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J Gen Intern Med. 2006 Apr; 21(4): 386–392.
PMCID: PMC1484724

Medicare Coverage for Patients With Diabetes

A National Plan With Individual Consequences


The prevalence of diabetes in the U.S. Medicare population is growing at an alarming rate. From 1980 to 2004, the number of people aged 65 or older with diagnosed diabetes increased from 2.3 million to 5.8 million. According to the Centers for Medicare and Medicaid (CMS), 32% of Medicare spending is attributed to the diabetes population. Since its inception, Medicare has expanded medical coverage of monitoring devices, screening tests and visits, educational efforts, and preventive medical services for its diabetic enrollees. However, oral antidiabetic agents and insulin were excluded from reimbursement. In 2003, Congress passed the Medicare Modernization Act that includes a drug benefit to be administered either through Medicare Advantage drug plans or privately sponsored prescription drug plans for implementation in January 2006. In this article we highlight key patient and drug plan characteristics and resources that providers may focus upon to assist their patients choose a coverage plan. Using a case example, we illustrate the variable financial impact the adoption of Medicare part D may have on beneficiaries with diabetes due to their economic status. We further discuss the potential consequences the legislation will have on diabetic patients enrolled in Medicare, their providers, prescribing strategies, and the diabetes market.

Keywords: medicare, diabetes, prescription drug plan


Considered by many to be an emerging pandemic, the increasing prevalence of diabetes in the United States population over the past half-century is a growing concern. According to the Centers for Disease Control (CDC), the total number of individuals reported to have diabetes in the United States has more than doubled from 5.8 million in 1980 to 14.7 million in 2004.13 Factors proposed to account for the increase of people in the United States diagnosed with diabetes include changing diagnostic criteria, improved or enhanced detection, increased awareness, growth in minority populations, obesity and lifestyle factors, and decreased mortality.46

A major increase in the prevalence and incidence of diabetes has been noted among Medicare beneficiaries age 67 or older. Between 1993 and 2001, the adjusted prevalence of diabetes cases per 1,000 individuals in the elderly Medicare population rose from 145 to 197. The highest prevalence rates were noted among minority groups. Between 1994 and 2001 the adjusted incidence of diabetes in beneficiaries age 67 or older increased 36.9%, from 27/1,000 to 37/1,000.6 By 2050, the number of people with diabetes is expected to increase by 165%, with the greatest increase expected among individuals age 75 or older.7

The economic burden attributed to diabetes has paralleled population trends. According to the American Diabetes Association (ADA), in 2002 direct medical and indirect expenditures attributed to diabetes in the United States were $91.8 billion and $39.8 billion, respectively. Individuals age 65 or older bore the majority of the estimated costs at $47.6 billion. Costs for insulin and delivery supplies, oral agents to lower blood glucose, and other outpatient medications attributable to diabetes were estimated at $7.0 billion, $5.0 billion, and $5.5 billion, respectively, and represented 13% of the total health care expenditures attributable to diabetes in 2002. Costs for insulin and delivery supplies, oral agents to lower blood glucose, and other outpatient medications attributed to diabetes for individuals age 65 or older were estimated at $2.7 billion, $2.2 billion, and $2.8 billion, respectively.8 Data suggest patients are being treated increasingly with either oral antidiabetic medications or insulin with oral antidiabetic medications instead of diet or insulin alone.9


Since its inception in 1965, Medicare has covered inpatient and outpatient costs necessary for the diagnosis and treatment of illness or injury. Legislative efforts prior to 2003 have expanded Medicare coverage for diabetes management, screening, education, and supplies (Table 1). The Balanced Budget Act of 1997 (BBA) provided for coverage of blood glucose monitors and testing strips for all diabetics, addressed coverage of diabetic outpatient self-management services, and provided for outpatient diabetes self-management training (DSMT) in both hospital-based and nonhospital-based programs.10 The BBA also authorized demonstration projects to evaluate outcomes associated with payment of coordinated care services among beneficiaries with chronic care illnesses including diabetes and telemedicine use with diabetics living in rural and inner-city areas.11,12 The Medicare, Medicaid, and State Children's Health Insurance Program Benefits Improvement and Protection Act of 2000 (BIPA) provided annual glaucoma screening for individuals at high risk to develop glaucoma, individuals with a family history of glaucoma and individuals with diabetes. The link between diabetes and glaucoma remains controversial.13 BIPA also provided for medical nutrition therapy services (MNT) for Medicare beneficiaries with diabetes and renal disease. In subsequent years, coverage decisions by the Centers for Medicare and Medicaid (CMS) have further defined DSMT and MNT guidelines and reimbursement.14 In addition, BIPA mandated a demonstration program focused on the evaluation of disease management services combined with a prescription drug benefit in several populations of Medicare beneficiaries including those with diabetes.15 Interspersed between these legislative efforts Medicare increased coverage of devices associated with diabetic care. In 1999, the CMS announced coverage of insulin pumps for beneficiaries with type 1 diabetes, a decision which has since been expanded to include coverage for some beneficiaries with type 2 diabetes.1618

