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Part D: The Medicare Drug Benefit

Prescription Drug Plans

Beneficiaries in Part A and/or Part B or in an MA plan without drug coverage are eligible to enroll voluntarily in prescription drug plans (PDPs) under Part D. Part D enrollment was 45.8 million in 2018. Medicare heavily regulates the PDP formularies, specifying what drugs must be covered within therapeutic classes. All private drug plans, including Part D PDPs and MA–PDs, must follow a standard coverage benefit structure or offer an actuarially equivalent plan, although plan sponsors may also offer enhanced benefit plans in addition to a standard PDP. Of the PDP enrollees in 2018, almost none were in a standard plan, 60 percent of PDP enrollees were in an actuarially equivalent plan, and 40 percent were in an enhanced plan. In 2020, all PDPs are offering an alternative benefit design. The standard Part D plan cost-sharing is shown in Table A-2. Previously, beneficiaries were exposed to a coverage gap called the “doughnut hole,” but in 2020 that has ended and beneficiaries are responsible for a 25% coinsurance during the former coverage gap phase.

Table A-2: Medicare Part D Standard Benefit, 2020

Benefit phase Total drug costs Cost-sharing requirements Total beneficiary out-of-pocket spending
Deductible period $0-435 Enrollees: 100% $435
Initial coverage period $435-4,020 Enrollees: 25%
Plans: 75%
$435-1,005*
Former coverage gap $4,020.00-9,719.38 Brand name
Manufacturer discount: 70%
Enrollees: 25%
Plans: 5%
Generic
Enrollees: 25%

Plans 75%
$1,005-6,350
Catastrophic coverage $9,719.38+ Enrollees: 5%
Plans: 15%
Medicare: 80%
$6,350+

 

Medicare Part D pays private prescription drug plans through a competitive bidding process in which the standard enrollee premium is based on the national average bid, and actual plan premiums reflect differences between the bid and the national average. Medicare pays PDPs a risk-adjusted monthly per capita amount reflecting that plan’s bid during a given year. Part D plan sponsors negotiate payments with drug manufacturers, set their own formularies, and determine cost-sharing amounts. The standard enrollee monthly premium is estimated to be $42.05 in 2020, up from $33.19 in 2019. Similar to Part B, beneficiaries above a specific income threshold are subject to a higher income-related premium that reflects a greater percentage of estimated per capita program costs. This adjustment ranges from 35 percent to 85 percent of the national average cost of providing Part D benefits.