How will Part D out-of-pocket expenditure be affected?
The Medicare Part D doughnut hole is effectively closed as of January 1, 2020 affecting the 46 million Medicare beneficiaries enrolled in Part D. The doughnut hole, or coverage gap, has been a divisive feature of the Part D program since its was introduced 14 years ago. At least 10 percent of Part D beneficiaries hit the coverage gap in 2019.
At its inception, Part D froze coverage at a dollar amount threshold of $2,250. Beneficiaries surpassing the threshold paid out of pocket until they hit a second threshold where coverage resumed. After meeting the $250 deductible, beneficiaries paid 25 percent of the cost of each prescription until total costs reached $2,250. After reaching that amount, Part D participants were responsible for 100 percent of drug costs until they reached $3,600. As of 2019, the first threshold increased to $3,820. The second went up to $5,100. According to a representative at the Medicare Policy Program at the Kaiser Family Foundation, these numbers originated when congress implemented a self-imposed budget target. Lawmakers settled on the doughnut hole concept which many beneficiaries saw as an abrupt interruption in coverage.
The Centers for Medicare and Medicaid Services estimate that 8 million Part D beneficiaries fell into this coverage gap in 2010. The Affordable Care Act would begin efforts to eliminate it. Ten years later, federal regulations require Medicare plans to average 25 percent cost-sharing for any prescription. Part D premiums remained stable leading up to the decision as people with Part D rose to 75 percent of all Medicare beneficiaries.
The doughnut hole is closed, but beneficiaries may still experience high drug costs due to a coverage shift. Beneficiaries are responsible for 25 percent of drug costs once total expenditures hit $$4,020. So, if a drug costs $1,000, a Part D participant owes a $250 co-pay until they reach the catastrophic threshold of $6,350. Plans vary in placing certain drugs at certain tiers. Each tier is indicative of a different specified dollar amount. Theoretically, the 25 percent co-pay could be less than the tiered price of the Part D plan, but it typically goes the other way. Keep in mind, Part D has never capped out-of-pocket costs even after reaching the catastrophic coverage threshold.
Polls continue to show widespread support for Congressional action to lower prescription costs. As of January 2020, the federal government is not permitted to negotiate Part D prices with drug companies despite federal agencies doing so in other programs. Medicare does not pay for Part D drugs and therefore has no leverage. The program relies on leverage from private insurers with larger blocks of consumers. The Trump administration’s proposed 2020 budget and a bill passed by the House in December intend to cap out-of-pocket expenditures for Part D.