Medicare Part D cap
Although Medicare Part D provides catastrophic coverage for high out-of-pocket prescription prices, there is no limit on the total amount beneficiaries pay out-of-pocket annually. Beneficiaries with high drug costs exceeding the catastrophic level are required to pay 5% of their total drug costs unless they qualify for LIS. The Inflation Reduction Act 2022 addresses the high cost of prescription drugs for Medicare beneficiaries. The inflation reduction will reduce the out-of-pocket cost beneficiaries pay for medications and reduce federal government spending. Some of these cost saving measures include changes to the benefits provided by Medicare Part D. This includes a Part D cap on out-of-pocket prescription costs for Medicare Part D plan enrollees.
The Part D cap makes both PDP plan providers and drug companies pay more of the costs associated with expensive drugs. Some of this cost usually falls on the beneficiary and the federal government.
Changes to Medicare prescription drug plans coming in 2024
In order to better understand the changes coming for 2024, we will quickly explain the 4 phases of prescription drug coverage as they are in 2023.
- Deductible phase – beneficiaries pay 100% of their drug costs. In 2023 the highest deductible amount is $505, although some plans do not charge a deductible.
- Initial coverage phase – beneficiaries pay a co-insurance rate of 25% of their prescription costs and their Part D plan pays 75%. This phase lasts until the costs reach $4,660 in 2023. Many PDP plans charge co-payments and co-insurance in this phase instead of the standard 25% co-insurance rate.
- Coverage gap (donut hole) phase – beneficiaries pay 25% of the prescription cost for all covered drugs both generic and name brand. The PDP plan pays the remaining 75% for generic prescriptions and 5% for name brand drugs while drug manufacturers give beneficiaries a 70% discount for these drugs.
- Catastrophic phase – In 2023 the catastrophic threshold is $7,400. Once the threshold is reached, Medicare pays 80% of the drug cost while the PDP plan pays 15% and the beneficiary pays the remaining 5%.
The beneficiary’s costs in the catastrophic phase will change in 2024
In 2024 the 5% coinsurance payment for beneficiaries will be eliminated. The PDP plans will pay 20% of the drug costs in this phase instead of the 15% they paid in previous years. The catastrophic threshold in 2024 will be $8,000. The threshold limit includes the amount beneficiaries spend as well as the value of the manufacturers discount on prescriptions in the coverage gap phase.
In other words, there will be a spending cap for beneficiaries who take name brand drugs of about $3,2500 in 2024. In 2025, there will be a hard cap of $2,000 on out-of- pocket costs for prescriptions.
Beneficiaries can save thousands on expensive medications
Beneficiaries who currently need expensive lifesaving medications to treat serious illnesses can now concentrate on recovering instead of worrying about how to pay the high cost of their medications.
The elimination of the 5% coinsurance spent in the catastrophic phase of Part D coverage will save enrollees thousands of dollars.
Please note: this program benefits those enrollees who do not receive LIS for the cost of prescription medications.