Medicare Part D

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Medicare Part D, also called the Medicare prescription drug benefit, is an optional United States federal-government program to help Medicare beneficiaries pay for self-administered prescription drugs through prescription drug insurance premiums (the cost of almost all professionally administered prescriptions is covered under optional Part B of United States Medicare). Part D was originally proposed by President Clinton in 2000 and enacted as part of the Medicare Modernization Act of 2003 (which also made changes to the public Part C Medicare health plan program) and went into effect on January 1, 2006.

Video Medicare Part D

Program specifics

Eligibility and enrollment

Individuals on Medicare are eligible for prescription drug coverage under a Part D plan if they are signed up for benefits under Medicare Part A and/or Part B. Beneficiaries obtain the Part D drug benefit through two types of plans administered by private insurance companies: the beneficiaries can join a standalone Prescription Drug Plan (PDP) for drug coverage only or they can join a public Part C health plan that jointly covers all hospital and medical services covered by Medicare Part A and Part B at a minimum, and typically covers additional healthcare costs not covered by Medicare Parts A and B including prescription drugs (MA-PD). (NOTE: Medicare beneficiaries need to be signed up for both Parts A and B to select Part C whereas they need only A or B to select Part D.)

About two-thirds of all Medicare beneficiaries are enrolled directly in Part D or get Part-D-like benefits through a public Part C Medicare health plan. Another large group of Medicare beneficiaries get prescription drug coverage under plans offered by former employers or through the Veterans Administration. It is also possible that a former employer or union might sponsor a Part D plan for former employees/members (such plans are called Employer Group Waiver Plans).

Medicare beneficiaries can enroll directly through the plan's administrator, or indirectly via an insurance broker or the exchange -- called Medicare Plan Finder -- run by the Centers for Medicare and Medicaid Services (CMS) for this purpose; the beneficiary's benefits and any additional assistance payments and rights are the same regardless of enrollment channel. Beneficiaries already on a plan can choose a different plan or drop Part C/D during the annual enrollment period or during other times during the year. For some time, the annual enrollment period has lasted from October 15 to December 7 of each year but that is changing for Part C in 2019. Low-income seniors on Social Security Extra Help/LIS and many middle-income seniors on state pharmaceutical assistance programs can choose a different plan or drop Part C/D (or join Part C/D plan for that matter) as often as once a month. Other special enrollment circumstances apply.

Medicare beneficiaries who were eligible for but did not enroll in a Part D when they were first eligible and later want to enroll, pay a late-enrollment penalty, basically a premium surtax, if they did not have acceptable coverage through another source such as an employer or the U.S. Veterans Administration. This penalty is equal to 1% of the national premium index times the number of full calendar months that they were eligible for but not enrolled in Part D and did not have creditable coverage through another source. The penalty raises the premium of Part D for beneficiaries, when and if they elect coverage.

In May 2018, enrollment exceeded 44 million, including both those on standalone Part D and those enrolled in Part C plan (which includes Part-D-like coverage). About 20% of those beneficiaries are on a EGWP drug plan where a former employer receives a Part D subsidy on his or her behalf. The latter two groups lack the same freedom of choice that the standalone Part D group has because they must use the Part D plan chosen by the Part C plan's administrator or their former employer.

As of May 2018, over 700 drug plan contracts had been signed between CMS and administrators, which in turn means multiple thousand plans because administrators can vary plans by county. Individual counties might have as few as three to as many 30 plans from which beneficiaries can choose. This allows participants to choose a plan that best meets their individual needs. Although the number of plans available has been trending down since the inception of the program, almost all counties offer many choices.

Plan administrators are required to offer a plan with at least the "standard" minimum benefit or one that is actuarially equivalent to the standard, and they may also offer plans with more generous benefits (e.g., no deductible during the initial spend phase). The terms "standard," "actuarially equivalent," and "more generous" relate to the plan's deductible/co-pay/formulary/"donut-hole" (see Note)/pharmacy-preference aspects and has no direct relevance to the beneficiary other than increasing or decreasing personal choice. Each plan is approved by the CMS before being marketed.

