Lower Drug Costs in the Medicare Coverage Gap, 2013

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Health Program staff: Richard Cauchi

Federal Health Law and the Supreme Court

On June 28, 2012, the Supreme Court issued an opinion upholding the Patient Protection and Affordable Care Act, with limitations on penalties for states that choose not to expand their Medicaid programs. The decision did not affect other provisions. The information on this web page continues to reflect state actions addressing the PPACA.

For NCSL’s updated summary and analysis of the Court’s decision and its effects see: U.S. Supreme Court and Federal Health Law
States Implement Health Reform -headingAugust 2013
 
Overview:  Medicare Part D and the "Donut Hole", 2003-20101
 
When Congress created the Medicare Part D Prescription Drug benefit in 2003, funding constraints led to a complex formula that required most Medicare enrollees to pay a deductible, monthly premiums and copayments. Prior to the passage of PPACA in 2010, they also were required to pay 100 percent of the cost of all drugs purchased within a so-called "coverage gap" or "donut hole" for drug expenditures that fell between $2,840 and $6,447.50 annually. 
 
Key Federal Provisions in PPACA

The Patient Protection and Affordable Care Act (PPACA)2 as enacted, partially "fills the gap" for beneficiaries in 2011-2013 and beyond. Section 3301 of the PPACA establishes the Medicare Coverage Gap Discount Program (discount program). These discounts are set by statute to gradually increase the benefit annually until the gap is eliminated by 2020, leaving only a 25 percent co-insurance amount. 
> See 2010-2013history timeline below.

Expanded Benefits for 2013-2014
Beginning January 1, 2013 through Dec. 31, 2014, a 52.5 percent cost reduction for costly brand-name pharmaceuticals is available; separately generic (non brand-name) drugs have 21 percent discounts during the coverage gap in calendar year 2013; this discount increases to 28 percent for 2014.  The coverage gap for 2013-14 starts at $2,970.

As of July, 2013, 6.6 million people with Medicare had saved over $7 billion on prescription drugs as a result of the Affordable Care Act. These savings average $1,061 per beneficiary in drug costs while a beneficiary was in the “donut hole” coverage gap that the law closes over time.  Details are provided online by HHS.

Funding Issues
 
Under the federal Medicare program, enrollee contributions or "cost-sharing"  are required for most coverage and services. Lower-income enrollees, especially those who are eligible for both Medicaid and Medicare, pay only nominal amounts. Under the PPACA, the new funding mechanism allows designated purchases to be made at a discount from the standard Medicare plan price. The federal government is responsible for all costs of the Medicare Coverage Gap Discount. The act specifies a series of contract agreements with manufacturers that actually fund the program by agreeing to sell the applicable products at a 50 percent discount from standard retail price. 
 
Requirements for Drug Manufacturers
 
To participate in the Medicare Coverage Gap Discount Program, a manufacturer must sign an agreement with the Centers for Medicare and Medicaid Services (CMS) to provide the discount on all its applicable drugs.  Beginning in January 2011, only those applicable drugs covered under a signed manufacturer agreement with CMS are covered under any segment of the Part D Medicare benefit. Thus, brand-name drugs from non-complying manufacturers will no longer receive federal reimbursement and will be dropped from Medicare formularies and drug lists3. Brand-name drug manufacturers had until Jan. 31, 2011, to comply with the 2012 discount contract requirements.
 
The Effect on Consumers
 
Out-of-pocket costs for Medicare enrollees who spend more than $2,970 per year in 2013-14  ($2,840 per year in 2011-2012) on prescription drugs may be reduced, although savings will vary from $0 to a maximum of $1,800 annually. More than 3.4 million beneficiaries enrolled in a Part D plan had drug spending high enough to reach the coverage gap or “donut hole” in their plan in 2007.
 
The following factors can reduce the value of the discount:
 
  1. The 50 percent reduced retail price applies only to brand-name drugs, but not to to generic or multi-source drugs, which constitute up to 70 percent of average patient purchases.  Generic drugs receive a 7 percent discount in 2011 and a 14 percent discount in 2012.
  2. If a Medicare Part D or Medicare Advantage plan sponsor enrolls members in a supplemental drug coverage insurance plan, brand-name drugs covered by the plan also will not be subject to the discount.
  3. A varying number of brand-name drugs may not be included for manufacturers that choose not to participate in Medicare; an exception allows the secretary of the Department of Health and Human Services (DHHS) to determine that the availability of the drug is restored if it "is essential to the health of beneficiaries."
  4. If an enrollee buys, $3,830 in drugs in a calendar year, for example, he or she can obtain a discount of not more than $500 (50 percent of $1,000).  The first $2,840 in purchases are not subject to the new discount.
  5. Enrollees still must to pay the full dispensing fee charged by most pharmacies, commonly an additional $2 or $4.
The State Role
 
States have no formal role in the Medicare Coverage Gap Discount Program and were not required to take any action in 2010-2013 or beyond. Approximately 20 states administer optional drug subsidy programs, however, called State Pharmaceutical Assistance Programs (SPAPs) that add to the federal benefit.   As of 2011, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Nevada, New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Wisconsin voluntarily authorized using state funds to cover parts of costs during this "donut hole."
 
