At Healthassist, we conduct detailed analyses for our clients that identify the out-of-pocket cost (co-pay or co-insurance amounts) for the prescription drug component of Medicare – Part D. Whether they choose a separate Part D prescription drug plan or a retiree or Medicare Advantage Plan that includes Part D coverage, we help our clients unravel the complexity of Part D, choose wisely, and avoid surprises.
And so I was dismayed recently when I had to pass along the news to a client newly enrolling in Medicare that beginning month one, his monthly out-of-pocket cost for Medicare drugs was going to exceed $1000.
We went on to discuss the four phases of the current Medicare Part D Prescription Drug Program. These include:
- Prior to meeting a deductible
- Coverage Phase — once a deductible is met and co-pays and co-insurance amounts are assessed
- The Coverage Gap (formally known as the “Donut Hole”), when the co-pay or co-insurance amount can change and be higher than during the coverage phase
- The “Catastrophic Coverage Phase,” in which the insurance plan covers 95% of the cost of the drug and the individual is responsible for 5%
Because the retail cost of my client’s prescribed biologic medication was approximately $20,000 per month, he found himself in the catastrophic coverage phase in month one.
Changes to Medicare
Fortunately, I was able to deliver some good news to my client. As a result of the recent passage of the Inflation Reduction Act (IRA), some relief is on the way. However, it will take time.
History of the Medicare Part D Prescription Drug Plan
Prior to 2006, Medicare did not provide any prescription drug coverage at all. That changed in 2003 under the Bush administration when the Medicare Modernization Act was passed, establishing a prescription drug benefit that was governed and regulated by Medicare. But it still took three more years until 2006 for Part D drug plans to become available to Medicare beneficiaries.
Since then, there have been modest changes to the benefit, primarily due to the passage of the Affordable Care Act. Over the next few years, Part D will continue to evolve, gradually decreasing the cost of prescription drugs for the Medicare population.
Key changes to Medicare Part D Prescription Drug coverage from the Inflation Reduction Act
Here are some of the changes on the horizon:
Insulin Cost Cap: Millions of Medicare Part D drug plan enrollees use insulin products; many struggle to afford the cost. Beginning in 2023, the cost for insulin products will be capped at $35 per month for beneficiaries who enroll in participating plans.
Capping Out-of-Pocket Costs: Our current Part D drug plan structure requires Medicare beneficiaries to pay approximately 5% coinsurance when their retail drug costs exceed $7,050. Known as the catastrophic drug phase, even a 5% cost share can be burdensome for those who use high-cost drugs. Starting in 2024, this cost share will be eliminated and the total amount of out-of-pocket expenditure for Part D prescription drug plan enrollees will be limited to $2000 per year.
Negotiated Pricing: The Federal Government will now be able to negotiate pricing with drug manufacturers for certain high-cost prescription drugs. This change will be implemented gradually, beginning in 2026. Initially, the government will negotiate for reduced pricing for ten drugs. In 2027 and 2028, the prices of an additional 15 drugs each year will require negotiations. By 2029, the number of drugs subject to price negotiations will be increased each year by 20.
Recommended Actions
As we do every year, we advise our clients to act during the Annual Medicare Open Enrollment Period from October 15 to December 7:
#1. If you have a part D prescription drug plan, be sure to reanalyze your premium and out-of-pocket costs based on your specific drugs, dosages, and frequencies. Make sure to include both your preferred and competing pharmacies in the analysis. This process will help identify the most cost-effective plan for you for 2023.
#2. Once you identify the most cost-effective plan, enroll in the new plan within the open enrollment period timeframe, so that your new plan will become effective on January 1, 2023.
#3. Complete this analysis each fall. This is especially important going forward because the new legislation is being phased in over time. By creating a My Medicare account and using the Plan finder tool on the Medicare website, your data will be saved so that in future years, all you will need to do is update your prescription drug list.
Final Thoughts
Medicare can be confusing as there are several components to it and many different options to choose from. That’s why, as with all aspects of our healthcare and insurance systems, we encourage you to become informed and analytical consumers so that the choices you make are understood and fully meet your needs.