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).
Premiums vary by plan and by geographic region, but the average monthly cost of a prescription drug plan (PDP) was $36.68/month in 2015, and is increasing by 13 percent, to $41.46/month, in 2016, assuming beneficiaries keep their existing plans. (Premiums are higher for people with incomes above $85,000 or $170,000 for a married couple.) The 2016 premium increase is expected to be the largest since 2009, even if a significant number of enrollees shop around and switch to a different plan during open enrollment (October 15, 2015 through December 7, 2015).
The maximum annual deductible in 2016 for Medicare D plans will be $360, up from $320 in 2015. This is the largest year-over-year deductible increase in Part D history. But not all plans have deductibles, and some have deductibles that are lower than the maximum allowed. Roughly two thirds of Part D enrollees will have a deductible in 2016.
PDP policyholders pay coinsurance of 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) reaches $3,310 in 2016 (up from $2,960 in 2015).
In 2016, if the PDP plan holder’s prescription drug costs exceed $3,310, they have hit the Part D “donut hole.” At this point, they’ll pay coinsurance of 45 percent for brand name drugs and 58 percent for generics, until their total out-of-pocket spending for the year reaches $4,850 (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).
Although the patient only pays 45 percent of the cost of brand-name drugs while in the donut hole, 95 percent of their cost (which includes a 50 percent discount from the manufacturer) is counted towards the total spending, meaning beneficiaries get out of the donut hole sooner than they would if only their own actual costs were counted.
After total out-of-pocket drug spending reaches $4,850 in 2016 (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 – whichever is greater.