(NOTE: It is often said the donut hole will be eliminated; that is not technically true. The "donut hole" is also called the gap phase of spending; at one time the co-pay in the gap was 100%. As of 2019, the "standard" co-pay in the gap will be 25%, the same as in the initial spend phase. It is also important to note that relatively few people as a percent of the total number of people on Medicare are ever financially affected by either the donut hole or catastrophic phases of spending.)

Medicare offers an interactive online tool called the Medicare Plan Finder that allows for comparison of coverage and costs for all plans in a geographic area. The tool lets users enter a list of medications along with pharmacy preferences and Social-Security-Extra-Help/LIS and related status. The Finder can show the beneficiary's total annual costs for each plan along with a detailed breakdown of the plans' monthly premiums, deductibles and prices for each drug during each phase of spending (initial, gap, catastrophic). Plans are required to update this site with current prices and formulary information every other week throughout the year.

Costs to beneficiaries

Beneficiary cost sharing (deductibles, coinsurance, etc.)

The Medicare Modernization Act (MMA) established a standard drug benefit that all Part D plans must offer. The standard benefit is defined in terms of the benefit structure and without mandating the drugs that must be covered. For example, in 2013, the standard benefit required payment by the beneficiary of a $325 deductible, then required 25% coinsurance payment by the beneficiary of drug costs up to an initial coverage limit of $2,970 (the full retail cost of prescriptions). Once this initial coverage limit is reached, the beneficiary had to pay the full cost of his/her prescription drugs up until the total out-of-pocket expenses reached $4,750 (excluding premiums and any expense paid by the insurance company) minus a 52.5% discount in this gap, referred to as the "Donut Hole". Once the beneficiary reaches the Out-of-Pocket Threshold, he/she becomes eligible for catastrophic coverage. During catastrophic coverage, he or she pays the greater of 5% coinsurance, or $2.65 for generic drugs and $6.60 for brand-name drugs. The catastrophic coverage amount is calculated on a yearly basis and a beneficiary who reaches catastrophic coverage by the end of the benefit year will start his or her deductible anew at the beginning of the next benefit year. Although uncommon, not all benefit years coincide with the calendar year. The donut-hole and catastrophic-coverage thresholds dropped slightly in 2014.

The standard benefit is not the most common benefit mix offered by Part D plans. Only 11% of plans in 2010 offered the defined standard benefit described above. Plans vary widely in formularies and cost-sharing. Most eliminate the deductible and use tiered drug co-payments rather than coinsurance. The only out-of-pocket costs that count toward getting out of the coverage gap and into catastrophic coverage are True Out-Of-Pocket (TrOOP) expenditures. TrOOP expenditures accrue only when drugs on plan's formulary are purchased in accordance with the restrictions on those drugs. Monthly premium payments do not count towards TrOOP.

Under the Patient Protection and Affordable Care Act of 2010, the effect of the "Donut Hole" coverage gap was to be gradually reduced through a combination of measures including brand-name prescription drug discounts, generic drug discounts and a gradual increase in the percentage of out-of-pocket costs covered while in the donut hole. The "Donut Hole" will continue to exist after 2020 but its effect will be changed in some way yet to be determined, because plan administrators must treat out of pocket costs below the catastrophic level the same whether or not the insured is in the donut hole or not. That is, under the "standard benefit" design all prescriptions in all tiers could be subject to a 25% co-pay whereas as of 2014 hundreds of drugs in Tier 1 are available with no co-pay.

Most plans use specialty drug tiers, and some have a separate benefit tier for injectable drugs. Beneficiary cost sharing can be higher for drugs in these tiers.

Beneficiary premiums

The average (weighted) monthly premium paid by the beneficiary for PDPs was $35.09 in 2009, which is an increase from $29.89 in 2008. Premiums were projected to increase to $38.94 for 2010 as well. In 2014, the average is around $30 a month. The average premium is a misleading statistic because it averages the premiums offered, not the premiums paid. Most insurers offer a very low-cost plan (e.g., $15 a month) that few choose. This lowers the average, but does not reflect what is happening in the market.

