October 7, 2010
OLR BACKGROUNDER: FEDERAL HEALTH CARE REFORM: MEDICARE PART D PROVISIONS
By: Nicole Dube, Associate Analyst
Medicare Part D provides subsidized prescription drug coverage to Medicare beneficiaries through private stand alone prescription drug plans and Medicare Advantage prescription drug plans. Part D plans must offer either a standard benefit or one that is actuarially equivalent. Plans may also offer an enhanced benefit. In 2010, the standard benefit has a $310 deductible and 25 percent co-insurance up to an initial benefit limit of $2,830 in total Part D drug costs. After reaching this initial coverage limit, there is a coverage gap, or “donut hole,” where the beneficiary must pay all prescription drug costs until reaching a catastrophic coverage threshold of $6,440.
The federal health care reform legislation (“Patient Protection and Affordable Care Act” (PPACA; P.L. 111-148) as amended by the “Health Care and Education Reconciliation Act” (HCERA; P.L. 111-152)) makes several changes to the Part D program including:
1. providing a one-time $250 rebate and reduced cost sharing for Part D enrollees who reach the donut hole;
2. increasing Part D premiums for high-income beneficiaries;
3. improving drug formulary requirements for Part D prescription drug plans;
4. reducing wasteful spending of Part D covered outpatient prescription drugs in long-term care facilities;
5. improving Part D prescription drug plan complaint systems;
6. establishing a uniform exceptions and appeals process for Part D prescription drug plans;
7. including prescription drug costs incurred by AIDS Drug Assistance Programs and Indian Health Services toward the Part D Annual Out-of Pocket threshold;
8. eliminating the tax deductibility of the Part D Retiree Drug Subsidy (RDS);
9. requiring premium determinations under the Part D Low Income Subsidy Program (LIS) to exclude any reductions for rebates or bonus payments received by prescription drug plans; and
10. starting January 2012, requiring Part D cost-sharing amounts for dually eligible (Medicare and Medicaid) beneficiaries receiving Medicaid home and community based services to equal those for beneficiaries receiving institutional care.
MEDICARE PART D
The federal Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established a new, voluntary prescription drug program for Medicare beneficiaries that began January 1, 2006. This program, Medicare Part D, allows a beneficiary to enroll in a private prescription drug plan if he or she is entitled to Medicare Part A or enrolled in Medicare Part B (coverage under both is not required). Enrollees may choose between either a (1) stand alone plan offering only prescription drug coverage or (2) Medicare Advantage plan under Medicare Part C that includes a drug benefit.
Part D plans must offer at least a standard benefit package as defined under federal Medicare law or one that is “actuarially equivalent” to the standard benefit. Plans may also offer an enhanced benefit.
Medicare Part D Standard Benefit
Currently, the standard Part D benefit requires beneficiaries to pay an initial $310 deductible and 25% co-insurance until the beneficiary's total drug costs reach $2,830. After reaching the initial coverage limit, there is a coverage gap, or “donut hole,” where the beneficiary must pay all prescription drug costs until reaching a catastrophic coverage threshold of $6,440 (deductibles, initial coverage limits, and out-of-pocket thresholds change annually). Beneficiaries receiving catastrophic coverage pay the greater of (1) 5% co-insurance or (2) a set price for generic, preferred, and other drugs. Beneficiaries who reach the threshold in one year must begin to meet it again on January 1st of the following year.
Medicare Part D Drug Formularies
Federal law specifies which drugs are covered under Part D based on their coverage under Medicaid and other parts of Medicare. It does not cover (1) weight gain drugs, (2) barbiturates, (3) benzodiazepines, (4) over the counter medications, (5) drugs for which Medicaid payment is optional, and (6) drugs covered under Medicare Part A or B.
While Part D plans are not required to pay for all covered Part D drugs, they must operate formularies that cover at least two drugs in each therapeutic category and class of Part D drugs. However, federal regulations require these plans to cover all of the drugs in six protected classes: (1) anticonvulsants, (2) antidepressants, (3) antineoplastics (used to treat cancer and certain autoimmune diseases), (4) antipsychotics, (5) antiretrovirals, and (6) immunosuppressants.
Each plan must develop an exceptions process under which an enrollee may ask the plan to cover a non-formulary drug or reduce cost-sharing amounts.
Low Income Subsidy Program
The federal Social Security Administration administers a Part D Low Income Subsidy Program (LIS) that helps beneficiaries with incomes up to 150% of the federal poverty level (FPL) ($16,245 for one person in 2010) pay for their Part D premiums, deductibles, co-payments, and drug costs during the donut hole. The program provides a full subsidy to beneficiaries with income up to 135% of the FPL ($14,620.50 for one person in 2010) and a partial subsidy for those with incomes up to 150% of the FPL. (Beneficiaries must also meet asset requirements.)
Medicare beneficiaries who are (1) dually eligible for full Medicaid benefits, (2) enrolled in the Medicare Savings Program, or (3) receiving Supplemental Security Income (SSI) are automatically eligible for the program.
OLR Report 2009-R-0097 provides additional information on the Part D LIS program and its relationship with the state's drug assistance program for elderly and people with disabilities (ConnPACE) and the Medicare Savings Program.
