A recently released study shows that many people overpaid when they first enrolled in their 2006 Medicare Part D plan. The study conducted by the Kaiser Family Foundation found that only 6% to 9% of seniors chose the most affordable or lowest-cost Medicare Part D plan. Of those seniors who did choose the lowest-cost plan, these 2006 Part D plan members saved on average between $360 and $520.

The Kaiser study suggested that the wide range of Medicare Part D plan choices was probably not in the best interest of the beneficiary – with about 40 Part D plans per state plus Medicare Advantage Plans with a prescription drug benefit (MA-PDs). However, the Kaiser study also noted that there are other factors outside of pure economics that drive a person to choose a Medicare Part D plan including:

• The brand name or reputation of the company offering the plan,
• Part D plans offering fewer utilization management restrictions such as Prior Authorization, Step Therapy, or Quantity Limits, or
• The Part D Plans accepted at their local or regular pharmacy.

What Are Our Thoughts?

Don’t be too hard on yourselves if you were not part of the 6% to 9% who chose the lowest-cost Plan. …

The first enrollment period starting in November of 2005 was a very unusual time. As some of you may recall, at first no prescription drug plan information was available and then all at once, there was too much information available – with radio, TV, and printed material everywhere. Medicare beneficiaries collected stacks of brochures from pharmacies and agents. Medicare Part D carriers could hardly print the material fast enough to meet the demand – especially with many people trying to make a Medicare Part D decision before December 31st, 2005.

The information on the Medicare website was being updated regularly and many people found that the lowest cost Part D plan one week, was not the lowest cost plan the next week. Online enrollment systems did not always complete the process with a confirmation code leaving seniors wondering whether they actually were enrolled. Medicare Part D Plan call centers had waiting times that lasted into the several hour range – and sometimes simply disconnected when the call-center closed.

We also found back in 2006, that many married couples chose the same Medicare Part D plan that was most affordable for the person with the highest medication costs – even when it was not the most affordable for both people. It seemed that choosing the same Part D plan was just easier than dealing with two sets of booklets, statements, and forms.

Since there was no historical information on the newly released Medicare Part D plans, people steered away from a more affordable, but less familiar Part D plan that simply had no "brand-recognition". When helping people find the most affordable Part D Plans, we would list the most economic Plan choices and, in our experience, few people felt adventuresome enough to say things like, "nope, never heard of that Part D Plan or even the company, but the what the heck, let's take a chance on the underdog for a change."

Still other Medicare beneficiaries made an anti-decision or minimized the risk of error instead of maximizing economic return. For instance, rather than choosing a company they liked (“I always go with Company AAA – they are very helpful.”); they chose a Part D Plan because they did not like the next-lower-costing Medicare Part D plan (“I would never go with Company ZZZ - no matter how much I saved.”). In essence, avoiding a particular company (or companies) rather than making the most economical choices.

We also found that some people purchased a Part D plan based on their feelings of insurance as a financial protection device. In other words, some people chose more comprehensive Part D plans because they wanted to pay more with the thought that they had the extra protection should they need it. The Humana Complete Plan was popular for that reason - why not pay a little more and really know that every medication possibility was covered through the year - for a while Humana even provided Silver Sneaker memberships with their Part D plans.

As the Kaiser Foundation study notes, one of the difficulties in choosing a Medicare Part D plan is to anticipate the prescription drug costs of the upcoming year and the most affordable Part D plan in November of 2005, may not have been the most affordable Plan in August of 2006 – especially when the program was new and people did not have experience.

What are your thoughts about the good-old days back in 2006? Comment below: