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The Future of Medicare’s Drug Prices

Medicare’s Goal of Reducing Part D Costs

With the increasing costs of health care, it’s no surprise that both consumers and insurers are looking to cut costs and save money where they can. As more and more Americans age into Medicare, more attention is being aimed at reducing the overall costs for the federal program. One area that’s receiving a large amount of attention is Medicare Part D — the program that was launched in 2006 to help seniors cover the costs of their prescription drugs. Despite the program’s popularity among Medicare recipients, it has recently begun to draw ire because of regulations written into the law that created Part D in 2003, which prevent Medicare from negotiating with drug companies for lower prescription drug costs.


A recent survey conducted by the Kaiser Family Foundation uncovered that an overwhelming majority of Americans (87% of those surveyed) believe Medicare should have the ability to negotiate with pharmaceutical companies for lower drug prices. The current law was heavily influenced by the drug companies, which feared government negotiations over prescription prices would have a negative effect on their profits. However, a recent spike in drug costs — including several drugs that are widely used to treat comment health concerns — has revived interest in the fight for Medicare’s right to negotiate drug prices. In the Kaiser Family Foundation poll, 73% of respondents believed current drug prices are unreasonably high, and over 75% blamed the high prices on drug manufacturers’ greed and attempt at driving profits.


While the debate and discussion surrounding whether to allow Medicare to negotiate drug prices continues, more than two-thirds of all Medicare recipients receive some drug coverage benefit made available through Medicare Part D. Original Medicare (Parts A and B) does not offer drug coverage. Beneficiaries can opt to enroll in a standalone Prescription Drug Plan (roughly two-thirds of those opting into Part D benefits) or a Medicare Advantage Plan (Part C) that includes drug coverage (roughly one-third of those receiving Part D benefits).


In 2016, there were more than 1,000 plans with drug coverage available. The costs per drug and coverage for those plans vary by region and by plan provider, but the basic coverage structure set by the Centers for Medicare & Medicaid Services (CMS) is based on the following guidelines: Plans with prescription drug benefits have a drug deductible of $360, for which the plan will not cover any drug costs. Once the deductible has been reached, the Initial Coverage Period begins, with the enrollee paying 25% of drug costs and the health plan paying 75%, until a total benefit of $3,310 has been reached. At this point, the coverage gap, or Donut Hole, comes into effect until the total benefit cost has exceeded $4,850. During the gap, consumers pay 45% of the costs for brand name drugs and 65% of the costs for generic drugs. If a consumer’s total benefits exceed more than $4,850 in a year, the catastrophic coverage phase begins, during which the consumer pays only 5% of drug costs, the plan pays 15%, and Medicare covers the remaining 80%.


In addition to the costs for the drugs, consumers are responsible for a monthly premium cost, which varies by plan and ranges from $12.60 to $175.00. However, consumers may pay more or less depending on their income level. Consumers with annual earnings of less than $17,500 may be eligible for Medicare Part D coverage at $0 monthly premiums. In contrast, consumers with higher-than-average incomes may be required to pay an additional monthly premium as determined by CMS. For individuals making more than $85,000 per year or couples making more than $170,000 per year, additional monthly fees ranging from $12.30 to $70.80 may be applied to their monthly Part D premium.


(Kaiser Family Foundation polls were conducted in the spring of 2015 with 1,849 survey respondents and have a margin of error of +/- 3%.)



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