On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act into law. The health care reform law, which incorporates adjustments made by the Health Care and Education Reconciliation Act of 2010, makes several important changes to the Medicare Part D drug benefit to reduce Part D enrollees’ out-of-pocket liability when they reach the coverage gap, also known as the “doughnut hole.”
Since the Medicare Part D drug benefit took effect in 2006, those enrolled in Part D plans have been required to pay 100 percent of their prescription drug costs after exceeding an initial coverage limit, until they qualify for catastrophic coverage. The coverage gap is $3,610 in 2010 and is projected to exceed $6,000 by 2020. Most Part D plans have a coverage gap – and in 2007, an estimated 3.4 million Part D enrollees (14 percent of all enrollees) reached that gap.
Closing the gap
The final health care reform package closes the Part D doughnut hole. All consumers who reach this coverage gap in 2010 will receive a $250 rebate. Health care reform phases out the doughnut hole by decreasing the consumer’s share of drug costs throughout the doughnut hole until it reaches 25 percent in 2020 for both brand-name and generic drugs. However, the phase-out works differently for brand-name and generic drugs. Here are some other key changes to the doughnut hole challenge:
- Beginning in 2011, Part D enrollees who reach the coverage gap will receive a 50 percent discount on the total cost of their brand-name drugs in the gap, as agreed to by pharmaceutical manufacturers.
- Over time, Medicare will gradually phase in additional subsidies in the coverage gap for brand-name drugs (beginning in 2013) and generic drugs (beginning in 2011), reducing the beneficiary co-insurance rate in the gap from 100 percent to 25 percent by 2020.
- By 2020, pharmaceutical manufacturers will offer Part D enrollees a 50 percent discount for brand-name drugs, plus a 25 percent federal subsidy (phased in beginning in 2013). Part D enrollees will be responsible for only 25 percent of the total cost of their drugs out of pocket.
- By 2020, 75 percent of the cost of generic drugs in the gap will be subsidized by Medicare (phased in beginning in 2011), while beneficiaries will pay the remaining 25 percent out of pocket.
- Between 2014 and 2019, the law will reduce the out-of-pocket amount that qualifies an enrollee for catastrophic coverage, further reducing out-of-pocket costs for those with relatively high prescription drug expenses. In 2020, the level will revert to that which it would have been without the reductions in previous years.
What does this mean for me?
The good news for agents is that, thanks to the changes made to Part D plans, prescription drug coverage through Medicare should become more attractive than ever. And with the likely decline in the Medicare Advantage program as the plans become more expensive, more and more seniors will be looking for Part D plans to subsidize their original Medicare coverage.
However, the legislation is still new, and could be changed at any time. Although the changes are not likely to affect the way beneficiaries view the plans, the Centers for Medicare and Medicaid Services may make some changes over the next few years as to how agents are compensated for selling Part D plans. Just last year, the Medicare ompensation guidelines were updated, imposing limits (and caps) on renewal compensation and putting practices into place to prevent churning. If new guidelines go into effect in the future, it will affect how agents view and sell Part D.
But until that time, agents can look at this part of the legislation as a good thing. With the much-maligned doughnut hole now off the table, you can look forward to selling Part D without one of your biggest objections in the way.
For more information on selling Part D and other Medicare plans, as well as ongoing coverage of how health care reform affects your Medicare business, visit ASJ’s Medicare Resource Center and sign up for your free biweekly Medicare eSource e-newsletter.
Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at [email protected] or 800-933-9449 ext. 225.