WHAT IS THE VALUE OF THE MANUFACTURER DISCOUNT RECEIVED BY PART D ENROLLEES SINCE 2011?
The manufacturer discount on brand-name drugs in the coverage gap represents valuable financial assistance for Part D enrollees with relatively high drug costs. On a per person basis, non-LIS Part D enrollees who reached the coverage gap in 2016 received an average discount on brand-name medications of $1,090, up from $565 in 2011 (Figure 4).
With total Part D drug spending increasing over time and more non-LIS beneficiaries reaching the coverage gap, the aggregate discount that Part D enrollees have received on brand-name drugs has also increased—from $2.2 billion in 2011 to $5.7 billion in 2016.
Including the manufacturer discount in the calculation of beneficiary out-of-pocket costs partly explains why more non-LIS Part Denrollees have qualified for catastrophic coverage since 2011 (Figure 5). Non-LIS Part D enrollees move through the coverage gap more quickly because they have to spend less out of their own pockets before qualifying for catastrophic coverage.
Between 2011 and 2016, the number of non-LIS Part D enrollees who qualified for catastrophic coverage doubled from 0.5 million to 1.0 million, while their average out-of-pocket costs increased by a relatively modest 6 percent, from $3,004 to $3,196. This trend has contributed to an increase in Medicare Part D spending in recent years, since Medicare pays 80 percent of enrollees’ total drug costs in the catastrophic coverage phase. According to MedPAC, Medicare spending for catastrophic coverage expenses (“reinsurance”) is now the largest, and fastest growing, portion of Part D program spending.
WHAT’S ON THE HORIZON FOR BENEFICIARIES WHO REACH THE COVERAGE GAP?
Closing the Coverage Gap for Brands in 2019
As of 2019, there will no longer be a coverage gap for brand-name drugs, as a result of changes in the BBA. Beneficiary coinsurance for brands in the gap will be 25 percent in 2019, the same share of costs that they face for brands under the standard benefit design before they reach the coverage gap. The coverage gap for generic drugs will not be fully closed until 2020, as scheduled in the ACA. In 2019, beneficiaries will pay 37 percent of the cost of generic drugs, and plans will pay the remaining 63 percent.
Increase in the Annual Out-of-Pocket Spending Threshold in 2020
Between 2019 and 2020, the annual out-of-pocket spending threshold—the amount of out-of-pocket spending Part D enrollees need to incur to exit the coverage gap and qualify for catastrophic coverage—is scheduled to increase by $1,250, from $5,100 to $6,350. As mentioned above, this substantial one-year increase is due to the expiration of the ACA provision that modified the calculation of the annual out-of-pocket spending threshold between 2014 and 2019; in 2020 and beyond, the threshold will be determined using the pre-ACA calculation.
For Part D enrollees who take mostly brands and who reach the coverage gap, most of this increase in out-of-pocket spending will be covered in the form of the 70 percent manufacturer discount in the gap. For enrollees who take only brand-name drugs, the $1,250 increase would consist of $375 in additional direct out-of-pocket costs, with the remainder in the form of the coverage gap discount.
PROPOSED CHANGES TO THE COVERAGE GAP
Excluding the Manufacturer Discount from Beneficiary Out-of-Pocket Spending
The Trump Administration has proposed several changes to the Part D benefit, including a proposal to exclude the value of the manufacturer discount from the calculation of enrollees’ annual out-of-pocket costs. (The GOP House Budget proposal for FY2019 included the same provision.) The Congressional Budget Office estimated that this proposal would reduce federal spending by $58.5 billion over 10 years. This change would result in a substantial increase in beneficiary out-of-pocket costs, and would lead to fewer Part D enrollees qualifying for catastrophic coverage, similar to the years between 2007 and 2012. If this change was adopted prior to 2020, the $1,250 increase in the annual out-of-pocket spending threshold scheduled to occur in 2020 would be paid entirely by beneficiaries.
Modifying Changes to the Coverage Gap Made by the BBA
There are efforts underway in Congress to modify the coverage gap changes made by the BBA, while also preventing the upcoming steep increase in the out-of-pocket spending threshold. The effort to modify the BBA changes would reallocate payer liability in the coverage gap, motivated in part by pharmaceutical industry concerns about the requirement that they provide a larger discount on brand-name drugs starting in 2019. In addition, there is some concern that the reduced share of brand-name drug costs paid by plans in the coverage gap will weaken their financial incentive to manage enrollees’ costs once they cross the initial coverage limit and enter the coverage gap phase of the benefit.
Legislation has not yet been introduced to modify the BBA coverage gap provisions, and it unclear whether policymakers are contemplating changes to the beneficiary coinsurance rate in the gap, which is scheduled to be 25 percent for brands beginning in 2019. Increasing plans’ share of costs in the coverage gap and reducing the manufacturer discount to something less than 70 percent for 2019 and beyond would lead to higher Medicare spending relative to current law. Similarly, modifying the scheduled increase in the out-of-pocket spending threshold to protect Part D enrollees from a steep increase in out-of-pocket costs would also result in higher Medicare spending.
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