Changes in the ACA
The Affordable Care Act (ACA) included a provision to phase out the coverage gap by gradually reducing the share of total drug costs paid by non-LIS Part D enrollees in the coverage gap, from 100 percent before 2011 to 25 percent in 2020. The ACA required plans to pay a gradually larger share of total drug costs, and also required drug manufacturers to provide a 50 percent discount on the price of brand-name drugs in the coverage gap, beginning in 2011. The ACA stipulated that the value of this discount would count towards a beneficiary’s annual out-of-pocket spending.
The ACA also modified the calculation of the annual out-of-pocket spending threshold between 2014 and 2019 so that the threshold amount would grow more slowly during these years (Figure 2). In 2020 and beyond, the threshold will be determined using the pre-ACA calculation. As a result, between 2019 and 2020, Medicare’s actuaries project that the out-of-pocket threshold for catastrophic coverage will increase from $5,100 to $6,350, as discussed further below.
Changes in the BBA of 2018
The Bipartisan Budget Act of 2018 (BBA) made additional changes to the coverage gap, accelerating a reduction in beneficiary coinsurance for brands from 30 percent in 2019 to 25 percent that year, and increasing the manufacturer discount from 50 percent to 70 percent, beginning in 2019, a change which is expected to reduce Medicare spending by $11.8 billion over a 10-year (2018-2027) period. In 2019 and later years, Part D plans will cover the remaining 5 percent of costs in the coverage gap, which is a reduction in their share of costs (down from 25 percent that would have been required under the ACA). The manufacturer discount in the coverage gap will continue to count towards beneficiaries’ annual out-of-pocket spending, and will help cover a portion of the projected increase in the annual out-of-pocket spending threshold in 2020 and beyond.
HOW MANY ENROLLEES HAVE REACHED THE COVERAGE GAP?
In 2016, the most recent year for which data are available, 5.2 million Part D enrollees without low-income subsidies faced out-of-pocket spending in the coverage gap, an increase from 3.8 million enrollees in 2007, but the number did not rise steadily over these years (Figure 1).
The number of non-LIS enrollees reaching the gap was relatively stable between 2007 and 2012, averaging 3.8 million over these years, even as the overall number of Part D enrollees increased. In part, this is because the amount of total drug spending required to reach the gap (the ICL) increased over these years, based on annual increases in the rate of growth in Part D per capita costs (Figure 2). Between 2012 and 2013, however, the number of non-LIS enrollees reaching the gap increased from 3.8 million to 4.7 million; the fact that the ICL increased only modestly for 2013 could help to account for this one-year increase in enrollees reaching the gap.
In 2014 and 2015, the number of non-LIS Part D enrollees reaching the gap increased further (to 5.5 million and 5.6 million, respectively), before declining to 5.2 million in 2016. The 2013-2014 increase in the number of enrollees reaching the coverage gap is likely due in part to a reduction in the ICL, which resulted from the negative growth rate (-4.0%) used to update Part D benefit parameters for 2014. The 2014-2015 increase may be due in part to the market entry in late 2013 of relatively expensive breakthrough medications to treat hepatitis C.
HOW MUCH HAVE ENROLLEES REACHING THE COVERAGE GAP SPENT OUT OF POCKET?
In 2016, average out-of-pocket spending by non-LIS Part D enrollees who reached the coverage gap was $1,569, a decrease from the years before the ACA’s changes to the coverage gap took effect (Figure 3). Between 2010 and 2011, when the 50 percent manufacturer discount took effect and plans began covering 7 percent of total generic drug costs in the gap, average out-of-pocket costs for non-LIS enrollees who reached the gap decreased from $1,858 to $1,485. Between 2011 and 2014, average out-of-pocket costs for non-LIS Part D enrollees who reached the coverage gap decreased by $89, and then increased by $174 between 2014 and 2016.
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