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Are there changes in the Medicare Part D prescription drug coverage for 2023?

Louise Norris // September 29, 2022

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Q: Are there changes in the Medicare Part D prescription drug coverage for 2023?

A: Yes. The Inflation Reduction Act ensures that insulin copays will not exceed $35/month, and that recommended vaccines will be available at no cost. And as is typically the case, the maximum deductible will be slightly higher, and the upper and lower thresholds for the “donut hole” will change again.

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(Although the donut hole has technically closed as a result of the ACA, beneficiaries’ out-of-pocket costs can still change once they reach the lower threshold where the donut hole begins, and the way costs are counted towards reaching the catastrophic coverage threshold is still different while in the donut hole.)

How does the Inflation Reduction Act affect Part D coverage for 2023?

The Inflation Reduction Act includes numerous provisions that will improve Medicare beneficiaries’ access to affordable prescriptions, with provisions phasing in over the next several years. Starting in 2023, Part D plans will have to offer all of their covered insulin products with monthly costs of no more than $35. And they will also have to cover recommended vaccines without any copays, deductible, or coinsurance, meaning they’ll be free for the enrollee (some vaccines are already free, as they’re covered by Medicare Part B. But vaccines covered by Part D, including the Tdap and the shingles vaccine, currently have member cost-sharing that varies by plan).

Also starting in 2023, the Inflation Reduction Act requires drug manufacturers to start paying rebates to Medicare if the cost of their drugs increases faster than inflation. This is an effort to slow the increase in drug prices and keep them more affordable over time.

Is the Part D deductible increasing for 2023?

The Medicare Part D maximum deductible is increasing again. It will be $505 in 2023, up from $480 in 2022. But many drug plans have no deductible or a deductible that’s lower than the maximum allowed.

How is the donut hole changing for 2023?

As has been the case in previous years, the thresholds where a person enters and exits the “donut hole” are increasing in 2023. We’ll explain this in more detail below, but the short story is that the initial coverage limit is increasing to $4,660, and the threshold for exiting the donut hole and entering the catastrophic coverage level is increasing to $7,400.

The Medicare Part D program was designed with a gap in coverage: prior to the ACA, beneficiaries’ drug expenses (after the deductible) were covered up to a certain dollar amount (on standard plan designs, the beneficiary pays 25% of the cost during this phase), then not covered at all up to another amount, and then more robust coverage would kick in (the beneficiary would pay 5% of the cost, or a nominal copay, at this point). The gap in the middle is called the donut hole.

Over the course of several years, the ACA gradually closed the donut hole. Instead of having to pay the full cost of medications while in the donut hole, beneficiaries began paying a percentage of the cost, and the donut hole was fully closed as of 2020. But a “closed” donut hole just means you’ll pay 25% of the cost of your drugs while in the donut hole. Depending on how your plan is designed, you may still have different costs before and during the donut hole. And the donut hole is still relevant due to the way costs are covered and how they count towards your out-of-pocket total and reaching the catastrophic coverage limit.

Standard plans have a deductible, then you pay 25% of the cost of drugs until you reach the donut hole (in 2023, this happens once you and your health plan have spent $4,660 on your medications). Now that the donut hole has closed, you’ll also pay 25% of the cost of drugs while in the donut hole. But for example, if your plan is designed with a copay (instead of a 25% coinsurance) after the deductible and before the donut hole, your costs will change once you reach the donut hole.

What also changes during the donut hole is how the cost of the drugs is actually being covered. The Kaiser Family Foundation has a helpful chart (Figure 6) that makes it easy to visualize: Before you reach the donut hole, your Part D plan is paying the portion of the cost above your copay or coinsurance. But once you enter the donut hole, the bulk of the cost of your brand-name drugs is being covered by a discount provided by the drug manufacturer (generic drugs are still covered by the enrollee’s coinsurance and Part D plan, rather than a drug manufacturer discount).