FEDERAL HEALTHCARE REFORM PROVISIONS
Closing the Medicare Part D “Donut Hole”
PPACA includes several provisions to close the Part D donut hole. In 2010, beneficiaries who reach this coverage gap will receive a one-time $250 rebate. Starting in 2011, reduced cost-sharing requirements will gradually decrease the donut hole annually until 2020, when it will be eliminated and beneficiaries will pay 25% co-insurance for all prescriptions. Table 1 provides a timeline of these provisions:
Table 1: PPACA Provisions Closing the Part D “Donut Hole” By Year
● One-time $250 rebate for beneficiaries who reach the donut hole in 2010
● 50% manufacturer discount on brand-name drugs filled during the coverage gap
● Reduced cost-sharing for generic drugs filled in the coverage gap
● Increased generic drug subsidies
● Reduced cost-sharing for brand-name drugs filled in the coverage gap
● Reduced out-of-pocket threshold to reach catastrophic coverage (2014-2019)
● 50% discount
● Medicare covers 75%
● Medicare covers 25%
● Beneficiaries pay 25%
● Beneficiaries pays 25%
Beneficiaries who are (1) eligible for the Medicare Low-Income Subsidy Program or (2) enrolled in a qualified retiree drug plan are ineligible for the $250 rebate and reduced cost-sharing provisions.
Increasing Part D Premiums for High-Income Beneficiaries
Currently, Part D premiums are not income-based. Beginning in 2011, PPACA requires Part D beneficiaries whose income exceeds a certain threshold to pay higher premiums. These thresholds will be determined in a manner similar to those under Part B. (In 2010, Part B
income thresholds were $85,000 for an individual and $170,000 for a married couple.) Threshold amounts will be adjusted annually for inflation except for the period between 2010 and 2019 when they will remain frozen.
The increased premium amount will be based on a percentage of the base beneficiary premium for that year determined by the federal Department of Health and Human Services (HHS) secretary. The secretary must annually inform the Commissioner of Social Security of the base beneficiary premium amount by September 15 and the income threshold by October 15.
Improving Formulary Requirements for Prescription Drug Plans and Medicare Advantage Prescription Drug Plans
PPACA allows the HHS secretary to (1) identify protected drug classes of clinical concern and (2) require plan sponsors, starting in 2011, to cover all Part D drugs in these classes in their formularies. The secretary may allow plan sponsors to exclude or limit access to these drugs through prior authorization or utilization management. The six existing protected drug classes remain so until the secretary adopts regulations establishing new criteria for determining which protected classes will be included.
Reducing Wasteful Spending of Outpatient Prescription Drugs in Long-Term Care Facilities
Starting January 1, 2012, PPACA requires Medicare prescription drug plan sponsors to use uniform techniques when dispensing Part D- covered medications to beneficiaries residing in long-term care facilities to reduce waste associated with 30-day refills. These techniques will be determined by the HHS secretary, in consultation with relevant stakeholders, and may include weekly, daily, or automated dose dispensing.
Improved Medicare Prescription Drug Plan and Medicare Advantage Prescription Drug Plan Complaint System
PPACA requires the HHS secretary to develop and maintain a user-friendly complaint system to handle complaints regarding Medicare Part D and Medicare Advantage prescription drug plans or their sponsors. The HHS secretary, or other designated entities, may receive complaints in any manner. The system must be able to report and initiate appropriate interventions and monitoring and guide quality improvement. The secretary must develop a model electronic complaint form and post it on the Medicare website. The secretary must also annually report to Congress on the system, including the (1) number, types, and geographic variations of reported complaints; (2) timeliness of agency or plan responses; and (3) complaint resolution.
Uniform Exceptions and Appeals Process for Prescription Drug and Medicare Advantage Prescription Drug Plans
PPACA requires each Part D prescription drug plan sponsor to (1) use a single, uniform exceptions and appeals process to determine coverage for enrollees and (2) provide instant access to this process through a toll-free telephone number and Internet website. This process must include, to the extent the HHS secretary determines feasible, the use of a single, uniform model form. It applies to all exceptions and appeals filed on or after January 1, 2012.
Including Prescription Drug Costs Incurred by AIDS Drug Assistance Programs and Indian Health Service toward the Part D Annual Out-Of-Pocket Threshold
Starting January 1, 2011, prescription drug costs paid by state AIDS Drug Assistance Programs and the Indian Health Service will count toward the out-of-pocket threshold when determining an individual's eligibility for Part D catastrophic coverage.
Elimination of the Tax Deductibility of the Medicare Part D Retiree Drug Subsidy
Currently, employers who provide creditable prescription drug coverage to Medicare beneficiaries are able to both deduct the cost of the retiree drug plan from their taxes and receive a 28% tax-free subsidy from Medicare toward the cost of that coverage. Starting in 2013, PPACA eliminates the tax deductibility of the 28% federal subsidy.
Medicare Part D Low Income Subsidy (LIS) Benchmark Premiums
Medicare pays Part D premiums on behalf of beneficiaries receiving the LIS. Starting January 1, 2011, premiums determinations must exclude any reductions drug plans receive for rebates or bonus payments.
Medicare Part D Cost-Sharing for Certain Dual Eligibles
Beginning January 1, 2012, Part D cost-sharing amounts for full-benefit dual eligible (Medicare and Medicaid) beneficiaries receiving Medicaid home and community based services must equal those for beneficiaries receiving institutional care.
Center for Medicare Advocacy: http://www.medicareadvocacy.org/
Connecticut Health Care Reform Cabinet: http: http: //www. ct. gov/dph/cwp/view.asp?a=3902&q=459108&dphNav_GID=1981&dphNav=|
HealthCare.gov, a federal website run by HHS to provide information on the new law: http: //www. healthcare. gov/
Kaiser Family Foundation Health Reform Gateway: http: //healthreform. kff. org/
National Conference of State Legislatures: http: //www. ncsl. org/Default. aspx?TabID=160&tabs=831,139,1156#1156
OLR Report 2009-R-0097, “Medicare Savings Program and Medicare Part D Drug Assistance,” http://www.cga.ct.gov/2009/rpt/2009-R-0097.htm