It’s that time of year when many of those who have Part D prescription drug coverage experience sticker shock. Here is a sample of what’s happening with my clients.
- Can this be right? The $141 copay for my expensive eye drops just shot up to $520 and the costs for my other drugs dropped to between $0.75 and $4.
- Did I pick the wrong plan? After meeting the plan’s deductible, I have been paying $11 for one medication. This month, I got a bill for $201.
Yes, unfortunately, these costs are likely correct and no, you probably didn’t pick the wrong plan.
The simple explanation is both these clients hit the Coverage Gap.
Drug Plan Payment Stages Refresher
In 2006, when Part D prescription drug coverage began, there were four payment stages with different costs.
Deductible: The standard deductible started out at $250, was $535 this year, and will be $590 in 2025. This is the amount you pay out-of-pocket before the plan starts paying. A plan can choose to charge no deductible or any amount up to the set level. Generally, only Tier 1 and Tier 2 drugs are subject to this deductible but each plan determines that.
Initial Coverage: By design, a beneficiary pays 25% of the cost of medications in this stage. Most plans choose to charge a copayment (a fixed amount such as $3 or $10). Once the amount that the individual and plan have spent reaches a set threshold, $5,300 in 2024 (approximately $1,300 out of pocket), the next stage begins.
The Coverage Gap: This is commonly known as the donut hole. By design, the drug plan member is responsible for most or all of the costs in this stage. In the early days of Medicare drug plans, those who landed here had to pay 100% of the cost for every drug. Then, the Affordable Care Act provided discounts, starting at 50%. Every year since, discounts gradually increased until the donut hole closed completely in 2020. Contrary to popular opinion, that does not make drugs free; it simply means everyone pays a straight 25% of the cost of medications, likely increasing the cost sharing for expensive medications and dropping it for cheaper ones.
Once the total of the individual’s out-of-pocket costs and brand-name discounts reach $8,000, it’s on to the last payment stage.
Catastrophic Coverage: Through 2023, drug plan members hitting this stage paid 5% of the cost of medications. However, the Inflation Reduction Act eliminated the coinsurance. So those who cross this threshold will not pay another cent for the remainder of the year, saving about $3,100 in out-of-pocket costs.
Good News and Bad News
For all of those who are experiencing this sticker shock, remember these points.
First, the bad news: All of those in shock, whether they have a stand-alone Part D drug plan or a Medicare Advantage plan with drug coverage, will be stuck paying the higher drug costs when reaching the Coverage Gap.
With a piece of good news for some: If drug costs reach the Catastrophic Coverage threshold, then they will not pay any additional costs for their medications.
More good news in 2025 for some: After 18 rather costly years for many, this is the last hurrah for the donut hole. The IRA has eliminated it and, in its place, introduced the $2,000 cap on Part D drug costs. Once out-of-pocket costs hit $2,000, there will be no additional cost for medications.
And bad news for just about anyone with Part D coverage: The good news sounds really good for those who are reeling from price increases now but don’t start celebrating yet. The $2,000 cap will have repercussions because of the impact on Part D drug plans.
Once hitting the cap, medications miraculously do not become free; rather, the responsible party for payment changes. The portion that drug plans must pay will increase dramatically. That probably means there will be some changes to help plans absorb those costs. Many pundits are predicting increased plan premiums, increases in cost sharing (copayments and coinsurance), more restrictions (prior authorization and step therapy) on costly medications, and even dropping drugs from the plan’s formulary or the list of covered drugs.
The Medicare Open Enrollment begins next month, October 15. Remember to open your Annual Notice of Changes, pay attention to what’s happening with your drug plan, and review your options. If not, you’re likely to face more bad news in 2025.
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