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Change in the Medicare Prescription Drug Program as a Result of the Healthcare Reform Legislation

The Patient Protection and Affordable Care Act (PPACA) began making changes to the Medicare Part D Prescription Drug Program in 2010.

What is the Medicare Part D Program coverage gap (“donut hole”) and how does the PPACA reduce beneficiaries’ out-of-pocket costs within the gap?

In 2010, the standard Medicare Part D benefit includes a $310 deductible and a 25 percent coinsurance until the enrollee reaches $2,830 in total covered drug spending. After this initial coverage limit is reached, there is a gap in coverage in which the enrollee is responsible for the full cost of the drugs (often called the donut hole) until total costs hit the catastrophic threshold, $6,440. It is estimated that about 25 percent of beneficiaries reach the coverage gap in a given year. Once reaching the catastrophic threshold, beneficiaries are covered for at least 95 percent of their drug expenses for the rest of the year.

Beginning in 2011, the PPACA requires that drug manufacturers provide a 50 percent discount on brand name prescriptions while the beneficiary is in the coverage gap. In addition, Medicare total cost calculations will include the non-discount price of the drugs; thus beneficiaries will be able to reach the catastrophic threshold more quickly while benefiting from decreased out-of-pocket spending.

Also beginning in 2011, a federal subsidy is phased in for generic drugs so that the coinsurance is reduced from 100 percent to 25 percent within the coverage gap by 2020.

Beginning in 2013, a federal subsidy is phased in for generic drugs so that the coinsurance is reduced from 100 percent to 25 percent within the coverage gap by 2020. This is in addition to the 50 percent discount on brand prescriptions within the coverage gap that is implemented in 2011.

Are there any other changes in the Medicare Part D Prescription Drug Program that will reduce beneficiary drug costs or increase drug access?

The PPACA contains several provisions to be implemented in or by 2011 that are designed to improve access to and availability of a federal low-income supplement (LIS) to Medicare beneficiaries with incomes below 150 percent of poverty. For example, the redetermination of LIS eligibility subsequent to the death of a spouse would be postponed for a year, and cost sharing would be eliminated for individuals receiving care under a Medicaid home and community based waiver who would otherwise require care in a medical institution or a facility. The PPACA also makes changes to the methodology used to determine which drug plans are eligible to enroll low-income beneficiaries so that more plans could qualify and thus reduce the number of low-income beneficiaries who need to change plans from year to year.

Is it true that some beneficiaries will be required to pay higher premiums to join a Medicare Part D Prescription Drug plan?

Yes, similar to the change made in 2007 requiring high-income beneficiaries (in 2009 defined as an individual earning $85,000 or couple $170,000) to pay higher premiums for Part B benefits, the PPACA, effective January 1, 2011, sets the same thresholds for Part D plan premium payments.

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