Medicare beneficiaries first gained access to Medicare Part D prescription drug coverage in 2006. And, like the rest of the program, Medicare Part D changes – at least a little – every year. This post looks at scheduled Medicare Part D changes in 2020, as well as some proposed laws intended to address rising drug costs.
The Four Phases of Medicare Part D
Before we look at the changes planned for 2020, you need to understand the four phases of Medicare Part D.
Medicare relies on a cost-sharing model to sustain itself and keep healthcare costs affordable for beneficiaries. Assuming you do not receive low-income subsidies, your costs at each phase are:
- Deductible phase: You pay 100 percent of costs until you meet your deductible, which has a max limit of $435 in 2020 (many plans have lower deductibles).
- Initial coverage phase: You pay 25 percent of prescription costs and your plan pays 75 percent. You leave the initial coverage phase once you and your plan spend a combined total of $4,020.
- Coverage gap phase: For brand name drugs, you pay 25 percent, the manufacturer pays 70 percent, and your plan pays 5 percent. For generic drugs, you pay 25 percent and your plan pays 75 percent. Both your and the manufacturer’s spending count toward getting you out of the coverage gap (aka the donut hole).
- Catastrophic coverage phase: You enter the catastrophic coverage phase when your out-of-pocket spending, plus the manufacturer’s 70 percent of brand name drugs, reaches $6,350. After that, you pay only 5 percent of prescription costs. Your plan pays 15 percent and Medicare covers the remaining 80 percent.
One of the biggest changes in 2020 is the significant increase to reach the catastrophic coverage stage. The $6,350 threshold represents a nearly 25 percent increase over 2019. In fact, that $1,250 jump is more than double the amount the out-of-pocket threshold increased between 2010 ($4,550) and 2019 ($5,100).
Medicare Part D Changes Under Current Law
The big news for 2020 is that the donut hole has closed, but what does that really mean? After all, you’re still paying 25 percent of costs.
Yes, but what many people don’t realize is that, until the Affordable Care Act (ACA) passed in 2010, beneficiaries shouldered 100 percent of prescription drug costs once they reached the coverage gap.
Commonly referred to as Obamacare, ACA included provisions that reduced out-of-pocket spending while in the coverage gap. At the same time, the law helped stabilize the out-of-pocket threshold (which is why it increased only $550 over a decade). According to the Centers for Medicare and Medicaid Services, those provisions saved seniors nearly $27 BILLION between 2010 and 2016.
However, even though ACA saved seniors billions, out-of-pocket costs for prescription drugs are still increasing. This is because pharmaceutical companies keep raising drug prices. As long as these big increases continue, expect to spend more on your prescriptions every year.
If the Donut Hole Is Closed, Why Is There Still a Coverage Gap?
The coverage gap phase used to refer mainly to the fact that beneficiaries shouldered 100 percent of their prescription costs. However, ACA also included provisions for calculating costs that qualify you for the catastrophic coverage phase.
If you rely on brand name medications, chances are higher that you’ll reach the coverage gap – especially since your and your plan’s spending counts toward it. But, if only your out-of-pocket costs count toward leaving the donut hole, you might never reach that final stage, catastrophic coverage.
So, although numerous headlines trumpet the closing of the donut hole, this stage is still highly relevant to Part D beneficiaries who rely on high-cost prescription medications.
How Do You Enter the Donut Hole?
Medicare counts 100 percent of your prescription drug costs toward entering the coverage gap. That means that, if your prescription costs $100, even though your co-pay is only $25, the entire $100 counts toward the $4,020 cap that moves you from the initial coverage phase to the coverage gap.
How Are Costs Shared in the Coverage Gap in 2020?
Medicare’s cost sharing model breaks down the percentages this way:
For generic prescriptions, it’s much simpler: 25 percent to you, 25 percent to your plan.
To reach the $6,350 threshold that qualifies you for catastrophic coverage, Medicare counts your spending plus the manufacturer’s spending. That includes 25 percent of generic drug costs and 95 percent of brand name prescriptions.
Proposed Changes that Would Impact Medicare Part D
There are currently three proposals in the White House that would impact Medicare Part D.
- Trump’s FY2020 Budget includes eliminating out-of-pocket spending in the catastrophic coverage phase by 2024, increasing plan costs from 15 to 80 percent, and decreasing Medicare’s share from 80 to 20 percent
- The Senate proposed capping out-of-pocket spending at $3,100 by 2022, reducing Medicare’s share to 20 percent, increasing the plan’s share to 60 percent, and removing the coverage gap entirely
- The House proposed legislation capping out-of-pocket spending at $2,000, removing the coverage gap, reducing Medicare’s share to 20 percent, increasing your plan’s share to 50 percent, requiring 30 percent from manufacturers during the catastrophic phase, and having manufacturers cover 10 percent of costs during the initial phase
Even if one of these proposals passes in 2020, you won’t likely see changes until 2021. Full rollout won’t occur until 2022 or 2024, depending on the proposal.
Understanding Medicare Part D Changes in 2020
Medicare can be confusing even when nothing has changed. The licensed agents at Medicare Solutions are here to help. Just call us toll-free at 855-350-8101 to get started. The best part? It won’t cost you a cent! You can also start comparing plan options in your area with our easy-to-use online tool.