Q: What are the costs of Medicare Part D prescription drug coverage?
A: When you enroll in Medicare Part D (prescription drug plan) coverage, you will – depending on your plan – likely pay a monthly premium, an annual deductible, and coinsurance (a percentage of cost of your prescription drugs) or copays.
Premiums vary by plan and by geographic region (and the state you retire can also affect your Part D costs) but the average monthly cost of a stand-alone prescription drug plan (PDP) is $41.21/month in 2019, weighted by 2018 enrollment, and including both basic and enhanced plans. [Part D premiums are higher for people with incomes above $85,000 or $170,000 for a married couple; this is based on income tax returns from two years prior, since those are the most recent returns on file at the start of the plan year. There’s an appeals process you can use to contest the income-related premium adjustment if you’ve had a life-change event that has reduced your income since then.]
The maximum annual deductible in 2019 for Medicare Part D plans is $415, up from $405 in 2018. But not all plans have deductibles, and some have deductibles that are lower than the maximum allowed.
After the deductible is met, PDP policyholders pay copays or coinsurance (typically 25 percent of the cost of their drugs) during their initial coverage period until the total of their prescription drug costs (including what they’ve paid and what the plan has paid, which is typically the other 75 percent of the cost of the drugs) reaches $3,820 in 2019 (up from $3,750 in 2018). The deductible is included in the portion that the beneficiary pays, so if your deductible is $415, that counts towards the $3,820 initial coverage threshold.
In 2019, if the PDP plan holder’s total prescription drug costs exceed $3,820, they have hit the Part D “donut hole.” At this point, they’ll pay coinsurance of 37 percent for generics (assuming they have a standard plan design), but their coinsurance for brand-name drugs will remain at 25 percent (ie, the same as it was during the initial coverage period). Originally it was scheduled to be a 30 percent coinsurance for brand-name drugs in 2019, dropping to 25 percent in 2020. But the Bipartisan Budget Act of 2018 closed the donut hole one year early for brand-name drugs (prior to the ACA, enrollees paid the full cost of their drugs while in the donut hole; the ACA is gradually closing the donut hole, and it will be gone by 2020).
While in the donut hole, 95 percent of the total cost of brand-name drugs counts towards the enrollee’s out-of-pocket costs (even though they’re only paying 25 percent), along with 37 percent of the cost of generic drugs. For brand-name drugs, 70 percent of the cost is covered by a manufacturer discount, which is included when the patient’s out-of-pocket costs are counted.
After total out-of-pocket drug spending reaches $5,100 in 2019 (including the manufacturer discount while in the donut hole), the plan holder has reached the “catastrophic coverage” level, during which the plan holder pays 5 percent of prescription drug costs, or a nominal premium ($3.40 for generics, and $8.50 for brand-name drugs), whichever is greater. So although there’s no upper limit on total out-of-pocket costs under Medicare Part D, costs are sharply reduced once an enrollee reaches the catastrophic coverage level.