Table 1
Medicare Coverage of Diabetes-Related Services and Supplies Before 2003 (Medicare Part B)


Prescription Drug Coverage for Diabetics

The passage of the Medicare Prescription Drug Improvement and Modernization Act (MMA) of 2003 represents a major expansion of Medicare's coverage responsibilities to its beneficiaries (Table 2). For the first time in its history, Medicare has provided for coverage for prescription drugs, biological products and insulin, including medical supplies associated with injection. The drug coverage plan, named Medicare part D, will be administered either through prescription drug plans (PDPs) or through Medicare Advantage drug plans (MA-DPs).

Table 2
The Medicare Modernization Act: Expanded Medicare Coverage for Screening, Drug Therapy, Medication and Disease Management, and Demonstration Projects

The basic parameters for all PDPs are mandated. Medicare will pay 75% of all drug costs after a $250 deductible up to $2,250. Medicare will pay 0% of drug costs between $2,250 and $5,100. Beneficiaries are responsible for this “doughnut hole” in drug spending to a maximum out-of-pocket expense of $3,600. After the “catastrophic coverage” threshold is reached, enrollees will pay the greater of either 5% coinsurance or copayments of $2 for generic drugs and $5 for name brand drugs. Beneficiaries are expected to pay a premium for the benefit, estimated by the CMS at $32.20 per month in 2006. There will be premium subsidies and premium reductions for those with predetermined income and asset levels and dual-eligible individuals are covered under Medicare part D. Deductibles, limits, and thresholds are indexed to rise in future years.19

The Centers for Medicare and Medicaid has issued guidance for PDP formularies to include at least 2 drugs in each approved category and class.20 This floor requirement leaves much discretion to the PDPs in terms of breadth and depth of prescription drug coverage. For example, according to the USP guidelines under the therapeutic category of blood glucose regulators, there are 3 pharmacologic classes: antihypoglycemics, oral hypoglycemics, and insulins.21 There are a number of available insulin and insulin analog products and combinations (Table 3). It will be PDPs that negotiate with pharmaceutical companies for drug prices and subsequent inclusion or exclusion of medications on formulary. The PDPs may organize their formularies with tiers of varying drug coverage, place quantity limits on covered drugs, and institute a varying beneficiary deductible responsibility.

Table 3
Available Insulin and Insulin Analog Products and Combinations

There are checks and balances to this system. The Centers for Medicare and Medicaid mandates that formulary and benefit structure must not discourage enrollment by certain Medicare beneficiaries and diabetes is highlighted as one of the conditions for which appropriate access is afforded to drugs.20 Individuals may appeal for coverage of nonformulary drugs if a physician determines that all the drugs on the plan's formulary for treatment of the same condition would not be as effective or would have adverse effects for the patient. Also, a physician or authorized representative of an individual may help the beneficiary in the appeals process.

Diabetes and Cholesterol Screenings Tests

The MMA provides for several preventive medicine services. Diabetes screening tests are covered in the form of either a fasting plasma glucose test and/or a postglucose challenge test up to twice a year without a deductible or co-pay. The MMA also covers an initial preventive physical to include a comprehensive examination and education regarding preventive services. The act covers cardiovascular screening tests including tests for total cholesterol, high-density lipoprotein, and triglycerides every 5 years without deductible or co-pay.

