Significant Changes Proposed to Medicare Part D Benefit

Health Update

On May 23, the bipartisan leadership of the House Ways and Means Committee released a four-page draft discussion bill that, if enacted, would make the most significant changes to the Part D benefit since the Affordable Care Act’s changes to the coverage gap. (Click here for more information and to see the full proposal.)

The plan would make two major changes. First, starting with the 2020 plan year, it would reduce the percentage of payment that the government makes to plans for costs above the out of pocket (OOP) threshold (catastrophic costs) from 80% to 20% over a four-year period. This payment is known as the individual reinsurance portion of the government Part D subsidy. For 2019, that threshold of spending represents total drug costs of $8,139.40.

Second, the plan would change the amount that beneficiaries must pay for drugs once they reach that OOP threshold, from the current 5% to zero. In other words, it would create an OOP maximum in Part D for the first time. For 2019, that threshold represents patient OOP spending of $5,100.

In addition to seeking feedback on the brief and simple draft legislation, the committee leadership solicited comments on a variety of related issues including other possible changes to the Part D benefit, such as those to the low-income subsidy program; the coverage gap; promotion of generic use; the share of costs borne by the government, beneficiaries and manufacturers; and additional possible changes to beneficiary cost sharing.

The Cost Challenges: Who Will Pay?

What’s most notable about the draft legislation and request for comments is that the draft does not specify who would pay for the changes. The proposal to shift catastrophic liability from the government to the Part D plans is intended to reduce drug costs by creating better incentives for plans to manage costs. However, forcing Part D plans to bear a much larger share of the costs for high-cost patients would lead to higher premiums to pay for these higher expected costs and the risk associated with potentially gaining a greater share of such high-cost patients than expected. Similarly, while creating an OOP cap would be popular, this change would also lead to higher premiums to account for the loss of patient cost sharing. Together, these changes would result in higher government costs since the government provides a direct subsidy to plans that are based on premiums.

The proposal represents an exciting step forward in an overdue discussion of modernizing the Medicare Part D program to reflect the reality of increasing specialty drug costs and the burden they put on Medicare beneficiaries, including the loss of access to needed medicines. At the same time, any proposal such as this would serve as a vehicle for potentially imposing additional costs on manufacturers (such as through rebates on low-income utilization in Part D) or for more direct control of Part D drug prices (such as through government negotiation).