How Does Pricing Work Under Medicare Part D?
Most people don’t know about the four phases of Medicare Part D. And you have to in order to understand the donut hole and pretty much all of your out-of-pocket costs for your prescription drug plan.
Medicare Part D costs for any beneficiary who does not receive low-income subsidies work this way:
During the deductible phase, you pay 100 percent all costs. Yearly deductibles vary according to plan and insurance provider, but Medicare does set a limit. In 2020, the maximum Part D deductible is $435.
You pay 25 percent of all prescription drug costs while in the initial coverage phase. Your plan pays the remaining 75 percent. Once you and your plan together spend a combined total of $4,020 (in 2020), you enter the coverage gap phase, aka the donut hole.
Although the donut hole is now closed (you still pay 25 percent of all drug costs), this phase is still necessary because it plays a role in getting you to the catastrophic coverage phase.
How You Reach the Catastrophic Coverage Phase
Generic prescriptions still have a 25/75 split while in the coverage gap. However, cost sharing for brand name drugs is a little different. It looks like this:
- You pay 25 percent
- Your plan pays 5 percent
- The drug’s manufacturer pays 70 percent
You reach the catastrophic coverage phase once your out-of-pocket spending and the manufacturer’s spending add up to $6,350. Once you reach the catastrophic coverage phase, Medicare pays 80 percent of your prescription costs, your plan pays 15, and you pay the remaining 5 percent.
Medicare Part D Changes in 2020
The donut hole closing may be the biggest Medicare Part D change in 2020. We’ve seen some questions about this. Since beneficiaries are still paying 25 percent of their prescription drug costs, many think the donut hole still hasn’t closed. That’s why we began the article by explaining the phases – most people don’t know they were already paying 25 percent before they entered the donut hole. This is likely because you just know what your co-pay is at the pharmacy. Nobody told you that charge was a percentage of what your plan pays for the drug.
What closing the donut hole actually means is this: Before the Affordable Care Act passed, Part D beneficiaries had to pay 100 percent of their prescription costs (until they reached the coverage gap phase). ACA included a provision that reduced beneficiaries’ out-of-pocket costs over time. The Centers for Medicare and Medicaid Services (CMS) estimates that ACA saved Medicare beneficiaries almost $27 billion by 2016.
Another big Medicare Part D change in 2020 is the $6,350 spending threshold to reach the catastrophic coverage phase. That jump is nearly 25 percent higher than the threshold for 2019 (which was $5,100). By comparison, between 2010, when ACA passed, and 2019, the out-of-pocket threshold only went up $550. That means this year’s increase is more than double the total increases of entire previous decade.
3 Proposals Regarding Medicare Part D
Since Medicare is a government program, it literally takes an act of Congress for anything to change. Right now, there are three proposals waiting for a vote, each designed to lower prescription drug costs.
- Trump’s proposal: The President’s FY2020 Budget proposal includes a provision that would eliminate out-of-pocket spending once beneficiaries reach the catastrophic stage. It also shifts costs in this phase so that your plan would pay 80 percent and Medicare would pay 20 percent. This plan only helps seniors who reach the catastrophic stage (fewer than 1 million did in 2017, when the threshold was only $4,900).
- Senate proposal: The Prescription Drug Pricing Reduction Act of 2019 limits beneficiaries’ out-of-pocket costs to $3,100 by 2022. It also eliminates the coverage gap.
- House proposal: The Lower Drug Costs Now Act of 2019 proposes a $2,000 out-of-pocket spending limit for Part D beneficiaries and eliminates the coverage gap.
All three of these proposals include changes to the cost sharing model, shifting the highest percentage to the plan. The Senate and House proposals do the most to help lower drug costs for everyone. That’s because less than 7 percent of beneficiaries ever enter the coverage gap.
Still have questions about Medicare Part D or Medicare?
Through our partnership with MedicareUSA, a national agency with thousands of plan options, we have arranged to offer you this free service with access to:
• Licensed Medicare agents to answer all of your questions
• Step-by-step guidance through the enrollment process
• An easy-to-use online Medicare education resource and plan finder
Call 1-877-246-0492 to speak with a licensed agent, Monday – Friday, 8:30am – 8pm (EST) or access our online Medicare PlanFinder here.
Your neighborhood pharmacy is here to help you with your Medicare insurance needs.