Disease Management Programs, Medication Therapy Management Programs, and Demonstration Projects

The MMA authorizes the development and testing of a voluntary chronic care improvement initiative aimed at improving the quality of care and life for Medicare beneficiaries living with multiple chronic illnesses. Named Medicare Health Support, the program is aimed at beneficiaries with multiple chronic conditions including complex diabetes, chronic obstructive pulmonary disease, and congestive heart failure. The Centers for Medicare and Medicaid will oversee programs operated through health care organizations chosen through a competitive selection process.2 In 1 example of this initiative, the Joslin Diabetes Center will participate in a coalition to provide disease management services to Medicare patients in Mississippi with complex diabetes or congestive heart failure.22

The MMA requires all plans offering the Medicare drug benefit to have a medication therapy management program. The targeted beneficiaries for these programs include those with multiple chronic conditions including diabetes, asthma, hypertension, high cholesterol, and congestive heart failure. The goal is to ensure that drugs prescribed for these beneficiaries are appropriately used to optimize therapeutic outcomes and reduce risk of adverse events.

The MMA also includes provisions for several demonstration projects intended to test potential future improvements in Medicare coverage, expenditures, and quality of care; several of the projects focus on individuals with diabetes. For example, 1 demonstration project is focused on consumer-directed chronic outpatient services in Medicare beneficiaries with chronic conditions.23


The MMA expands the government's responsibility for the health care of the diabetic patient. Numerous studies have demonstrated decreased compliance and increased morbidity in diabetics with reduced prescription drug coverage.2426 Enhanced drug coverage under the MMA may lead to improved compliance and adherence to therapy and ultimately better glycemic control and decreased morbidity in the diabetic patient. In addition, the MMA provides for enhanced screening and preventive medicine services. These efforts will likely improve physicians' ability to identify those with diabetes or at risk for developing diabetes earlier in the natural history of the disease and lead to improved control of risk factors and treatment of disease.

The economic impact of the MMA on the diabetic patient will vary depending on the patient's medication requirement, economic situation, and chosen PDP. Given that diabetic patients have, on average, more comorbid disease than nondiabetics, they have much to gain collectively in terms of drug coverage and economic savings. However, the basic prescription drug plan structure has gaps in coverage with defined out-of-pocket expenses and it is estimated that 25% of all patients will pay more for medications under the MMA.27 There is variability among premiums, patient cost-sharing, and formulary coverage. A drug regimen for a diabetic patient with hypertension and hypercholesterolemia using 2 oral antidiabetic agents, insulin, statin, and antihypertensive (aspirin excluded from analysis) would generate several potential costs to the patient depending on his or her economic status (Table 4).

Table 4
Estimated Annual Enrollee Drug Cost for Example Diabetic Drug Regimen with Medicare Part D Coverage

The potential positive impact of enhanced prescription drug coverage under the MMA may be offset by drug choice limitations with PDP formularies. Diabetic patients will first have to elect whether or not to enroll in a PDP depending on their prescription drug needs, availability of plans within their geographic location, formularies of medications covered by their PDP, and economic situation. Should their current medications or selected route of administration not be included in the PDP formulary, patients will either have to advocate for medication change or enter an appeals process. Thus, the impact of the MMA on diabetics' medication choice is unclear.

The introduction of the MMA adds a new level of complexity to the health care environment that will impact diabetic providers. As Medicare patients will be enrolled in different PDPs with different formularies, physicians will have to address patients' drug coverage on an individual basis, altering medication regimens based on a patient's formulary or filing appeals for uncovered drugs. Physicians may face questions from new part D enrollees as well as from those whose current prescription drug coverage may be discontinued as a result of the MMA. In addition, as medications prescribed in hospitals may be different from medications available on PDP formularies, providers will need to ensure effective transition of medical care from the inpatient to outpatient setting. Physicians of diabetic patients will be especially vulnerable to the administrative and bureaucratic burden posed by the implementation of the MMA due to the often complex and tailored drug regimens of diabetic patients.

An effective implementation of Medicare Part D is particularly challenging in certain populations. Of note, dual-eligible individuals, a 6.4 million population of the sickest and most impoverished Medicare beneficiaries, must transition from a single state Medicaid drug payment system to the multiple part D plans.28 This population has a higher prevalence of diabetes and uses, on average, at least 10 more prescription drugs than the general Medicare population.29 Furthermore, providing prescription drug coverage is not, in and of itself, a panacea to barriers of effective health care delivery. Previous studies suggest that independent health status and socioeconomic status factors represent barriers to medication accessibility regardless of insurance coverage.30 Given the higher prevalence of diabetes among African American and other minority populations compared with Caucasians, strategies to improve education, screening, and management will be necessary alongside implementation of drug coverage to improve care.

