SUMMARY

• In 2016, the most recent year of available data, more than 5 million Part D enrollees without low-income subsidies (LIS) reached the coverage gap, spending $1,569 out of pocket, on average, and receiving an average manufacturer discount of $1,090. Due to provisions in the Affordable Care Act (ACA) to phase out the coverage gap, average out-of-pocket costs for non-LIS Part D enrollees who reach the coverage gap decreased substantially between 2010 and 2011 but have increased somewhat in recent years.
• Under changes made by the Bipartisan Budget Act of 2018 (BBA), Part D enrollees’ out-of-pocket costs for brands in the gap will decline from 35 percent of total costs in 2018 to 25 percent in 2019—rather than in 2020—while plans’ share of costs for brands will decrease to 5 percent and the manufacturer discount will increase from 50 percent to 70 percent. Recent calls to modify the BBA changes to the coverage gap could lead to higher beneficiary out-of-pocket costs and higher Medicare spending.
• Between 2019 and 2020, the annual out-of-pocket spending threshold—the amount beneficiaries must spend before the coverage gap ends and catastrophic coverage begins—is projected to increase by $1,250. This is due to the expiration of the ACA provision that slowed the growth rate of this threshold between 2014 and 2019. Enrollees who take only brands in the coverage gap will face $375 in additional direct out-of-pocket costs in 2020, with the remainder covered by the manufacturer discount.
• Counting the manufacturer discount as beneficiary out-of-pocket spending has contributed to a growing number of non-LIS Part D enrollees qualifying for catastrophic coverage, doubling from just under 500,000 in 2011 to 1.0 million in 2016. This has led to an increase in Medicare Part D spending in recent years, since Medicare pays 80 percent of enrollees’ total drug costs in the catastrophic phase.
• A Trump Administration proposal to exclude the manufacturer discount from the calculation of out-of-pocket spending would substantially increase Part D enrollees’ out-of-pocket costs and would lead to fewer enrollees qualifying for catastrophic coverage.

BACKGROUND ON THE PART D COVERAGE GAP AND LEGISLATIVE CHANGES SINCE 2006

Under the original design of the Medicare Part D benefit, created by the Medicare Modernization Act of 2003, when Part D enrollees’ total drug spending exceeded the initial coverage limit (ICL), they entered a coverage gap. Enrollees who did not receive low-income subsidies (LIS) were required to pay 100 percent of their drug costs in the coverage gap until their out-of-pocket spending reached the threshold amount that qualified them for catastrophic coverage. (The coverage gap does not apply to beneficiaries who receive low-income subsidies.) In 2007, the first full year of the Part D benefit, 8.3 million Part D enrollees (32 percent of all enrollees) had total drug costs above the initial coverage limit and in the coverage gap (Figure 1). This total includes 3.8 million non-LIS enrollees who were required to pay 100 percent of their drug costs out of pocket in the coverage gap.

Figure 1: The number of Medicare Part D enrollees without low-income subsidies who reached the coverage gap increased from 3.8 million to 5.2 million between 2007 and 2016