Benefits of Capping Medicare Part D Out-of-Pocket Costs Vary Substantially Across Drugs

Health Update

Although delayed as a result of the COVID-19 public health emergency, there are persistent and ongoing efforts to reform the Medicare Part D benefit. Since its June 2016 Report to Congress, the Medicare Payment Advisory Commission (MedPAC) continues to recommend changes to the Part D benefit design, including eliminating the coverage gap and creating a maximum out-of-pocket (MOOP) cap on beneficiary cost-sharing that will be financed by a combination of plan, manufacturer and Medicare individual reinsurance payments, as well as through greater flexibility for plans to manage formularies.

A number of organizations, such as the American Action Forum, have supported similar reforms, many of which have found their way into the Senate Finance Committee Prescription Drug Pricing Reduction Act of 2019 (PDPRA) and the House Lower Drug Costs Now Act of 2019. If the PDPRA is enacted, enrollees would be responsible for 25% of cost-sharing after the deductible, until they accrue $3,100 in out-of-pocket spending, at which point enrollees enter the catastrophic phase and will have no additional cost-sharing. Payments for drugs in the catastrophic phase would be shared by Part D plans, manufacturers and Medicare individual reinsurance payments.

A Manatt Health analysis shows that if implemented, the PDPRA could bring down total out-of-pocket costs (excluding premiums) for Part D enrollees by 8%, or $1.1 billion, on average across all Part D drugs, but with substantial variation across types of drugs. For example, total cost-sharing for antidiabetic drugs would decrease by 22%, or $340.6 million; antineoplastic and adjunctive therapies by 42%, or $240.5 million; and antiasthmatic and bronchodilator agents by 8%, or $80.3 million, while leaving out-of-pocket costs for ophthalmic agents essentially unaffected.

Simulating the Effects of the PDPRA

The Manatt analysis1 simulates the potential impacts of the PDPRA on how cost-sharing for enrollees and payments by Part D plans, manufacturers and Medicare would change if the PDPRA were to be fully implemented in CY 2020 relative to the current Part D standard benefit design for CY 2020. The analysis shows that compared with the CY 2020 baseline, the fully implemented PDPRA, including a MOOP cap of $3,100, would decrease aggregate cost-sharing spending (excluding premiums) for enrollees by 8% and would decrease aggregate low-income subsidy (LIS) cost-sharing payments by 50%, since Medicare is no longer subsidizing the coverage gap discount portion for LIS enrollees.

The PDPRA would increase aggregate plan liability by 94% (prior to risk corridor payments and year-end reconciliations and changes in direct Medicare subsidies to plans), decrease aggregate Medicare individual reinsurance payments by 76% (prior to reconciliation of net rebates, chargebacks and other concessions), and increase aggregate manufacturer discount payments by 50%. Part D plan liabilities are estimated to increase but could be partially offset by an increase in Medicare direct subsidies and greater use of formulary management tools.

To download a free copy of Manatt’s new white paper detailing our complete findings on the potential effects of the PDPRA vs. the current Part D standard benefit design—including comparisons of aggregate spending, comparisons of enrollee cost-sharing across ten key therapeutic categories and the estimated change in out-of-pocket costs by category—click here.


1 We converted 2018 plan benefit designs in the 2018 Part D Prescription Drug Event (PDE) data to match the 2020 Part D Standard Benefit Design as published in the Announcement of Calendar Year (CY) 2020 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter, dated April 1, 2019, as displayed in this table. Cost-sharing for the deductible and initial coverage periods was calculated for each drug based on the plan’s tier placement and copayment/coinsurance for that tier. Cost-sharing for the coverage gap, for the catastrophic phase and after the MOOP cap was calculated based on the drug’s brand/generic status and proposed parameters under the Part D standard benefit design for CY 2020 and the PDPRA once fully implemented.

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