What is Medicare Part D RX?
Medicare Part D is a federal program to subsidize the costs of prescription drugs for Medicare beneficiaries in the United States. It was enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) and went into effect on January 1, 2006.
Beneficiaries can obtain the Medicare drug benefit through two types of private plans: beneficiaries can join a Prescription Drug Plan (PDP) for drug coverage only or they can join a Medicare Advantage plan (MA) that covers both medical services and prescription drugs (MA-PD). The latter type of plan is actually part of Medicare Part C and has several other differences relative to original Medicare. Not all drugs will be covered at the same level, giving participants incentives to choose certain drugs over others. This is often implemented via a system of tiered formularies in which lower-cost drugs are assigned to lower tiers and thus are easier to prescribe or cheaper.
Most Medicare beneficiaries must affirmatively enroll in a Part D plan to participate. Dual eligibles (those also in Medicaid) are automatically enrolled in one of the less expensive PDPs in their area, chosen at random. If the dual-eligible person is already enrolled in an MA-only plan, then they are automatically removed from the MA plan upon enrollment in a PDP.
Enrollment for most beneficiaries is voluntary. The initial enrollment period took place from November 15, 2005 through May 15, 2006. Potential beneficiaries who did not enroll by the May 15 deadline (or within a given time frame after their initial eligibility date) incurred a late-enrollment penalty of 1% per month based on the average cost of the premium until their enrollment.
Annual enrollment periods for Medicare Part D begin on November 15 of the prior plan year. The initial enrollment period for the second year of Medicare Part D started November 15, 2006. In its first year, beneficiaries eligible for both Medicaid and Medicare (dual eligibles) were transferred from Medicaid prescription drug coverage to a Medicare Part D plan on January 1, 2006. Enrollment in January 2008 was 25.4 million, which was 6.2% higher than the 2007 enrollment. (An additional 14.2 million Medicare beneficiaries received drug coverage from other sources such as veterans benefits and retirement plans.
As of 2008 there were 1,824 stand-alone Part D plans available. The number of available plans varied by region. The lowest was 27 (Alaska) and the highest was 63 (Pennsylvania & West Virginia). This allows participants to choose a plan that best meets their individual needs. Plans can choose to cover different drugs, or classes of drugs, at various co-pays, or choose not to cover some drugs at all. Medicare has made available an interactive online tool called the Prescription Drug Plan Finder that allows for comparison of drug availability and costs for all plans in a geographic area. The Prescription Drug Plan Finder can be used to perform a personalized or general search for plans; in either case, the tool allows one to enter a list of medications along with pharmacy preferences. The Plan Finder output includes the beneficiary’s total annual costs for each plan, along with a detailed breakdown of the plans’ monthly premiums, deductibles, and prices for each drug during each phase of the benefit design (initial coverage period, coverage gap, and catastrophic-coverage period). Plans are required to update this site with current prices and formulary information every other week throughout the year. Some enrollees criticize the Prescription Drug Plan Finder as complex to use, especially for many Medicare beneficiaries who have limited computer skills and Internet access. Nonetheless, use of this tool is essential for people to make an informed choice based on actual costs for each plan.
Cost of Beneficiaries
Beneficiary Cost Sharing ( Deductibles, coinsurance, etc.)
The MMA establishes a standard drug benefit that Part D plans may offer.The standard benefit is defined in terms of the benefit structure and not in terms of the drugs that must be covered. In 2008, this standard benefit requires payment of a $275 deductible. The beneficiary then pays 25% of the cost of a covered Part D prescription drug up to an initial coverage limit of $2,510. The defined standard benefit is not the most common benefit offered by Part D plans. Only 10 percent of plans for 2008 offer the defined standard benefit. Most eliminate the deductible and use tiered drug co-payments rather than coinsurance.
Once the initial coverage limit is reached, the beneficiary is subject to another deductible, known officially as the Coverage Gap but referred to more commonly as the “Donut Hole,” in which they must pay the full cost of medicine. When total out-of-pocket expenses on formulary drugs for the year, including the deductible and initial coinsurance, reach $4550 in 2010, the beneficiary then reaches catastrophic coverage, in which he or she pays $2.25 for a generic or preferred drug and $5.65 for other drugs, or 5% coinsurance, whichever is greater. The $4050 amount is calculated on a yearly basis, and a beneficiary who amasses $4050 in out-of-pocket costs by December 31 of one year will start his or her deductible anew on January 1. Most low-income subsidy patients are exempt from all or part of the donut hole and the deductible.
The only out-of-pocket costs that count toward getting out of the coverage gap or into catastrophic coverage are True Out-Of-Pocket (TrOOP) expenditures. TrOOP expenditures accrue only when drugs on the enrolled-in plan’s formulary are purchased in accordance with the restrictions on those drugs. Any other purchases do not count toward either the coverage gap or catastrophic coverage. Monthly premium payments do not count towards TrOOP.
Among Medicare Part D enrollees in 2007 who were not eligible for low-income subsidies, 26% had spending high enough to reach the coverage gap. Fifteen percent of those reaching the coverage gap (4% overall) had spending high enough to reach the catastrophic coverage level. Enrollees reaching the coverage gap stayed in the gap for just over four months on average.
It should be noted that the thresholds above related only to the “standard” defined benefit structure. Individual health insurance providers often offer their own variations of the standard benefit (sometimes known as “enhanced” benefit plans) that may eliminate the deductible phase completely and/or extend the Initial Coverage limit to shrink the size of the donut Hole. Typically, the premiums for these enhanced plans are higher to offset the increased benefit.
