Health Care Reform: Changes in Medicare Part D Out-of-Pocket Expenses in 2020

Keenan Briefings


Health Care Reform: Changes in Medicare Part D Out-of-Pocket Expenses in 2020

November 01, 2019

A recent analysis prepared by the Kaiser Family Foundation (KFF) concluded that Medicare Part D enrollees with higher out-of-pocket expenses will see an increase in costs in 2020.

The analysis explains that the Medicare D standard benefit is comprised of different benefit “phases” including the deductible, initial coverage, the coverage gap (previously known as the “doughnut hole”) and catastrophic coverage. Under current law, enrollee drug costs are borne as follows:

  • Deductible phase - enrollees without a low-income subsidy pay 100% of drug costs
  • Initial coverage phase - enrollees pay 25%, Medicare Part D pays 75%
  • Coverage gap - enrollees pay 25% of brand name and 37% of generic, plans pay 5% of brand name with a 70% manufacturer discount and 63% of generic
  • Catastrophic coverage - enrollees pay 15%, plans pay 15%, and Medicare Part D pays 80%

Due to the expiration of the provision in the Affordable Care Act (ACA) that slowed the growth rate in the catastrophic threshold from 2014-2019 (thereby slowing the growth in out-of-pocket costs), the threshold will revert to the rate that it would have been pre-ACA. This means the out-of-pocket spending threshold will go from $5,100 to $6,350 in 2020 - a $1,250 increase. Additionally, Part D enrollees will face a higher deductible, which will increase from $415 to $435 in 2020, and a higher initial coverage phase limit, which will increase from $3,820 to $4,020 in 2020. On the other hand, the coverage gap will be fully phased out in 2020. Enrollees that exceed the initial coverage limit will go straight to catastrophic coverage, with no gap.

In terms of the impact on Part D plans, the KFF analysis indicates that plans will pay a smaller share of total drug costs up to the catastrophic threshold in 2020, though the amount in dollars that the plans pay will increase. KFF’s analysis concludes, however, that plans’ liability for catastrophic coverage could decline, resulting in a potential net decrease in total plan costs.

Potential legislative solutions to the expected increase in costs for enrollees include:

  • The Trump Administration FY 2020 budget proposal included a provision to phase out beneficiary coinsurance in the catastrophic phase over four years, beginning in 2020, and increasing plans’ share of catastrophic coverage cost from 15% to 80%.
  • The Prescription Drug Pricing Reduction Act (PDPRA) of 2019, approved by the Senate Finance Committee in July includes a proposal to establish a cap on out-of-pocket spending under Part D.
  • In the House, Congressman Frank Pallone (D-NJ) has introduced H.R. 3, which would restructure the Part D benefit and include a hard cap on out-of-pocket spending.

For more detail, the October 2019 KFF Issue Brief, entitled, “How Will The Medicare Part D Benefit Change Under Current Law and Leading Proposals” can be found at the link below:

If you have any questions concerning this Briefing or the Medicare Part D coverage under your plan, please contact your Keenan Employee Benefits Consultant.

Keenan & Associates is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.