retirement

Medicare Part D Drug Coverage Gap Closing at Faster Clip

Retirees should spend less on brand-name prescriptions in 2019, but it's still a good idea to compare Part D options during open enrollment this fall.

Headlines earlier this year announced the “doughnut hole” in Medicare’s Part D prescription-drug coverage is closing ahead of schedule. That’s welcome news for the beneficiaries who fall into the coverage gap, many of whom should see savings next year. But as is often the case, the devil is in the details.

The Bipartisan Budget Act of 2018 accelerates the closure of the gap for brand-name prescription drugs so that beneficiaries pay 25% of drug costs in 2019, down from the scheduled 30%.

The change makes it all the more important to be prepared to compare your Part D options later this year during Medicare open enrollment. Depending on the specific drugs you take and the cost-sharing structure of plans in your area, you may save some money.

The coverage gap had been gradually shrinking for several years since the Affordable Care Act set a path to close it by 2020. “The gap was never scheduled to close 100%,” says Dr. Katy Votava, president of GoodCare.com. Once it closes, “beneficiaries will still pay 25% out of their pockets.”

Although the brand-name coverage gap closes in 2019 instead of 2020, the coverage gap doesn’t end a year early for generic drugs. That stays on the closure schedule as prescribed by the ACA—cost-sharing will fall to 25% for generics in 2020, after dropping to 37% for 2019. Even though generic cost-sharing isn’t falling as fast, “37% of the price of generic drugs is likely to be less than 25% of brand-name drugs,” says Juliette Cubanski, associate director of the program on Medicare policy at the Kaiser Family Foundation.

The government sped up the closure of the gap for brand names by shifting costs to manufacturers. The budget law increases the discount that brand-name drug manufacturers provide from 50% to 70% in 2019; Part D plans will pick up the remaining 5% of costs in the coverage gap. “There’s no similar provision for generics—so plans would have to pick up costs” if the gap closed faster for generics, says Cubanski.

How the Coverage Gap Works

The law doesn’t change the doughnut hole’s beginning and end points, notes Casey Schwarz, senior counsel for education and federal policy at the Medicare Rights Center. Under the standard rules, a beneficiary pays 25% of drug costs after the Part D deductible, while the plan picks up 75% of the costs, until the total amount the beneficiary and the plan pay hits the initial coverage limit of $3,750 in total drug costs this year.

Then the beneficiary enters the doughnut hole. In 2018, the beneficiary pays 35% for brand-name drugs, while the plan pays 15% and the manufacturer offers a 50% discount. For generic drugs in 2018, the beneficiary pays 44% of drug costs and the plan pays 56%.

The beneficiary exits the doughnut hole after he exceeds $5,000 in out-of-pocket spending for covered drugs. Once out of the gap, catastrophic coverage kicks in and the beneficiary pays 5% of drug costs, while the plan pays 15% and Medicare pays 80%.

The budget law change effective in 2019 means beneficiaries will pay 25% for brand-name drugs until reaching catastrophic coverage. And come 2020, cost-sharing for all drugs—brand name and generic—will be 25% for beneficiaries before catastrophic coverage.

While all Part D plans have to match these rules in actuarial terms, what consumers actually pay varies among Part D plans. Many plans have tiers, for instance, where preferred drugs have low cost-sharing and nonpreferred have higher cost-sharing, and some plans offer additional coverage in the doughnut hole.

Because the drugs you take and the different plan structures can affect your actual costs, it’s important to shop Part D plans every year at open enrollment, which runs October 15 through December 7, to see if you can score a better deal. At the least, landing in the coverage gap for brand-name drugs next year will cost a little less.

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