For 2008, the percentage of stand-alone Part D (PDP) plans offering some form of coverage within the doughnut hole rose to 29 percent – this is an increase from 15 percent in 2006. The percentage of Medicare Advantage/Part D plans (MA-PD) plans offering some form of coverage in the coverage gap is 51%, up from 28% in 2006. The most common forms of gap coverage cover generic drugs only.
Most plans use specialty drug tiers, and some have a separate benefit tier for injectable drugs. Beneficiary cost sharing can be higher for drugs in these tiers.
2008 premiums for plans offering gap coverage are roughly double those of defined standard plans. The average monthly premium for stand-alone Part D plans (PDPs) with basic benefits that do not offer gap coverage are $30.14; the average monthly premium for plans that do offer some gap coverage are average $63.29. Relatively few beneficiaries choose Part D plans with gap coverage. In 2007, eight percent of beneficiaries enrolled in a PDP chose one with some gap coverage. Among beneficiaries in MA-PD plans, enrollment in plans offering gap coverage was 33% (up from 27% in 2006).
Beneficiary premiums for Part D plans vary widely, and increased from 2006 to 2007. Premiums are projected to increase for 2008 as well. Premiums are significantly higher for plans with gap coverage. Major Part D plan sponsors are dropping their more expensive options, and developing lower cost ones.
In August 2008, CMS projected that the average beneficiary premium for 2009 would rise to $28, an increase of $3 over the average 2008 premium. Three reasons were given for the increase: rising drug spending; the expiration of a demonstration project that affected prior years’ premiums; and higher than expected catastrophic claim costs. Even with the anticipated increase, average 2009 premiums will be 37% lower than the $44 premium that was projected for 2009 when the program was established in 2003. Factors explaining the lower than anticipated costs include: lower than expected enrollment, lower than expected increases in drug prices, and insurers negotiating deeper than anticipated discounts from drug companies.
Low Income Subsidies
One option for those struggling with drug costs is to have a low-income subsidy applied to their existing prescription account. Depending on a variety of factors (including actual income) a member of an existing plan may have their premium paid for, all or in part, and may have a reduced copay for their medication. To request a review for subsidy contact the Social Security Administration at 800-772-1213.
The subsidy award is given a level with the following effects.
Note: A common source of confusion; When the award letters were sent out for 06′ and 07′ subsidies the wording referred to a plan’s premium being paid for 100%. In actuality the amount paid is usually matched to the amount charged for the basic plan offered by the carrier. If this is the plan the customer has then, as expected, the premium is paid for. If the member has selected other than the most basic level of coverage then the premium will likely be higher than the amount paid for by the subsidy. This may result in the member being charged a monthly amount while thinking they have no monthly bill.
While CMS does not have an established formulary, Part D drug coverage excludes drugs not approved by the Food and Drug Administration, those not for use in their medically accepted indication, drugs not available by prescription for purchase in the United States, and drugs for which payments would be available under Parts A or B of Medicare.
Part D coverage excludes drugs or classes of drugs which may be excluded from Medicaid coverage. These may include:
- Drugs used for anorexia, weight loss, or weight gain
- Drugs used to promote fertility
- Drugs used for erectile dysfunction
- Drugs used for cosmetic purposes (hair growth, etc.)
- Drugs used for the symptomatic relief of cough and colds
- Prescription vitamins and mineral products, except prenatal vitamins and fluoride preparations
- Drugs where the manufacturer requires as a condition of sale any associated tests or monitoring services to be purchased exclusively from that manufacturer or its designee
While these drugs are excluded from basic Part D coverage, drug plans can include them as a supplemental benefit, provided they otherwise meet the definition of a Part D drug. However plans that cover excluded drugs are not allowed to pass on those costs to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases.
Medicare Advantage Plans that also include Part D prescription drug benefits are known as a Medicare Advantage Prescription Drug plan or a MAPD.
Part D plans are not required to pay for all covered Part D drugs. They establish their own formularies, or list of covered drugs for which they will make payment, as long as the formulary and benefit structure are not found by CMS to discourage enrollment by certain Medicare beneficiaries. Part D plans that follow the formulary classes and categories established by the United States Pharmacopoeia will pass the first discrimination test. Plans can change the drugs on their formulary during the course of the year with 60 days notice to affected parties.
Typically, each Plan’s formulary is organized into tiers, and each tier is associated with a set copay amount. Most formularies have between 3 and 5 tiers. The lower the tier, the lower the copay amount. For example, Tier 1 might include all of the Plan’s preferred generic drugs, and each drug within this tier might have a copay of $5–10 per prescription. Tier 2 might include the Plan’s preferred brand drugs with a copay of $20–$30, while Tier 3 may be reserved for non-preferred brand drugs which are covered by the plan at a higher copay level – perhaps $40–$100. Tiers 4 and higher typically contain specialty drugs, which have the highest copays because they are generally quite expensive.
The Plan’s tiered copay amounts for each drug only apply during the initial period before the coverage gap. Once in the coverage gap, also known as the Donut Hole, the person must pay for 100% of the prescription costs, based on prices established by the Plan. In 2008, 4% of Medicare beneficiaries spent enough to qualify for catastrophic coverage at which point the beneficiary pays 5% of the total drug cost or a co-payment of $2 for generics/preferred drugs and $5 for brand-name drugs, whichever is greater. In 2009, Plans reach catastrophic coverage when the beneficiary reaches $6,154 in total drug costs.
Date Last Updated: 06/01/17