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, but the average monthly cost of a prescription drug plan (PDP) is $43.48/month in 2018, weighted by 2017 enrollment, and including both basic and enhanced plans. (Premiums are higher for people with incomes above $85,000 or $170,000 for a married couple.)
The maximum annual deductible in 2018 for Medicare Part D plans is $405, up from $400 in 2017. But not all plans have deductibles, and some have deductibles that are lower than the maximum allowed.
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 $3,750 in 2018 (up from $3,700 in 2017). The deductible is included in the portion that the beneficiary pays, so if your deductible is $405, that counts towards the $3,750 initial coverage threshold.
In 2018, if the PDP plan holder’s total prescription drug costs exceed $3,750, they have hit the Part D “donut hole.” At this point, they’ll pay coinsurance of 35 percent for brand name drugs and 44 percent for generics, until their total out-of-pocket spending for the year reaches $5,000 (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 35 percent of the cost of brand-name drugs while in the donut hole, 85 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 $5,000 in 2018 (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 ($3.35 for generics, and $8.35 for brand-name drugs), whichever is greater.