Medicare beneficiaries to receive Part D out-of-pocket cap

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Beneficiaries with Medicare Part D are poised to reap significant savings with the implementation of a $2,000 out-of-pocket spending cap for prescription drugs covered under the program, which is slated to take effect in 2025.

This provision, signed into law as part of 2022's Inflation Reduction Act, aims to alleviate financial burdens for millions of beneficiaries by curbing excessive out-of-pocket costs and reducing Medicare expenditures on prescription medications.

According to a report from KFF, under this new cap, which will be annually indexed to the rate of change in Part D costs, beneficiaries can expect substantial relief, particularly those grappling with high-cost drugs for conditions such as cancer and rheumatoid arthritis.

Additionally, the elimination of the 5% coinsurance in the catastrophic coverage phase of the Part D benefit for 2024 translates into a cap of approximately $3,300 out of pocket for brand-name drugs, further bolstering cost containment efforts.

The analysis reveals the tangible impact of these benefit design changes, with projections indicating that 1.5 million Medicare beneficiaries enrolled in Part D plans would have benefited from the $2,000 spending cap had it been in place in 2021.

Over time, this number is expected to grow significantly, with five million Part D enrollees experiencing out-of-pocket drug costs exceeding $2,000 in at least one year over the past decade.

The implementation of this cap heralds relief for beneficiaries nationwide, with states like California, Florida and Texas poised to witness the largest influx of savings.

WHY THIS MATTERS

A January report from Commonwealth Fund concluded Americans spend significantly more on brand-name prescription drugs compared to residents of most other countries, with per capita pharmaceutical spending nearly three times higher than the OECD average.

This year, changes to the Medicare Part D benefit will include the elimination of the 5% coinsurance requirement for Part D enrollees, with Part D plans now paying 20% of total drug costs in the catastrophic phase, up from 15%.

Beginning in 2025, changes to Medicare's catastrophic coverage will entail Part D plans and drug manufacturers assuming a larger share of costs, as Medicare's portion decreases from 80% to 20% for brand-name drugs and from 80% to 40% for generics.

This shift aims to address rising concerns over Medicare's escalating reinsurance payments to Part D plans, which accounted for nearly half of total Part D spending in 2022, while also requiring Part D plans to cover 60% of costs above the cap and mandating a 20% price reduction on brand-name drugs from manufacturers.

THE LARGER TREND

The Centers for Medicare and Medicaid Services proposed increased flexibility for Part D plans last year to expedite the substitution of lower-cost biosimilar biological products for their reference products. 

The proposal would allow Part D plans to categorize these substitutions as maintenance changes, ensuring that all enrollees, not just those starting therapy after the change takes effect, are affected, provided a 30-day notice is given.