Q: How do my Medicare prescription drug costs in 2021 compare with 2020?
A: The Part D prescription drug deductible was a maximum of $435 in 2020, and that increased to $445 for 2021. Some plans have deductibles well under these amounts (or no deductible at all), but no plans can have deductibles that exceed $445 in 2021.
After you pay your deductible, you pay copays (a fixed amount) or coinsurance (a percentage of the cost) for your medications until the total you and the plan have spent hits the lower threshold of the donut hole, otherwise known as the initial coverage limit.
Before we get into the specific donut hole changes for 2021, it’s important to mention that changes to your Medicare Part D costs can stem from changes in your own prescription needs, changes in your plan’s design, or a plan change that you make during open enrollment (October 15 – December 7). It’s important to carefully compare the various options each year during open enrollment to see how your existing plan — and the other plans available in your area — will cover your specific drugs for the coming year. This can end up having a much larger effect on your actual out-of-pocket costs than the normal administrative changes that the government makes to the Part D rules from one year to the next.
What happened to Medicare's 'donut hole'?
Medicare’s Part D prescription drug coverage gap or “donut hole” was gradually closed over the course of several years. The donut hole for brand-name drugs closed in 2019, and it was eliminated for generic drugs as of 2020.
Prior to 2010, Medicare Part D enrollees were responsible for 100 percent of their drug costs while in the donut hole. The ACA started closing it in 2011, and it was scheduled to be fully closed by 2020. Thanks to the Bipartisan Budget Act of 2018, the donut hole closed a year ahead of schedule for brand-name drugs. There was no longer a donut hole for brand-name drugs in 2019, although the donut hole for generic drugs wasn’t eliminated until 2020.
But even now that the donut hole is “closed,” it continues to be relevant. Consumers may have different drug costs while in the donut hole, depending on how their plans are designed. And the donut hole still affects the way costs are tallied up to determine whether an enrollee hits the catastrophic coverage level. This is all explained in more detail here.
In 2021, the coverage gap starts when the total cost of your drugs reaches $4,130 (it was $4,020 in 2020). And you enter the catastrophic coverage phase (ie, exit the donut hole), when your out-of-pocket costs (which includes the substantial manufacturer discount for brand-name drugs that applies while you’re in the donut hole) reach $6,550, which is up from $6,350 in 2020.
The donut hole “closed” in 2020 because the percentage of costs that enrollees pay while in the donut hole is 25 percent, which is the same as the amount they pay before entering the donut hole if they have a standard plan design (many plans have copays instead of coinsurance prior to the donut hole). This continues to be the case for 2021.
But even though there’s no longer a donut hole — in terms of patients having to pay more than 25 percent of the cost of their drugs after the initial coverage limit — drug plans can still have different cost-sharing amounts below and above the initial coverage limit. So for example, a drug might have a $5 copay — or even a $0 copay — prior to the initial coverage limit but then 25 percent coinsurance after the initial coverage limit, while another drug might have a copay that’s roughly equivalent to 25 percent of its cost, so out-of-pocket spending will be roughly the same before and after the initial coverage limit. It all depends on the plan you have and the specific drugs you take.
And regardless of your plan design or prescription needs, there will continue to be a difference in terms of how your drug costs are counted towards reaching the catastrophic coverage limit.
If and when you reach the catastrophic coverage level, you’ll pay either 5 percent of the cost of each drug or a small copay, whichever is greater, for the remainder of the year. The copays for prescriptions in the catastrophic coverage level are set by CMS each year; in 2021, they’re $3.70 and $9.20, which is a slight increase from 2020. Although drug costs decline substantially once a person reaches the catastrophic coverage level, they can continue to quickly add up if very expensive medications are needed and the 5 percent coinsurance (instead of the copay) is used.
It’s important to remember that many seniors do not reach the donut hole in a given year, because their drug costs aren’t high enough. For those individuals, the deductible and the copay or coinsurance below the donut hole will be the most important factor in determining how much they spend on medications.
Since Part D plans often charge coinsurance (a percentage of the cost) rather than copays (a flat amount), some seniors may find that their costs go up from one year to the next, simply due to the rising prices for prescription drugs. If you’re paying 25 percent of the cost and the cost goes up, your portion goes up as well. According to a Wall Street Journal analysis, the median out-of-pocket cost for a medication purchased via Medicare Part D was $117 in 2015, up from $79 in 2011.
The good news is that it’s possible to decrease your Medicare prescription drug costs with a few simple tactics.
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.