In 2007, 8% of beneficiaries enrolled in a PDP chose one with some gap coverage. Among beneficiaries in MA-PD plans, enrollment in plans offering gap coverage was 33% (up from 27% in 2006). Premiums are significantly higher for plans with gap coverage. These plans are becoming less common as the gap closes. The fact that beneficiaries on Social Security Extra Help/LIS were never affected by the gap and the fact that many state pharmaceutical assistance programs protected middle income seniors in the gap are the reasons this gap benefit was never especially popular.

Major Part D plan sponsors are dropping their more expensive options, and developing lower-cost ones.

Low-income subsidies and middle-income help

One option for those struggling with drug costs is the low-income subsidy. Beneficiaries with income below 150% of the poverty line are eligible for the low-income subsidy, which helps pay for all or part of the monthly premium, annual deductible and co-pays. CMS estimated that 12.5 million Part D beneficiaries were eligible for low-income subsidies in 2009.

The subsidy award is given a level with the following effects for the 2013 benefit year:

Probably the most important benefits of Social Security Extra Help/LIS other than "free" is the fact that the beneficiary has no exposure to "donut hole" costs and can change plans monthly. In addition, in many states, state pharmaceutical assistance programs provide similar protection in the gap to middle-income seniors and allow beneficiaries to change plans one other time during the year in addition to the annual enrollment/re-enrollment period.

Excluded drugs

While CMS does not have an established formulary, Part D drug coverage excludes drugs not approved by the Food and Drug Administration, those prescribed for off-label use, drugs not available by prescription for purchase in the United States, and drugs for which payments would be available under Part B.

Part D coverage excludes drugs or classes of drugs that may be excluded from Medicaid coverage. These may include:

• Drugs used for anorexia, weight loss, or weight gain
• Drugs used to promote fertility
• Drugs used for erectile dysfunction
• Drugs used for cosmetic purposes (hair growth, etc.)
• Drugs used for the symptomatic relief of cough and colds
• Prescription vitamin and mineral products, except prenatal vitamins and fluoride preparations
• Drugs where the manufacturer requires as a condition of sale any associated tests or monitoring services to be purchased exclusively from that manufacturer or its designee

While these drugs are excluded from basic Part D coverage, drug plans can include them as a supplemental benefit, provided they otherwise meet the definition of a Part D drug. However plans that cover excluded drugs are not allowed to pass on those costs to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases. Part D plans may cover all benzodiazepines and those barbiturates used in the treatment of epilepsy, cancer or a chronic health disorder. These two drug classes were originally excluded, until their reassignment in 2008 by the Medicare Improvements for Patients and Providers Act.

Plan formularies

Part D plans are not required to pay for all covered Part D drugs. They establish their own formularies, or list of covered drugs for which they will make payment, as long as the formulary and benefit structure are not found by CMS to discourage enrollment by certain Medicare beneficiaries. Part D plans that follow the formulary classes and categories established by the United States Pharmacopoeia will pass the first discrimination test. Plans can change the drugs on their formulary during the course of the year with 60 days' notice to affected parties.

The Plan's tiered co-pay amounts for each drug only generally apply during the initial period before the coverage gap.

The primary differences between the formularies of different Part D plans relate to the coverage of brand-name drugs.

Typically, each Plan's formulary is organized into tiers, and each tier is associated with a set co-pay amount. Most formularies have between 3 and 5 tiers. The lower the tier, the lower the co-pay. For example, Tier 1 might include all of the Plan's preferred generic drugs, and each drug within this tier might have a co-pay of $5 to $10 per prescription. Tier 2 might include the Plan's preferred brand drugs with a co-pay of $40 to $50, while Tier 3 may be reserved for non-preferred brand drugs which are covered by the plan at a higher co-pay, perhaps $70 to $100. Tiers 4 and higher typically contain specialty drugs, which have the highest co-pays because they are generally more expensive. By 2011 in the United States a growing number of Medicare Part D health insurance plans had added the specialty tier.

Beneficiary support

CMS funds a national program of counselors to assist all Medicare beneficiaries, including duals, with their plan choices. The program is called State Health Insurance Assistance Program (SHIP).

