Kaiser Permanente, the historic group-model HMO that dominates the California market and has over 650,000 members in its Medicare HMOs, has changed its benefits in response to higher costs. Kaiser has the reputation of being loathe to change its members’ benefits, and tends to keep its members for much longer than other health plans.  That is connected to the fact ,of course, that Kaiser is also one of the few HMOs which (essentially) owns its delivery system. Key changes, effective Jan. 1, to Kaiser’s Senior Advantage plan for Medicare members include:

— Elimination of brand-name drug coverage
— Unlimited generic drug coverage
— Co-payments of $200 per day for hospital stays, not to exceed $3,000.
— Co-payments of $10 to $50 for laboratory and radiology procedures.
— Keeping local premiums unchanged at $80 a month, or lowering those that are higher than that in some areas.

The major change here of course is the elimination of brand-name drug coverage.  The SF Chronicle reports on some Kaiser members who are taking brand-name drugs and face huge increases in their monthly costs.

While some aspects of this move may yet be rolled back by Kaiser, especially for members who have no generic alternatives for their brand-name drugs, there are several wider implications:

a) All payers are now aggressively pushing against the cost of branded drugs. We’ve seen three-tiered formularies, higher co-pays, etc, etc, from PBMs and health plans. Essentially, if even Kaiser is joining in, insurers are giving up on controlling branded drug costs by giving up on covering them.  This begins to look like drug coverage before the rise of managed care in the early 1990s.  Traditionally most insurance didn’t cover drugs (which is why Medicare doesn’t now), and pharma companies are going to have to continue to deal with the effect of this non-coverage for their branded products. The difference for consumers is that branded drugs now cost much more than they used to, so consumers are likely to start pressurizing pharma companies on retail pricing–such as buying them in cheaper countries!

b) The current Medicare Prescription Drug bill does not include any price controls, generic substitution, or limits on the use of branded drugs–other than the "doughnut hole" in the middle of coverage.  Of course (if it passes!) the bill introduces a Medicare payment system that can and will be changed in the future.

c) The Medicare drug bill on the house side promotes the use of private plans for Medicare.  Given that Medicare HMOs have been losing members in recent years, I’m not so sure that there are great prospects for their success.  However, politically, this type of benefit cut by a well-respected HMO that has always had high member satisfaction, will make the privatization of Medicare even more politically unpalatable.