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Q: How will my Medicare prescription drug costs in 2023 compare with 2022?
A: There are several Medicare prescription drug changes taking effect in 2023, including:
Under the Inflation Reduction act, recommended vaccines covered by Part D, including the Tdap and Shingles vaccines, will no longer have any out-of-pocket costs as of 2023. Vaccines covered by Part B (flu, covid, pneumonia, hepatitis B) are already free for Part B enrollees.
The Part D prescription drug deductible was a maximum of $480 in 2022, and that cap is increasing to $505 in 2023. Some plans have deductibles well under these amounts (or no deductible at all), but no plans can have deductibles that exceed $505 in 2023.
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 2023, 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.
(Medicare’s plan comparison tool is useful for determining how each plan will cover your prescription drugs, and what your out-of-pocket costs will be. But CMS has said that the Inflation Reduction Act changes, including the $35/month cap on insulin costs, will not necessarily be incorporated into the plan comparisons that are displayed on the tool in the fall of 2022, given how little time there was between the passage of the law and the start of the annual election period. If in doubt, it’s important to seek assistance from a broker or SHIP counselor, or to call Medicare or the health plan directly.)
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. But as we’ll describe in a moment, the donut hole is still relevant, and enrollees can still experience changes in their prescription costs during the year, based on whether they enter the donut hole.
Prior to 2010, Medicare Part D enrollees were responsible for 100% of their drug costs while in the donut hole. Today, it’s 25%, which means that the donut hole has been “closed,” since that’s also the out-of-pocket cost that applies on standard plans before the donut hole is reached.
But the donut hole continues to be relevant. Consumers may have different drug costs while in the donut hole, depending on how their plans are designed (ie, many plans have copays prior to the donut hole, instead of a 25% coinsurance). 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 2023, the coverage gap will start when the total cost of your drugs reaches $4,660 (it was $4,430 in 2022). 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 $7,400, which is up from $7,050 in 2022. (Note that your total actual out-of-pocket costs will really only be at about $3,100 at this point, thanks to the manufacturer discounts)
Even though there’s no longer a donut hole — in terms of patients having to pay more than 25% 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% coinsurance after the initial coverage limit. But another drug might have a copay that’s roughly equivalent to 25% 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 continues 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% 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 2023, they’re $4.15 and $10.35, which is a slight increase from 2022. 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% coinsurance (instead of the copay) is used.
Fortunately, the Inflation Reduction Act will eliminate enrollees’ out-of-pocket costs in the catastrophic coverage level as of 2024.
It’s important to remember that many Part D enrollees 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 people 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% of the cost and the cost goes up, your portion goes up as well.
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.