Medicare Part D, the outpatient prescription drug benefit for Medicare beneficiaries, provides catastrophic coverage for high out-of-pocket drug costs, but there is no limit on the total amount that beneficiaries have to pay out of pocket each year. Medicare Part D enrollees with drug costs high enough to exceed the catastrophic coverage threshold are required to pay 5% of their total drug costs unless they qualify for Part D Low-Income Subsidies (LIS). In 2021, the catastrophic threshold is set at $6,550 in out-of-pocket drug costs, which includes what beneficiaries themselves pay and the value of the manufacturer discount on the price of brand-name drugs in the coverage gap (sometimes called the “donut hole”), which counts towards this amount. With no hard cap on out-of-pocket drug spending, Medicare beneficiaries without LIS who take high-cost drugs for conditions such as cancer, multiple sclerosis, rheumatoid arthritis, or hepatitis C may pay thousands of dollars in out-of-pocket costs for their medications after exceeding the catastrophic threshold.
Policymakers on both sides of the aisle support proposals to modify the design of the Part D benefit and establish a hard cap on out-of-pocket prescription drug spending by Part D enrollees. This proposal is included in H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act, which passed the U.S. House of Representatives in December 2019 and was recently reintroduced in the 117th Congress; H.R. 19, the Lower Costs, More Cures Act, the House GOP prescription drug bill; bipartisan legislation that passed out of the Senate Finance Committee in the 116th Congress (S. 2543, Prescription Drug Pricing Reduction Act of 2019); and other legislation. Under H.R. 3, out-of-pocket drug spending under Part D would be capped at $2,000, while under H.R. 19 and the Senate Finance bill, the cap would be set at $3,100 (both amounts exclude the value of the manufacturer price discount).
By design, catastrophic coverage is intended to protect Part D enrollees with high drug costs, which may affect only a small share of enrollees in any given year but a larger share over time, including those who have persistently high drug costs over multiple years and others who have high costs in one year but not over time. To inform discussions about proposals to add a hard cap on out-of-pocket spending under Part D, we analyzed the number of Part D enrollees without low-income subsidies who have exceeded the catastrophic coverage threshold annually, and over multiple years, based on 2007-2019 Part D claims data for Part D enrollees without low-income subsidies from the Centers for Medicare & Medicaid Services Chronic Conditions Data Warehouse (see Methods for details).
- In 2019, nearly 1.5 million Medicare Part D enrollees had out-of-pocket spending above the catastrophic coverage threshold. Looking over a five-year period (2015-2019), the number of Part D enrollees with out-of-pocket spending above the catastrophic threshold in at least one year increases to 2.7 million, and over a 10-year period (2010-2019), the number of enrollees increases to 3.6 million (Figure 1).
- More than 1.4 million Part D enrollees had out-of-pocket spending above the catastrophic threshold in two or more years during the five-year period between 2015 and 2019, and nearly 2 million enrollees had spending above the catastrophic threshold in two or more years over a 10-year period (2010-2019).
- The number of Part D enrollees with out-of-pocket drug spending above the catastrophic threshold in a given year has more than tripled from nearly 400,000 in 2010 to 1.5 million in 2019 and has been at or above 1 million each year since 2015 (Figure 2). Similarly, the percent of all Part D enrollees not receiving low-income subsidies with out-of-pocket spending above the catastrophic coverage threshold has more than doubled, from 2.1% in 2010 to 4.4% in 2019.
- The increase in the number of Part D enrollees with out-of-pocket drug spending above the catastrophic coverage threshold since 2010 is partly due to the availability of new higher-priced drugs, drug price increases, and changes made by the Affordable Care Act (ACA) to the coverage gap phase of the Part D benefit and the calculation of out-of-pocket spending before enrollees qualify for catastrophic coverage, which have reduced the out-of-pocket cost burden on enrollees.
- The ACA phased out the coverage gap (sometimes called the “donut hole”) by lowering the share of total costs paid in the gap by Part D enrollees from 100% to 25% over a 10-year period, and requiring drug manufacturers to provide a discount on the price of brand-name drugs in the gap. This price discount counts as beneficiary out-of-pocket spending that qualifies an enrollee for catastrophic coverage, which enables enrollees to move through the coverage gap more quickly.
- Between 2018 and 2019 alone, the number of non-LIS enrollees who reached the catastrophic coverage phase increased from 1.1 million to 1.5 million, coinciding with an increase in the manufacturer discount on brand-name drugs in the coverage gap, from 50% in 2018 to 70% in 2019.
- The 3.6 million Part D enrollees with out-of-pocket drug spending above the catastrophic threshold between 2010 and 2019 spent a cumulative $9.9 billion out of pocket for prescriptions filled in the catastrophic phase over these years (Figure 3). This represents more than one-third of their aggregate total out-of-pocket drug costs over this time period ($26.1 billion).
- In 2019 alone, the 1.5 million Part D enrollees with out-of-pocket spending above the catastrophic threshold spent $1.8 billion out of pocket in the catastrophic coverage phase, which was nearly half of their total out-of-pocket drug spending for the year ($3.8 billion).
As new, high-priced drugs come to market and are covered under Medicare Part D, the current requirement for beneficiaries to pay a coinsurance of 5% in the catastrophic coverage phase can lead to thousands of dollars in out-of-pocket costs. Our analysis demonstrates that while most Part D enrollees have not had out-of-pocket costs high enough to exceed the catastrophic coverage threshold in a single year, the likelihood of a Medicare beneficiary incurring drug costs above the catastrophic threshold increases when looking over a longer time span.
Adding a hard out-of-pocket cap to Part D, as has been proposed by policymakers on both sides of the aisle, would help the growing number of Medicare beneficiaries who take just one very high-priced drug for medical conditions such as cancer or multiple sclerosis, or who take a handful of relatively costly brand or specialty medications to manage chronic illness. Capping out-of-pocket costs under Part D would protect Medicare beneficiaries against very high levels of out-of-pocket drug costs, including those with one-time catastrophic costs as well as those with high drug expenses year after year. While adding a cap on out-of-pocket drug spending under Part D would generate cost savings to enrollees, it could also add costs to the program, unless combined with other policies to lower Medicare drug spending, which are the subject of ongoing discussion in Congress.
Juliette Cubanski and Tricia Neuman are with KFF. Anthony Damico is an independent consultant. This work was supported in part by Arnold Ventures. We value our funders. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities.
|This analysis is based on 2007-2019 Medicare Part D claims data from the Centers for Medicare & Medicaid Services Chronic Conditions Data Warehouse. For this analysis, we estimated the number of Part D enrollees without low-income subsidies who had out-of-pocket spending above the catastrophic coverage threshold in each year between 2007 and 2019, as well as those with spending above the catastrophic threshold in at least one year and in multiple time periods between 2010 and 2019. We excluded Part D enrollees receiving full low-income subsidies, who face no cost sharing above the catastrophic coverage threshold, as well as those receiving partial low-income subsidies, who pay modest copayments of no more than $3.70 for generics and $9.20 for brands in the catastrophic phase, but do not face the 5% coinsurance requirement that enrollees without low-income subsidies face. In 2019, 39,000 partial LIS enrollees had out-of-pocket spending above the catastrophic coverage threshold, and 151,000 had out-of-pocket spending above the catastrophic threshold in at least one year between 2010 and 2019.|