Medicare Part D, also called the Medicare prescription drug benefit, is an optional United States federal-government program to help Medicare beneficiaries pay for self-administered prescription drugs. Part D was enacted as part of the Medicare Modernization Act of 2003 and went into effect on January 1, 2006. Under the program, drug benefits are provided by private insurance plans that receive premiums from both enrollees and the government. Part D plans typically pay most of the cost for prescriptions filled by their enrollees. However, plans are later reimbursed for much of this cost through rebates paid by manufacturers and pharmacies. Part D enrollees cover a portion of their own drug expenses by paying cost-sharing. The amount of cost-sharing an enrollee pays depends on the retail cost of the filled drug, the rules of their plan, and whether they are eligible for additional Federal income-based subsidies. Prior to 2010, enrollees were required to pay 100% of their retail drug costs during the coverage gap phase, commonly referred to as the "doughnut hole.” Subsequent legislation, including the Affordable Care Act, “closed” the doughnut hole from the perspective of beneficiaries, largely through the creation of a manufacturer discount program.
In 2019, about three-quarters of Medicare enrollees obtained drug coverage through Part D. Program expenditures were $102 billion, which accounted for 12% of Medicare spending. Through the Part D program, Medicare finances about 36% of retail prescription drug spending in the United States.
Program specifics
Eligibility and enrollment To enroll in Part D, Medicare beneficiaries must also be enrolled in either Part A or Part B. Beneficiaries can participate in Part D through a stand-alone prescription drug plan or through a Medicare Advantage plan that includes prescription drug benefits. Beneficiaries can enroll directly through the plan's sponsor or through an intermediary. Medicare beneficiaries who delay enrollment into Part D may be required to pay a late-enrollment penalty. In 2019, 47 million beneficiaries were enrolled in Part D, which represents three-quarters of Medicare beneficiaries.
Plans offered Part D benefits are provided through private plans approved by the federal government. The number of offered plans varies geographically, but a typical enrollee will have dozens of options to choose from. Although plans are restricted by numerous program requirements, plans vary in many ways. Among other factors, enrollees often compare premiums, covered drugs, and cost-sharing policies when selecting a plan. Medicare offers an interactive online tool that allows for comparison of coverage and costs for all plans in a geographic area. The tool lets users input their own list of medications and then calculates personalized projections of the enrollee's annual costs under each plan option. Plans are required to submit biweekly data updates that Medicare uses to keep this tool updated throughout the year. In 2021, a new program, the Senior Savings Model, was introduced which was aimed at reducing out-of-pocket costs for insulin.
Costs to beneficiaries
Beneficiary cost sharing
Part D includes a statutorily defined "standard benefit" that is updated on an annual basis. All Part D sponsors must offer a plan that follows the standard benefit. The standard benefit is defined in terms of the benefit structure and without mandating the drugs that must be covered. For example, under the 2020 standard benefit, beneficiaries first pay a 100% coinsurance amount up to a $435 deductible. Second, beneficiaries pay a 25% coinsurance amount up to an Out-of-Pocket Threshold of $6,350. In the final benefit phase, beneficiaries pay the greater of a 5% coinsurance amount or a nominal co-payment amount. These three benefit phases are referred to as the Deductible, Initial Coverage Limit, and the Catastrophic phase. The "Out-of-Pocket Threshold" is not a cap on out-of-pocket spending, as beneficiaries continue to accrue cost-sharing expenses in the Catastrophic phase. In 2020, beneficiaries would typically reach this threshold as their retail drug spending approached $10,000. When patients enter the Catastrophic phase, the amount they have paid in cost-sharing is typically much less than the Out-of-Pocket Threshold. This is because the standard benefit requires plans to include additional amounts, such as manufacturer discounts, when determining if the Out-of-Pocket Threshold has been met. Part D sponsors may also offer plans that differ from the standard benefit, provided that these alternative benefit structures do not result in higher average cost-sharing. In practice, most enrollees do not elect for standard benefit plans, instead opting for plans without deductibles and with tiered drug co-payments rather than coinsurance. Enrollees must pay an additional premium amount to be enrolled in a plan with cost-sharing that is lower than the standard benefit, and this additional amount is not Federally-subsidized. Prior to 2010, the standard benefit included a Coverage Gap phase in which, after accruing significant spending, relatively-high cost enrollees were required to pay a 100% coinsurance amount until they entered the Catastrophic phase. This Coverage Gap phase is commonly referred to as "the Donut Hole." Beginning with the Affordable Care Act, cost-sharing in the Coverage Gap phase has been gradually reduced. Despite no longer triggering elevated cost-sharing, the Coverage Gap phase continues to exist for other administrative purposes.
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