Goodbye Medicare Part D Donut Hole; Hello $2,000 Cap

Just about any Medicare beneficiary who takes prescription medications has heard about the donut hole. It has had quite an interesting history.

• When Part D prescription drug coverage began in 2006, those who landed in the donut hole had to pay 100% of the cost for every drug. That’s likely the reason that the official name of this Part D drug payment stage is the Coverage Gap. Insurance companies didn’t pay anything in this stage. Some beneficiaries could not afford this, so they quit taking their medications.
• Beginning in 2012, once in the donut hole, there were discounts for drugs. These discounts started at 50% for brand-name medications and 14% for generics.
• Every year after that, discounts gradually increased until the donut hole closed completely in 2020. That didn’t make drugs free; it just made the cost sharing 25% of the drug’s cost, the same as in Initial Coverage. Some beneficiaries were paying $3,500, $4,000, or more in the donut hole.

But things are changing. The Inflation Reduction Act is taking steps to provide financial relief for beneficiaries by lowering drug costs. As of Jan. 1, 2024, the 5% coinsurance in the Catastrophic Coverage payment stage is gone, essentially capping drug costs at $3,300 to $3,500. No longer do some beneficiaries face unlimited drug costs. Then, starting in January 2025, the maximum amount anyone with Part D drug coverage will pay for medications will be $2,000. That’s only four months away so this is a good time to get to know the Part D cap.

Seven Facts About The Part D $2,000 Cap

1. The cap will apply automatically; you do not have to do anything.

That’s probably a good thing because, according to KFF, 75% of seniors don’t know or aren’t sure there is such a law that caps drug costs.

2. Costs will be capped for anyone with Part D coverage.

That coverage can be provided through a standalone Part D plan or Part D coverage incorporated into another plan, such as a Medicare Advantage or Federal Employee Health Benefits (FEHB) plan.

3. The cap will apply only to covered medications, meaning those that are included in a plan’s formulary.

Briefly, covered drugs must be approved by the FDA and not excluded by the Social Security Act. Drug plans must cover every drug in six protected classes – immunosuppressants, antiretrovirals, antidepressants, antipsychotics, anticonvulsants and antineoplastics – and at least two drugs from every other class. The individual will pay full retail price for any noncovered drug.

4. The cap does not apply to Part B drugs.

These drugs are provided as part of a physician’s service or for use with durable medical equipment and generally not self-administered.

It is important to note that a separate IRA initiative is working on the cost of Part B drugs. The Inflation Rebate Program will lower the price of a Part B drug that increases faster than the rate of inflation. According to a Health and Human Services press release, some beneficiaries can save between $1 and $4593, a day.

5. The cap is starting at $2,000 but it will be indexed annually for inflation.

6. This initiative has spawned a new program, the Medicare Prescription Payment Plan.

Those who reach the limit likely will get hit with $2,000 in the first or second month. This program is similar to an installment payment plan that allows one to pay off bills in consecutive payments over time. The Centers for Medicare and Medicaid Services is working on the final details and who will qualify. Once that is finalized, all stand-alone Part D plans and Medicare Advantage plans with Part D coverage must offer eligible enrollees the option to pay the out-of-pocket prescription drug costs in monthly payments.

This payment plan is optional; a person must sign up for it. Drug insurers will start sending information to those who qualify in the next few months.

7. The donut hole has vanished.

With this new $2,000 limit, there will be three Part D drug payment stages.

• The deductible: This will be $590 in 2025. Plans can charge from nothing up to that limit.
• Initial Coverage: Drug plan members are responsible for 25% of the cost of drugs. The plans will likely continue to charge a copayment or coinsurance until the member reaches the threshold, $2,000.
• Catastrophic Coverage: Once the cap is reached, the plan member pays nothing for the rest of the calendar year.

This May Be Too Good To Be True

A KFF analysis shows that the $2,000 Part D cap could reduce drug costs for more than one million beneficiaries; however, many others likely will pay more. We are living that now, with the elimination of the 5% coinsurance in Catastrophic Coverage. Drug plans must pick up a bigger share of the drug costs. In response, plans changed many copayments to coinsurance and raised drug plan premiums. And, with the new cap, plans may place more restrictions on drugs or choose not to cover costly ones. When 2025 plan information becomes available this fall, we’ll all learn more.

Excuse the broken record. Please pay attention to your drug coverage during the Open Enrollment Period, October 15 to December 7.