In order to get out of the donut hole and move into the catastrophic coverage level (where your costs will be much lower but not necessarily low, depending on your medications), your out-of-pocket spending will have to reach $7,400 in 2023 (up from $7,050 in 2022, and up considerably from 2019, when it was $5,100). The amount that your plan pays doesn’t count towards reaching this amount. But the amount that’s provided as a discount by the drug manufacturer (for brand-name drugs) does count towards reaching the catastrophic coverage threshold.

So even if your out-of-pocket costs remain the same when you enter the donut hole, a larger amount is being credited towards your out-of-pocket spending each time you fill the prescription (95% of the cost, instead of 25% of the cost), helping you to hit the catastrophic coverage threshold sooner. (Because of the manufacturer discount, the actual amount you’ll have paid out of your own pocket will be around $3,100 by the time you reach the catastrophic coverage threshold in 2023.)

But don’t confuse this with getting into the donut hole in the first place… to reach that limit, which will be $4,660 in 2023, the total cost of your drugs is counted, including the part you pay and the part your plan pays. So for getting into the donut hole, the amount your plan pays is counted. But for getting out of the donut hole, the amount your plan pays is not counted.

In 2023, you’ll enter the donut hole when your spending + your plan’s spending reaches $4,660. And you leave the donut hole — and enter the catastrophic coverage level — when your spending + manufacturer discounts reach $7,400. Both of these amounts are higher than they were in 2022, and generally increase each year.

So let’s say your plan has a $30 copay for brand-name drugs before you reach the initial coverage limit (ie, before you enter the donut hole), and you buy a drug that costs $100. You’ll pay $30 and your Part D plan will pay $70.

  • The full $100 will count towards getting you into the donut hole (ie, towards the $4,660)
  • Only $30 will count towards the $7,400 total that you’re eventually going to need to hit in order to get into the catastrophic coverage level.

Now let’s say you’ve entered the donut hole and you need to buy that same medication again. It still costs $100, but your plan will only pay $5. The bulk of the cost — $70 — will be covered by the manufacturer discount, and your portion will be $25.

  • $95 will count towards the $7,400 total that you’ll eventually need to reach in order to switch over to catastrophic coverage.

Your Part D plan will keep track of all of this for you, but this is why there’s still an initial coverage limit, even though the donut hole is closed. It’s really only “closed” in terms of the amount that you’re paying at the pharmacy when you pick up medications — and even that is likely to change once you cross over the initial coverage limit amount, since it will depend on the way your plan structures its coverage. The underlying calculations are still based on the donut hole being there, and that’s still relevant for people who have very high-cost medications.


Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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Sandra Smart
2 years ago

This explanation is so confusing as to be meaningless to me. I have an advanced degree in education so one would think I would be able to “get” this.
Maybe it’s all of the chemotherapy rounds that have fogged my powers of comprehension……..but I doubt it.

DON CREELMAN
2 years ago

Tier 3 meds on my plan have a $45 co-pay. When my $45 plus the plan participation gets to $4020 the donut hole starts. Then only my $45 co-pays accumulated with plan participation count toward out of pocket cost. Then, in the donut hole< only the 25% co-pay counts toward the $6350 needed to get out of the hole. Whatever the plan paid while getting to the $4020 break point does not count. The result is we are stuck with the entire $6350 cost. Who benefits? Big Pharma once again gets its inflated prices.

2 years ago
Reply to  DON CREELMAN

My co-pay for my “main med “ is $807. a month! Very scary! If I get Covid19, and need to fight the side effects with more
required meds, and the ACA is cancelled, my family will have to sell my body for research or transplants or put me on a
ice flow, that is if the Climate Changes hasn’t melted them all!

2 years ago

OMG! May the ACA survive this political warfare!

Beverly
1 month ago

Will medications that are used for diabetes such as Ozempic, Trulicity, fall under the insulin products and subject to the $35.00 cap per month?

Jenny Chumbley Hogue
1 month ago
Reply to  Beverly

Unfortunately, they do not apply to the $35 Insulin copay. Ozempic, Trulicity and others are classified as GLP-1’s and not included.

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