With Doughnut Hole Gone, Medicare's Uncapped Drug Costs Still Bite

ID 60197185 © Julia Sudnitskaya | Dreamstime.com

Although federal legislation closed the doughnut hole for brand-name drugs in 2019, because Medicare has no spending limit for prescription medications in Part D, its drug benefit, some Medicare beneficiaries could owe thousands of dollars in out-of-pocket drug costs every year for a single drug.

The closure is good news, and means that  a beneficiary will only be responsible for 25% of the cost of brand-name drugs. Although the doughnut hole for brand-name drugs has closed, the beneficiary may still see a difference in cost between the initial coverage period and the doughnut hole. For example, if a drug’s total cost is $100 and the beneficiary pays the plan’s $20 copay during the initial coverage period, the beneficiary will be responsible for paying $25 (25% of $100) during the coverage gap. The doughnut hole will close for generic drugs in 2020, at which point a beneficiary will be only responsible for 25% of the cost of generic drugs.

Kaiser Health News published an excellent article, Doughnut Hole Is Gone, But Medicare’s Uncapped Drug Costs Still Bite Into Budgets, about the demise of the doughnut hole and the out-of- pocket costs beneficiaries must still face. The article focuses on the need for an annual cap on out of pocket drug spending by telling the stories of some of those who have significant out-of-pocket costs even with the elimination of the doughnut hole:

 "Legislative changes have gradually closed the doughnut hole so that, this year, beneficiaries no longer face a coverage gap. In a standard Medicare drug plan, beneficiaries pay 25 percent of the price of their brand-name drugs until they reach $5,100 in out-of-pocket costs. Once patients reach that threshold, the catastrophic portion of their coverage kicks in and their obligation drops to 5 percent. But it never disappears."

Recent proposals by the Trump administration and Sen. Ron Wyden (D-Ore.) would address the long-standing problem by imposing a spending cap. The article notes, however, that "it’s unclear whether any of these proposals will gain a foothold."

Although none of the Medicare programs have caps on spending, the article illustrates that those enrolled in original Medicare can purchase Medigap policies, which do not extend to Part D  prescription drug plans.  There's a great chart in the article that compares the existing Part D program with proposed legislation that illustrates the effect of the recent proposal to cap the annual amount. 

Medicare Premiums and Deductibles for 2016

The Centers for Medicare and Medicaid has announced the Medicare premiums, deductibles, and coinsurances for 2016. As expected, for the third year in a row the standard Medicare Part B premium that most recipients pay will hold steady at $104.90 a month.  However, about 30 percent of beneficiaries will see their Part B premium rise to $121.80 a month.  Meanwhile, the Part B deductible will increase for all beneficiaries from the current $147 to $166 in 2016. 

The Part B rise was supposed to be much steeper for the 30 percent of beneficiaries who are not “held harmless” from any increase in premiums when Social Security benefits remain stagnant, as will be the case for 2016.  But the premium rise was blunted by the Bipartisan Budget Act signed into law by President Obama November 2.  Medicare beneficiaries who are unprotected from a premium increase include those enrolled in Medicare but who are not yet receiving Social Security, new Medicare beneficiaries, seniors earning more than $85,000 a year, and “dual eligibles” who receive both Medicare and Medicaid benefits. For beneficiaries receiving skilled care in a nursing home, Medicare's coinsurance for days 21-100 will go up from $157.50 to $161.  Medicare coverage ends after day 100.  

Here are all the new Medicare figures:

• Basic Part B premium: $104.90/month (unchanged);
• Part B premium for those not “held harmless”: $121.80;
• Part B deductible: $166 (was $147);
• Part A deductible: $1,288 (was $1,260);
• Co-payment for hospital stay days 61-90: $322/day (was $315);
• Co-payment for hospital stay days 91 and beyond: $644/day (was $630);
• Skilled nursing facility co-payment, days 21-100: $161/day (was $157.50).

Higher-income beneficiaries will pay higher Part B premiums:

• Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 will pay a monthly premium of $170.50 (was $146.90);
• Individuals with annual incomes between $107,000 and $160,000 and married couples with annual incomes between $214,000 and $320,000 will pay a monthly premium of $243.60 (was $209.80);
• Individuals with annual incomes between $160,000 and $214,000 and married couples with annual incomes between $320,000 and $428,000 will pay a monthly premium of $316.70 (was $272.70);
• Individuals with annual incomes of $214,000 or more and married couples with annual incomes of $428,000 or more will pay a monthly premium of $389.80 (was $335.70).

Rates differ for beneficiaries who are married but file a separate tax return from their spouse:

• Those with incomes between $85,000 and $129,000 will pay a monthly premium of $316.70 (was $272.70);
• Those with incomes greater than $129,000 will pay a monthly premium of $389.80 (was $335.70).

The Social Security Administration uses the income reported two years ago to determine a Part B beneficiary's premiums. So the income reported on a beneficiary's 2014 tax return is used to determine whether the beneficiary must pay a higher monthly Part B premium in 2016. Income is calculated by taking a beneficiary's adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources. This is called modified adjusted gross income (MAGI). If a beneficiary's MAGI decreased significantly in the past two years, she may request that information from more recent years be used to calculate the premium. Those who enroll in Medicare Advantage plans may have different cost-sharing arrangements.  The average Medicare Advantage premium is expected to decrease slightly, from $32.91 on average in 2015 to $32.60 in 2016.  

For Medicare’s press release announcing the new  figures, click here.  

For Medicare's "Medicare costs at a glance," click here.