Maps Medicare Part D

History

Medicare Part D was originally proposed by President Clinton in 2000. It was based on earlier proposals developed by Congresswoman Nancy Pelosi and Senator Tom Dashcle. These late-1990s/2000 proposals -- with the exception of the spend phase structure but including the fact that Medicare itself would not do the negotiating -- are substantially the same as the current Part D.

At the start of the program in January 2006, it was expected that eleven million people would be covered by Medicare Part D; of those, six million would be dual eligible. About two million people who were covered by employers would likely lose their employee benefits.

As of January 30, 2007, nearly 24 million individuals were receiving prescription drug coverage through Medicare Part D (PDPs and MA-PDs combined), according to CMS. Medicare offers other methods of receiving drug coverage, including the Retiree Drug Subsidy. Federal retiree programs such as TRICARE and Federal Employees Health Benefits Program (FEHBP) or alternative sources, such as the Department of Veterans Affairs. Including people in these categories, more than 39 million Americans are covered for prescriptions by the federal government.

A survey released by AARP in November 2007 found that 85% of enrollees reported satisfaction with their drug plan, and 78% said that they had made a good choice in selecting their plan.

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Program costs

As of the end of 2008, the average annual per beneficiary cost spending for Part D was $1,517, making the total expenditures of the program for 2008 $49.3 billion.

From a budget perspective, Part D is effectively three different programs. Based on 2012 budget numbers:

• About $26 billion is spent for the about 10 million low-income Medicare beneficiaries (20% of those on Medicare) mentioned above and the drug costs of some of the people on Part C. This expense was previously (before Part D) mostly covered by Medicaid, the Veteran's Health Administration and state pharmaceutical assistance programs.
• About $20 billion is premium support that allows about 10 million middle-income Medicare beneficiaries and the rest of the people on Part C (about half of those on Medicare altogether) get drug coverage. After the first five years of Part D, government-accountability-office research shows that this expense in the Part D budget appeared to be holding down other Medicare costs related to provider services. The middle-income portion of the Part D program may actually pay for itself in the long term.
• About $13 billion of the Part D budget covers re-insurance for catastrophic drug costs as described above. Part D pays 95% of costs over about $6,000 out of pocket a year at retail. This part of the budget helps about 1% of the people on Medicare who are very ill.

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Cost utilization

Medicare Part D Cost Utilization Measures refer to limitations placed on medications covered in a specific insurer's formulary for a plan. Cost utilization consists of techniques that attempt to reduce insurer costs. The three main cost utilization measures are quantity limits, prior authorization and step therapy.

Quantity limits refer to the maximum amount of a medication that may be dispensed during a given calendar period. For example, a plan may dictate that it will cover 90 pills of a given drug within a 30-day period.

A prior authorization requirement requires a health care worker to receive formal approval from a plan before it agrees to cover a specific prescription. It may be used by insurers for drugs that are often misused. Prior authorization helps ensure that patients receive correct medications.

Step therapy is a process in which a plan requires an individual to try, and prove ineffective, one or more specified lower-cost drugs before a higher-cost drug in the same therapeutic class is approved.

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Implementation issues

• Plan and Health Care Provider goal alignment: PDP's and MA's are rewarded for focusing on low-cost drugs to all beneficiaries, while providers are rewarded for quality of care - sometimes involving expensive technologies.
• Conflicting goals: Plans are required to have a tiered exemptions process for beneficiaries to get a higher-tier drug at a lower cost, but plans must grant medically-necessary exceptions. However, the rule denies beneficiaries the right to request a tiering exception for certain high-cost drugs.
• Lack of standardization: Because each plan can design their formulary and tier levels, drugs appearing on Tier 2 in one plan may be on Tier 3 in another plan. Co-pays may vary across plans. Some plans have no deductibles and the coinsurance for the most expensive drugs varies widely. Some plans may insist on step therapy, which means that the patient must use generics first before the company will pay for higher-priced drugs. Patients can appeal and insurors are required to respond within a short timeframe, so as to not further the burden on the patient.
• Standards for electronic prescribing for Medicare Part D conflict with regulations in many U.S. states.

