on the Medicare Part D Donut Hole The Impact of Health Care Reform on the Medicare Part D Donut Hole Prepared by the Health Law and Policy Clinic of Harvard Law School and the Treatment Access Expansion Project www.taepusa.org Note: The projections in these slides for future years’ thresholds for catastrophic coverage assume no growth in that threshold over time for purposes of illustration. Under Sec. 1101(d) of the Health Care and Education Reconciliation Act of 2010, the catastrophic coverage threshold will increase over time at a rate slower than that established under the Social Security Act Sec. 1860D-2(b)(6) until 2020. In 2020, the threshold will revert to the level it would have been in that year under the Social Security Act’s provisions, and continue to increase accordingly.

Medicare Part D Coverage: The Donut Hole in 2010 (pre-reform) $0- $310 $ + Consumer Pays Deductible “Donut Hole” Coverage Gap Total Spending ≈ 95% 80% Feds Pay Reinsurance 15% Plan Pays Catastrophic Coverage Federal Government Pays 75% Plan Pays 25% out-of-pocket 5% out-of-pocket Private plan Pays $630 $3,610 Consumer Out-Of-Pocket $310 Total consumer out of pocket = $4,550 $2,830 -$6,440 $310-$2,830 Currently: Consumer pays $4,550 out of pocket to reach catastrophic coverage (See 42 USC 1395w-101 et seq., Soc. Sec. Act Sec. 1860D-2)) Up to $310 in medications is deductible paid entirely by consumer. From $310 to $2,830 in medication costs, the consumer pays 25% and Part D pays 75% (by now the consumer has paid $940 out of pocket). The consumer must pay 100% of cost of meds between $2,830 and $6,440 worth of meds (by now the consumer has paid $4,550 out of pocket). After $6,440 in medication costs, the consumer hits catastrophic coverage and must only pay 5% of meds costs, Part D plan pays 15%, and feds pay 80% reinsurance.

Post-Reform Medicare Part D Coverage: The Donut Hole in 2010 $0- $310 $ + Consumer Pays Deductible “Donut Hole” Coverage Gap Total Spending ≈ 95% 80% Feds Pay Reinsurance 15% Plan Pays Catastrophic Coverage Federal Government Pays 75% Plan Pays 25% out-of-pocket 5% out-of-pocket Private plan Pays $630 $3,610 Consumer Out-Of-Pocket $310 Total consumer out of pocket = $4,550 - $250 rebate = $4,300 $2,830 -$6,440 $310-$2,830 $250 For 2010, the new law provides a $250 rebate for anyone who enters the donut hole. 2010: Consumer pays $4,300 out of pocket to reach catastrophic coverage (See p.20 of Reconciliation Act, Sec.1101(a)) (available at http://docs.house.gov/rules/hr4872/111_hr4872_amndsub.pdf) HHS must send the consumer a $250 check not later than the 15th day of the 3rd month of the quarter following the quarter in which the individual entered the donut hole. By way of example, if the consumer entered the donut hole on April 1st, (s)he might not receive the rebate check until August 15th. In 2011 and subsequent years: ADAP counts as TrOOP (Patient Protection and Affordable Care Act of 2010, Sec. 3314)

