Senior Healthcare Advisors Blog
As of 2019, Medicare beneficiaries enrolled in Part D prescription drug plans will no longer be exposed to a coverage gap, sometimes called the “donut hole”, when they fill their brand-name medications. The coverage gap was included in the initial design of the Part D drug benefit in the Medicare Modernization Act of 2003 in order to reduce the total 10-year cost of the benefit. Legislative changes are phasing out the coverage gap by modifying the share of total costs paid in the gap by Part D enrollees and plans and requiring drug manufacturers to provide a discount on the price of brand-name drugs in the gap.
So, let's briefly discuss a little more about the history of Medicare Part D and the coverage gap. Then we'll touch upon recent and proposed changes and how they will affect out-of-pocket costs for enrolles.
History of the Part D Prescription Drug Benefit.
Under the original design of the Medicare Part D benefit, created by the Medicare Modernization Act of 2003, when Part D enrollees’ total drug spending exceeded the initial coverage limit (ICL), they entered a coverage gap. Enrollees who did not receive low-income subsidies (LIS) were required to pay 100 percent of their drug costs in the coverage gap until their out-of-pocket spending reached the threshold amount that qualified them for catastrophic coverage.
In 2007, the first full year of the Part D benefit, 8.3 million Part D enrollees (32 percent of all enrollees) had total drug costs above the initial coverage limit and in the coverage gap. This total includes 3.8 million non-LIS enrollees who were required to pay 100 percent of their drug costs out of pocket in the coverage gap.
Changes to Medicare Part D Out-of-Pocket Costs.
Affordable Care Act (ACA)
Changes in the ACA also known as "Obama Care" included a provision to phase out the coverage gap by gradually reducing the share of total drug costs paid by non-LIS Part D enrollees in the coverage gap, from 100 percent before 2011 to 25 percent in 2020. The ACA required plans to pay a gradually larger share of total drug costs, and also required drug manufacturers to provide a 50 percent discount on the price of brand-name drugs in the coverage gap, beginning in 2011. The ACA stipulated that the value of this discount would count towards a beneficiary’s annual out-of-pocket spending.
Additionally, the ACA modified the calculation of the annual out-of-pocket spending threshold between 2014 and 2019 so that the threshold amount would grow more slowly during these years. In 2020 and beyond, the threshold will be determined using the pre-ACA calculation. As a result, between 2019 and 2020, Medicare’s actuaries project that the out-of-pocket threshold for catastrophic coverage will increase from $5,100 to $6,350.
Bipartisan Budget Act of 2018 (BBA)
The recently enacted BBA made additional changes to the coverage gap, accelerating a reduction in beneficiary coinsurance for brands from 30 percent in 2019 to 25 percent that year, and increasing the manufacturer discount from 50 percent to 70 percent, beginning in 2019, a change which is expected to reduce Medicare spending by $11.8 billion over a 10-year (2018-2027) period.
In 2019 and later years, Part D plans will cover the remaining 5 percent of costs in the coverage gap, which is a reduction in their share of costs (down from 25 percent that would have been required under the ACA).
The manufacturer discount in the coverage gap will continue to count towards beneficiaries’ annual out-of-pocket spending, and will help cover a portion of the projected increase in the annual out-of-pocket spending threshold in 2020 and beyond.
How Many Enrollees Reach the Donut Hole?