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Impact on beneficiaries

A 2008 study found that the percentage of Medicare beneficiaries who reported forgoing medications due to cost dropped with Part D, from 15.2% in 2004 and 14.1% in 2005 to 11.5% in 2006. The percentage who reported skipping other basic necessities to pay for drugs also dropped, from 10.6% in 2004 and 11.1% in 2005 to 7.6% in 2006. The very sickest beneficiaries reported no reduction, but fewer reported forgoing other necessities to pay for medicine.

A parallel study found that Part D beneficiaries skip doses or switch to cheaper drugs and that many do not understand the program. Another study found that Part D resulted in modest increases in average drug utilization and decreases in average out-of-pocket expenditures. Further studies by the same group of researchers found that the net impact among beneficiaries was a decrease in the use of generic drugs.

A further study concludes that although a substantial reduction in out-of-pocket costs and a moderate increase in utilization among Medicare beneficiaries during the first year after Part D, there was no evidence of improvement in emergency department use, hospitalizations, or preference-based health utility for those eligible for Part D during its first year of implementation. It was also found that there were no significant changes in trends in the dual eligibles' out-of-pocket expenditures, total monthly expenditures, pill-days, or total number of prescriptions due to Part D.

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Criticisms

The federal government is not permitted to negotiate Part D drug prices with drug companies, as federal agencies do in other programs. The Department of Veterans Affairs, which is allowed to negotiate drug prices and establish a formulary, has been estimated to pay between 40% and 58% less for drugs, on average, than Part D.

Although generic versions of [frequently prescribed to the elderly] drugs are now available, plans offered by three of the five [exemplar Medicare Part D] insurers currently exclude some or all of these drugs from their formularies....Further, prices for the generic versions are not substantially lower than their brand-name equivalents. The lowest price for simvastatin (generic Zocor) 20 mg is 706 percent more expensive than the VA price for brand-name Zocor. The lowest price for sertraline HCl (generic Zoloft) is 47 percent more expensive than the VA price for brand-name Zoloft."

Estimating how much money could be saved if Medicare had been allowed to negotiate drug prices, economist Dean Baker gives a "most conservative high-cost scenario" of $332 billion between 2006 and 2013 (approximately $50 billion a year). Economist Joseph Stiglitz in his book entitled The Price of Inequality estimated a "middle-cost scenario" of $563 billion in savings "for the same budget window".

Former Congressman Billy Tauzin, R-La., who steered the bill through the House, retired soon after and took a $2 million a year job as president of Pharmaceutical Research and Manufacturers of America (PhRMA), the main industry lobbying group. Medicare boss Thomas Scully, who threatened to fire Medicare Chief Actuary Richard Foster if he reported how much the bill would actually cost, was negotiating for a new job as a pharmaceutical lobbyist as the bill was working through Congress. 14 congressional aides quit their jobs to work for related lobbies immediately after the bill's passage.

In response, free-market think tank Manhattan Institute issued a report by professor Frank Lichtenberg that said the VA National Formulary excludes many new drugs. Only 38% of drugs approved in the 1990s and 19% of the drugs approved since 2000 were on the formulary.

In 2012, the plan required Medicare beneficiaries whose total drug costs reach $2,930 to pay 100% of prescription costs until $4,700 is spent out of pocket. (The actual threshold amounts change year-to-year and plan-by-plan, and many plans offered limited coverage during this phase.) While this coverage gap does not affect the majority of program participants, about 25% of beneficiaries enrolled in standard plans find themselves in this gap.

As a candidate, Barack Obama proposed "closing the 'doughnut hole'" and subsequently proposed a plan to reduce costs for recipients from 100% to 50% of these expenses. The cost of the plan would be borne by drug manufacturers for name-brand drugs and by the government for generics.

