QBP: Starting in 2015, plans with 3 and 3.5 stars will face a significant payment cliff, as they will no longer be eligible for bonus payments from CMS.

• Continued Phase-in of Benchmark Adjustments: ACA payment rates (which are based on benchmarks that are generally lower than pre-ACA benchmarks) continue to phase in-2015 will see over 70 percent of MA enrollees in plans that have payment rates based on the new, lower benchmarks.

“Next year will be a pivotal year for the Medicare Advantage market-the confluence of payment pressures and re-alignment in the provider markets is likely to have a significant impact on plan participation decisions and benefit design,” said Dan Mendelson, CEO at Avalere Health. “Growth in MA has become a de-facto version of Medicare reform, and will continue to be so in the future.”

• Low Cost PDPs: Over the last several years, Medicare Part D plans that offer benefit packages with low premiums have become increasingly popular among beneficiaries. In 2014, the five PDPs with national or near-national status and a premium below $30 per month (Humana’s Walmart Rx and Humana Preferred Rx, WellCare’s WellCare Classic, United’s AARP MedicareRx Saver Plus, and CVS’ SilverScript Basic) captured nearly 40 percent of total PDP enrollment.

• Preferred Pharmacy Networks: Part D plans are commonly relying on preferred pharmacy networks to keep premiums down-in fact, plan sponsors credit these networks with helping them better manage costs while growing enrollment. While CMS recently expressed concern that these plans adversely impact beneficiary access and program costs, the Agency backed away from proposals to more tightly control these networks, and plans continue to design offerings with preferred pharmacies. Last year, over 70 percent of all PDPs had preferred cost-sharing networks.

• Benefit Design and Formulary Trends: As Part D plans work to keep premiums down, they are simultaneously increasing patient out-of-pocket responsibilities and reducing plan generosity; a growing proportion of plans imposed the standard Part D deductible ($320 in 2015), rather than a $0 deductible in 2014 and, as the Part D donut hole continues to close, over three-quarters of Part D plans did not offer coverage in the gap. Meanwhile, nearly 85 percent of PDPs used five or more formularies and over 90 percent employed a specialty tier last year-trends we expect to carry into 2015.

“As the 2015 annual election period approaches, we expect top Part D sponsors to continue to focus their offerings on low-cost PDPs in order to gain robust market share,” said Christine Harhaj, senior manager at Avalere Health.

Avalere Health will continue to offer key insights on key Part D and MA changes as they become available. For more information about CMS’ Medicare Landscape Files, please contact Christine Harhaj at CHarhaj@Avalere.com.