The MMA may have a major impact on the future care of diabetic patients. The product pipeline for future antidiabetic agents is extensive and includes the development of alternate routes of insulin administration such as inhaled insulin and new insulin secretagogues and sensitizers. Under the MMA PDPs have 90 days to make formulary decisions for newly approved drugs and 180 days to include the drugs on their formulary. Competing forces under the MMA will shape the development and utilization of new products. On one hand, the current legislation precludes Medicare from negotiating drug prices with pharmaceutical companies directly. While the Congressional Budgeting Office (CBO) estimates that there will be drug savings with the implementation of the MMA, these drug price reductions are likely less than those that would ensue if the Medicare negotiated for drugs directly.31 Given the assumption that it is the high prices of brand-name drugs that enable the pharmaceutical industry to support research and development process in the United States, research efforts will continue unabated under the MMA. However, if the efficacies of newer agents for diabetes are no different than existing agents, it is unclear if PDPs will support the likely additional costs associated with these new products. Subsequent potential decreases in drug revenue may prove a disincentive to the drug industry to develop new drugs for the diabetic patient. The shape of future diabetic care will be directed by choices made by PDP pharmaceutical & therapeutics (P&T) committees, market forces among PDPs, and the economic capability of the government to support the program.


The MMA represents a step forward in the care of diabetic patients enrolled in Medicare. The advantages offered by enhanced reimbursement for diabetic drugs and supplies, however, will be balanced by potentially greater restrictions on physician prescribing and increased bureaucracy. Educating Medicare enrollees with diabetes about the new legislation will be critical to their care. Furthermore, the complex drug reimbursement system proposed by the MMA will necessitate greater advocacy among diabetic health care providers in order to preserve patient rights and provider independence. We believe there are several strategies that providers and patients must undertake in order to prepare for the efficient implementation of the MMA in the diabetic community.

Early and Comprehensive Provider and Patient Education Regarding Medicare Part D

The introduction of Medicare part D will necessitate greater patient and provider education regarding numerous aspects of the MMA including PDP enrollment, potential credits, PDP characteristics, formularies, and the appeals process for uncovered drugs. Both patients and providers will need to be educated regarding paperwork, guides, and web-based systems introduced to assist Medicare beneficiaries enroll in and compare part D plans. There will be a mass of patients with information needs regarding the Medicare part D benefit and the earlier the provider and patient undertake education initiatives, the more efficient the transition under MMA will be. There are several resources available to both patients and providers (see Table 5). Additional education and implementation efforts must be launched to address the unique needs of certain populations including dual-eligible beneficiaries and minorities. In addition to basic outreach strategies, community-based initiatives involving personal interactions between providers and beneficiaries will be critical.

Table 5
Medicare Part D Resources for Patients and Providers

Advocacy With Review of Part D Plan Formularies and Benefits

Given the expected variation in drug cost and coverage among part D plans, its will be essential for diabetic providers to review drug formularies individually and collectively. The decision by a patient or provider to initiate an appeals process for an uncovered drug should be made in a timely fashion in order to protect the patient from paying unnecessary out-of-pocket expenses. The size of the diabetic population and the cost of treating their condition make them an especially vulnerable target to Medicare regulations and budgetary restrictions, thus there must be advocacy among patients and providers to ensure that diabetic patients have access to an acceptable standard of care with respect to depth and breadth of drug coverage.

Future Research of the MMA Impact on the Diabetic Community

Given the numerous uncertainties regarding the implementation and impact of the MMA, there is a clear need for further studies to evaluate its impact on the diabetic patient. Studies will need to assess multiple aspects of the MMA including enrollment, patient and government expenses, and drug access. In the diabetic population, we believe particular attention should be paid to the changes in the choice of diabetic regimens resulting from implementation of the MMA as well as diabetes drug costs for Medicare and non-Medicare patients. It may also be beneficial to monitor the rate of drug development for antidiabetic medications. Outcomes research regarding the demonstration projects and medication therapy management and disease management programs introduced by the MMA will also be particularly important to the diabetic community.


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