These states will have the option to modify their state-funded benefit to cover only the smaller, 50-percent reduced drug costs. The exact amount of savings for these 13 states cannot be calculated in advance. A rough estimate of a reduced state subsidy would include factors of a maximum of $1,800 annually for each state pharmaceutical assistance program enrollee, minus the state-required copayment, minus the patient's purchase of any generic prescription drug or brand-name drug from a manufacturer that has declined to participate in the program (not covered by the Coverage Gap Discount Program). A separate provision in the act requires coverage of all drugs for six treatment classes: "anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals, and immunosuppressant's for the treatment of transplant rejection.’’

An SPAP Operational Example
 
The Pennsylvania PACE Program serves residents age 65 and over with incomes up to $14,500 for those who do not qualify for Medicaid and lack health insurance. Once enrolled, members receive a state subsidy for all brand-name and generic purchases in the coverage gap, as well as help with any required Medicare plan deductible payments. For a 30-day supply, Pennsylvania enrollees have a $6 copayment for generic drugs and $9 for each single-source brand-name drug. The program, founded in 1985, serves more than 300,000 seniors. Details are available at http://www.aging.state.pa.us/.
 
Timetable: 2011-2020
 
Effective Jan. 1, 2011-2012, the Medicare Coverage Gap Discount Program provides 50 percent manufacturer discounts available to eligible Medicare beneficiaries who purchase applicable, covered Part D drugs while in the coverage gap.
Beginning in 2013, Medicare will gradually phase in additional subsidies in the coverage gap for both brand-name and generic drugs, reducing the beneficiary coinsurance rate from 100 percent in 2010 to 25 percent by 2020.  Between 2014 and 2019, the law further reduces the out-of-pocket amount that qualifies an enrollee for catastrophic coverage and those with relatively high prescription drug expenses. In 2020, the catastrophic coverage level will revert to the 2009 level unless changed again by law.

Additional Resources

Table 1: SUMMARY OF STATE SUBSIDY PROGRAMS ASSISTING WITH "GAP COVERAGE"   

The state programs listed in this table cover both generic and brand-name drugs. These programs use state funds and often have detailed requirements for enrollment and benefits that are not fully summarized below. Check the full requirements at http://www.medicare.gov/pharmaceutical-assistance-program/state-programs.aspx.
NCSL’s Table of Medicare Part D State Subsidy Programs including coverage for deductibles, copayments and premiums, is available at  www.ncsl.org/?tabid=14334.
  • Table 1 Notes:   The Federal Poverty Guidelines (shortened to FPL) as of January 2011 were $10,830 for an individual; $14,570 for a couple. States frequently select a percentage of “FPL” as an eligibility ceiling.
  • Several other states contribute to Part D premiums and deductibles, but the 2013 Discount Plan does not financially affect them. States may change the benefits offered by SPAPs at any time, without needing federal approval.
State Program Name Eligibility/Benefit
Connecticut
Income limit for single people is $25,100; for couples,  $33,800; prior authorization required for brands
Delaware
Income up to 200% FPL.   Copayment of $5 or 25% per prescription, whichever is greater.
Illinois
Income limit for individuals is $27,610; $36,635 for couples. Copayment is $6.30 for preferred and $15 for non-preferred brand-name drugs.
Maine
Income up to $20,040 for singles; $26,952 for couples. Benefit covers 80% of drug costs during coverage gap.
Maryland
Income up to 300% FPL ($32,493 for individuals; $43,710 for couples). State will pay a subsidy of up to $1,200 if enrolled in a state-approved Medicare plan.
Massachusetts
Incomes on sliding scale up to 500% FPL. Program will pay all Part D copayments after annual out-of- pocket spending reaches $1,625 to $3,250.
Nevada
Income up to $25,477 for individuals; $33,963 for couples. Program may cover 100% of costs in the coverage gap.
New Jersey
Income up to $34,432 for individuals; $39,956 for couples. Coverage for deductibles, copayments and the coverage gap.
New York
Income up to $35,000 for individuals; $50,000 for couples. Coverage for all drugs in gap; pay copayments of $3 to $20, based on the cost of each drug.
Pennsylvania
Income up to $14,500 a year for individuals; $17,700 for couples. Copayment of $9 for 30-day supply. Other limited benefits with income up to $23,400 for individuals.
Rhode Island Rhode Island Pharmaceutical Assistance for the Elderly (RIPAE) Individuals with annual incomes below $45,991;  $52,561 for couples,  Discounts of 60% to 15% slide scale.
Vermont
Income up to $22,164 for individuals; $29,820 for couples.
Wisconsin
SeniorCare (above 200% FPL)
Income up to $26,136 for individuals; $35,304 for couples.