Post-Reform Medicare Part D Coverage: The Donut Hole in 2020 (generic) 75% Plan Pays 25% out-of-pocket 80% Feds Pay Reinsurance 15% Plan Pays Catastrophic Coverage 5% out-of-pocket $2,830 - $17,270 $0- $310 $ + Consumer Pays Deductible “Donut Hole” Coverage Gap Total Spending ≈ 95% 80% Feds Pay Reinsurance 15% Plan Pays Catastrophic Coverage Federal Government Pays 75% Plan Pays 25% out-of-pocket 5% out-of-pocket Private plan Pays $630 $3,485 Consumer Out-Of-Pocket $310 Total consumer out of pocket = $4,550 $2,830 -$6,440 $310-$2,830 Beginning in 2011, the consumer out-of-pocket share for generic drugs in the donut hole decreases from 93% by 7% each year until 2020. From 2020 on, the out-of-pocket share will be 25% until the beneficiary hits catastrophic coverage. 2020: Consumer who has only generic medications pays $4,550 to reach catastrophic coverage Up to $310 in medications is deductible paid entirely by consumer. From $310 to $2,830 in medication costs, the consumer pays 25% and Part D pays 75% (by now the consumer has paid $940 out of pocket). The consumer must pay 25% of the cost of meds between $2,830 and $17,270 worth of meds (by now the consumer has paid $4,550 out of pocket). - In this cost window, 75% of the cost of meds is paid for by the plan (p. 23-24 of Reconciliation Act, Sec. 1101(b)(3)(C) - The 75% paid for by the plan is NOT credited as if the consumer were paying that portion (Social Sec. Act Sec. 1860D-2(b)(4)(C)). After $17,270 in medication costs, the consumer hits catastrophic coverage. For most people who have a mix of generics and brand-names, the total out-of-pocket costs to reach catastrophic coverage will be between $2,143 and $4,450 annually in 2020. ADAP payments will count toward these amounts. * Dollar amounts based on figures reported in CMS, Medicare & You 2010, p.66, available at http://www.medicare.gov/Publications/Pubs/pdf/10050.pdf. Total consumer out of pocket = $4,550 $3,610

Post-Reform Medicare Part D Coverage: The Donut Hole in 2020 (brand-name) Catastrophic Coverage Total Spending $0- $310 $310-$2,830 $2,830 -$6,440 - $7,643 50% Manufacturer Discount as TrOOP 25% out-of-pocket 25% Plan Pays 75% Plan Pays 80% Feds Pay Reinsurance “Donut Hole” Coverage Gap Deductible Beginning in 2011, there will be a 50% discount assessed for applicable brand-name drugs in the donut hole – the consumer will only pay half-price but will be credited the full amount. Thus in 2011, the consumer share will be 50% of brand name drugs, falling to 25% by 2020. 2020: Consumer who has only brand-name medications pays $2,143 to reach catastrophic coverage Up to $310 in medications is deductible paid entirely by consumer. From $310 to $2,830 in medication costs, the consumer pays 25% and Part D pays 75% (by now the consumer has paid $940 out of pocket). The consumer must pay 25% of cost of meds between $2,830 and $7,643 worth of meds (by now the consumer has paid $2,143). - In this cost window, 50% of the cost of meds is paid for by the manufacturer’s discount/rebate (p.921 of Patient Protection and Affordable Care Act of 2010, Sec.3301(b), creating new Section 1860D-14A(g)(4)(A) of Social Security Act) - The 50% paid for by the manufacturer in the form of a rebate/discount IS credited as if the consumer were paying it (p.923 of Patient Protection and Affordable Care Act of 2010, Sec. 3301(c)(1)(B), as amended by p.26 Reconciliation Act, Sec. 1101(b)(3)(E)) - The rebate/discount is accessible at point of sale (p.909 of Patient Protection and Affordable Care Act of 2010, Sec. 3301(b), creating new Section 1860D-14A(b)(1)(B) of Social Security Act)) - At the same time, 25% of the cost of meds is paid for by the plan (p.25-26 of Reconciliation Act, Sec. 1101(b)(3)(C)) - The 25% paid for by the plan is NOT credited as if the consumer were paying for it (Social Sec. Act Sec. 1860D-2(b)(4)(C)). After $7,643 in medication costs, the consumer hits catastrophic coverage. For most people who have a mix of generics and brand-names, the total out-of-pocket costs to reach catastrophic coverage will be between $2,143 and $4,450 annually in 2020. ADAP payments will count toward these amounts. * Dollar amounts based on figures reported in CMS, Medicare & You 2010, p.66, available at http://www.medicare.gov/Publications/Pubs/pdf/10050.pdf. ≈ 95% 25% out-of-pocket Consumer Out-Of-Pocket 15% Plan Pays 5% out-of-pocket $310 Total consumer out of pocket = $2,143 $1,203 $630 $3,610 Total consumer out of pocket = $4,550 Consumer Pays Private plan Pays Federal Government Pays