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See also

• Health
• Health economics
• Health insurance in the United States
• Medicare Prescription Drug, Improvement, and Modernization Act
• National pharmaceuticals policy
• Pharmaceutical company
• Pharmacology
• Prescription drug prices in the United States
• Prescription costs

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Notes

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References

• Cost and Utilization of Outpatient Prescription Drugs Among the Elderly: Implications for a Medicare Benefit, 2003, Nashville, Tenn
• Managed Care Programs
• The American Journal of Managed Care
• Zhang J, Yin W, Sun S, Alexander GC. Impact of Medicare Prescription Drug Benefit on the use of generic drugs Journal of Internal Medicine. 2008;23:1673-1678.
• Yin W, Basu A, Zhang J, Rabbani A, Meltzer DO, Alexander GC. Impact of the Medicare Part D Prescription Drug Benefit on drug utilization and out-of-pocket expenditures Annals of Internal Medicine. 2008;148:169-177.
• Epstein AJ, Rathore SR, Alexander GC, Katcham J. Physicians' Views on Access to Prescription Drugs under Medicare Part D American Journal of Managed Care. 2008;14:SP5-SP13.
• Federman AD, Alexander GC, Shrank WH. Simplifying the Medicare Prescription Drug Benefit for physicians and patients Mayo Clinic Proceedings. 2006;81:1217-1221. doi:10.4065/81.9.1217 PMID 16970218
• "Understanding Medicare Enrollment Periods" (PDF). Tip Sheets. Centers for Medicare and Medicaid Services. February 2011. CMS Product No. 11219. Archived from the original (PDF) on 2010-12-04 

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External links

Government resources

• Centers for Medicare & Medicaid Services (CMS).
• Medicare.gov, the official website for people with Medicare.
  • Prescription Drug Coverage homepage at Medicare.gov, a central location for Medicare's web-based information about the Part D benefit.
    • "Landscape of Plans", at Medicare.gov, state-by-state breakdown of all Part D plans available by area, including stand-alone (drug coverage only) plans and other coverage plans.
    • State Pharmaceutical Assistance Programs at Medicare.gov, links to contact information for each state's SPAP program.
    • Enroll in a Medicare Prescription Drug Plan at Medicare.gov, the web-based tool for enrolling online in a Part D plan.
  • Official Medicare publications at Medicare.gov, includes official publications about the Part D benefit.
    • Medicare & You handbook for 2006 at Medicare.gov, includes information about the Part D benefit.
  • Information about the 1-800-MEDICARE helpline from Medicare.gov, a 24X7 toll-free number where anyone can call with questions about the Part D benefit.

Articles

• "The Big Drug Scam", by Rich Lowry, National Review Online, January 16, 2007.
• "A Recipe for Cynicism", by Jonah Goldberg, National Review Online, November 29, 2006.
• "Success of Drug Plan Challenges Democrats", by Lori Montgomery and Christopher Lee, Washington Post, November 26, 2006.
• "Medicare Part D Gets a Bipartisan F", by Jerry Mazza, Online Journal, February 3, 2006.
• "Part D From Outer Space", by Trudy Lieberman, The Nation, January 30, 2006.
• "The Great Society Meets the 21st Century", by Michael Johns, Orthopedic Technology Review, January 2004.
• The States Step In As Medicare Falters; Seniors Being Turned Away, Overcharged Under New Prescription Drug Program, by Ceci Connolly, Washington Post, Saturday, January 14, 2006.
• Troubles with Medicare Prescription Drug Program, PBS NewsHour with Jim Lehrer, January 16, 2006.

Other resources

• "Medicare Part D Briefing Room", from the American Society of Consultant Pharmacists.
• "Medicare Prescription Drug Benefit Weekly Q&A Column", from the Kaiser Family Foundation.
• "My Medicare Matters", sponsored by the National Council on Aging.
• "Medicare Part D Health Issues", from the National Senior Citizens Law Center.
• "Bob Dole On Medicare" - Enrollment/education campaign by former Senator Bob Dole and Pfizer.
• "Medicare Prescription Drug Plan Guide", from America's Health Insurance Plans
• Spending Patterns for Prescription Drugs under Medicare Part D Congressional Budget Office
• "Press Gaggle" with Scott McClellan and Dr. Mark McClellan that includes discussion on Medicare prescription drug benefit, August 29, 2005.
• TheMedicareForum.com - An online community Medicare Forum. For anyone who needs help understanding Medicare or has questions about Medicare.

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