Notes

[1] Medicare is a source of health insurance for nearly 45 million Americans, mainly those age 65 and older, but also 7 million younger adults with permanent disabilities. 

[2] The Patient Protection and Affordable Care Act (PPACA), Pub. L. 111–148 adds Section 2719 to the Public Health Service Act.

[3] CMS, Part D Information for Pharmaceutical Manufacturers (Washington, D.C.: CMS. Aug. 3, 2010); http://www.cms.gov/PrescriptionDrugCovGenIn/05_Pharma.asp.


Table 2  - COVERAGE GAP SAVINGS BY ENROLLEES 2011-2020

This chart shows Medicare prescription drug savings over time for eligible enrollees.  The percentage discount and enrollee percentage share are set by federal law, in Section 3301 of the Affordable Care Act.
Calendar Year
 
Enrollees Will Pay This Percentage for
Brand-name Drugs in the Coverage Gap
Enrollees Will Pay This Percentage for
Generic Drugs in the Coverage Gap
2011
50%
93%
2012
50%
86%
2013
47.5%
79%
2014
47.5%
72%
2015
45%
65%
2016
45%
58%
2017
40%
51%
2018
35%
44%
2019
30%
37%
2020
25%
25%
Source: Centers for Medicare and Medicaid Services (CMS), Release 9/16/2011 ccc


Table 3  - STATE BY STATE ENROLLEE RESULTS, AS OF FEBRUARY 2013


State or Territory Overall 2013
Total Savings
2010-2013

 
Total # of Beneficiaries Total Gap Discount Amount  Average Discount
per Beneficiary
Nation  $ 6,121,408,566.00 133,634  $            152,521,645.00  $                               1,141.00
ALABAMA  $       82,434,167.00 1,997  $                 2,493,616.00  $                                      1,249.00
ALASKA  $         4,311,850.00 84  $                       78,083.00  $                                        930.00
ARIZONA  $    109,427,649.00 2,457  $                 2,924,392.00  $                                      1,190.00
ARKANSAS  $       52,971,182.00 808  $                    907,978.00  $                                      1,124.00
CALIFORNIA  $    484,826,161.00 12,510  $              13,404,180.00  $                                      1,071.00
COLORADO  $       64,239,473.00 1,365  $                 1,602,141.00  $                                      1,174.00
CONNECTICUT  $       84,056,245.00 1,671  $                 2,058,988.00  $                                      1,232.00
DELAWARE  $       24,622,533.00 638  $                    826,076.00  $                                      1,295.00
DISTRICT OF COLUMBIA  $         4,062,880.00 85  $                       76,438.00 $                                        899.00
FLORIDA  $    406,567,087.00 9,309  $              10,611,979.00  $                                      1,140.00
GEORGIA  $    172,457,535.00 3,411  $                 4,316,995.00  $                                      1,266.00
HAWAII  $       21,204,745.00 330  $                    295,671.00  $                                        896.00
IDAHO  $       23,712,791.00 469  $                    544,861.00  $                                      1,162.00
ILLINOIS  $    246,062,997.00 3,940  $                 4,689,736.00  $                                      1,190.00
INDIANA  $    152,866,911.00 2,907  $                 3,224,083.00  $                                      1,109.00
IOWA  $       68,857,739.00 940  $                 1,073,758.00  $                                      1,142.00
KANSAS  $       62,481,104.00 856  $                    967,980.00  $                                      1,131.00
KENTUCKY  $    118,101,997.00 2,230  $                 2,262,990.00  $                                      1,015.00
LOUISIANA  $       93,403,372.00 1,588  $                 1,822,255.00  $                                      1,148.00
MAINE  $       17,932,883.00 420  $                    493,820.00  $                                      1,176.00
MARYLAND  $       89,111,060.00 1,898  $                 2,209,554.00  $                                      1,164.00
MASSACHUSETTS  $    103,108,988.00 2,139  $                 2,626,589.00  $                                      1,228.00
MICHIGAN  $    167,610,343.00 6,809  $                 8,483,591.00  $                                      1,246.00
MINNESOTA  $       94,345,060.00 1,644  $                 1,861,417.00  $                                      1,132.00
MISSISSIPPI  $       53,180,577.00 682  $                    775,349.00  $                                      1,137.00
MISSOURI  $    125,885,568.00 2,245  $                 2,599,283.00  $                                      1,158.00
MONTANA  $       17,435,536.00 336  $                    382,661.00  $                                      1,139.00
NEBRASKA  $       40,045,358.00 457  $                    481,430.00  $                                      1,053.00
NEVADA  $       35,590,249.00 1,020  $                 1,158,783.00  $                                      1,136.00
NEW HAMPSHIRE  $       22,018,952.00 499  $                    602,469.00  $                                      1,207.00
NEW JERSEY  $    315,958,758.00 7,161  $                 8,525,467.00  $                                      1,191.00
NEW MEXICO  $       30,834,424.00 630  $                    869,531.00  $                                      1,380.00
NEW YORK  $    437,201,262.00 11,081  $              13,515,780.00  $                                      1,220.00
NORTH CAROLINA  $    179,639,847.00 4,240  $                 5,392,632.00  $                                      1,272.00
NORTH DAKOTA  $       15,398,792.00 114  $                    131,939.00  $                                      1,157.00
OHIO  $    299,428,086.00 6,456  $                 8,323,507.00  $                                      1,289.00
OKLAHOMA  $       77,726,218.00 1,421  $                 1,713,888.00  $                                      1,206.00
OREGON  $       66,185,649.00 1,367  $                 1,712,070.00  $                                      1,252.00
PENNSYLVANIA  $    411,572,074.00 7,227  $                 8,408,891.00  $                                      1,164.00
PUERTO RICO  $    142,972,332.00 1,539  $                 1,308,966.00  $                                        851.00
RHODE ISLAND  $       21,723,032.00 374  $                    430,570.00  $                                      1,151.00
SOUTH CAROLINA  $       89,376,080.00 1,467  $                 1,666,161.00  $                                      1,136.00
SOUTH DAKOTA  $       17,536,391.00 253  $                    293,690.00  $                                      1,161.00
TENNESSEE  $    131,101,385.00 2,377  $                 2,615,406.00  $                                      1,100.00
TEXAS  $    358,584,184.00 8,479  $                 9,924,856.00  $                                      1,171.00
UTAH  $       35,617,622.00 695  $                    838,512.00  $                                      1,206.00
VERMONT  $       12,509,399.00 241  $                    276,071.00  $                                      1,146.00
VIRGINIA  $    138,506,435.00 2,583  $                 2,716,611.00  $                                      1,052.00
WASHINGTON  $    101,241,327.00 2,177  $                 2,583,027.00  $                                      1,187.00
WEST VIRGINIA  $       73,830,946.00 5,590  $                 2,579,508.00  $                                        461.00
WISCONSIN  $    109,598,005.00 2,232  $                 2,618,231.00  $                                      1,173.00
WYOMING  $         9,509,522.00 143  $                    171,502.00  $                                      1,199.00

Source: Centers for Medicare and Medicaid Services (CMS), Release of Feb. 2013.
*Totals may not sum due to missing State codes for some data and rounding
*The "Overall Total Savings" column includes amounts for those beneficiaries that received a $250 check in 2010
*2010 data is as of June 2012; 2011 and 2012 data is as of October 2012
*Each "Total " column above is based upon independent analyses and cannot be intermingled

ACA Interim Benefits: A Brief History:
For 2010 a start-up, flat rate benefit of up to $250 was made available to all enrollees with qualified expenses.  For Jan. 1, 2011, through December 31, 2012, the program provided 50 percent discounts available on most, but not all,  brand-name pharmaceutical products to Medicare Part D beneficiaries who buy covered drugs while purchasing in the "coverage gap;" separately generic (non brand-name) drugs have 7 percent discounts during the coverage gap. For these two years, the coverage gap started at $2,840 and continues up to $6,447.50. A separate maximum out-of-pocket spending limit in 2011 is set at $3,607 per calendar year. More than 3.4 million beneficiaries enrolled in a Part D plan had drug spending high enough to reach the coverage gap or “donut hole” in their plan in 2007.

  • As of October 2012 as a result of the ACA, 2.75 million seniors and people with disabilities have saved a total of $5.1 billion on prescription drugs since the law was enacted.  In the first 10 months of 2012, 2.8 million people in the Medicare prescription drug coverage gap or “donut hole” have saved an average of $677.  State-by-state statistics as of October 2012 are online at http://downloads.cms.gov/files/Donut%20Hole%20Savings%20Summary%20-%20October%202012.pdf.
  • As of December 31, 2011 nearly 3.6 million people have used the discounts to save an average of $604 for a total of $2.1 billion, according to HHS data.
9/22/2013 rev. rc