Shedding Light on Medicare Part D – Why pharmacy copays may not match to published plan copays; and why actual out-of-pocket differs from the Medicare TrOOP (True Out-Of-Pocket)

Medicare’s prescription drug benefit is known as Part D and is provided by private insurers.  Medicare Part D was signed into law as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003; and it can be purchased stand-alone or integrated with a Medicare Advantage plan (also known as Medicare Part C).  Medicare Part D has distinct coverage phases, including a Coverage Gap (or “Donut Hole”) that has been vastly improved for consumers under more recent legislation.

As of 2020, enrollees with Standard Part D coverage and in the Donut Hole pay 25% of the cost of their drugs until they reach the Catastrophic Coverage phase (as opposed to paying the full cost while in the Donut Hole, which had been the case before the Affordable Care Act started closing the gap).

For background, Medicare Part D plans may impose an Initial Deductible up to $445 in 2021 (an increase of $10 from 2020).  The deductible is the amount you must pay before the plan begins to share in costs.  Some plans (generally with higher monthly premiums) do not impose any deductible; and it is common for Part D plans to feature a plan deductible, but only apply it to medicines classified in the plan’s higher Drug Tiers (Part D plan sponsors typically assign medicines into five Tier levels).

Once the Initial Deductible is met, consumers are charged copays or coinsurance as published in each Part D plan’s Summary of Benefits.  Copay amounts may vary based on the plan’s pharmacy network (preferred vs. standard, or mail order service), as well as Drug Tier level.  Consumers sometimes inquire, why doesn’t my copay at the pharmacy match to the amount shown in my plan’s Summary of Benefits document?  Answer:  If the pharmacy drug cost is lower, you pay the lower amount.

The standard Medicare Part D plan structure also includes an element called the Initial Coverage Limit, or ICL, which is $4,130 in 2021 (an increase of $110 from the 2020 ICL of $4,020).  The ICL marks the point where you enter the Donut Hole.  More specifically, you enter the Donut Hole when the total negotiated retail value of your covered annual prescription drugs exceeds your plan’s ICL.  At the inception of the Medicare Part D program, consumers generally bore all costs in the Donut Hole.

So, will you enter the 2021 Donut Hole?

If your prescribed medications for 2021 have a retail value exceeding $350/month, you are likely to enter the Donut Hole during 2021.  Generally, less than one-quarter of Medicare beneficiaries with Part D coverage enter the Donut Hole each year.  Consumers sometimes avoid entering it by seeking out lower cost options (such as pharmacy coupons) instead of using their plan for certain drugs.

If you reach the Donut Hole phase of your 2021 Part D coverage, the drug discount is 75%.

While in the Donut Hole, generic formulary drug costs are 25% of your plan's negotiated retail prices.  For example, if you are in the 2021 Donut Hole and your generic medication has a retail cost of $100, the Standard Part D plan benefit requires you to pay $25 for a refill.  And the $25 that you spend for a covered formulary drug counts toward your 2021 out-of-pocket limit (or TrOOP, explained below).

While in the Donut Hole, the 2021 brand-name drug discount also is 75%, meaning that you pay 25% of your plan’s negotiated brand drug retail costs.  The pharmaceutical industry pays for 70% of the cost of these medications in the Donut Hole; and you receive credit for 95% of the retail drug cost toward meeting your 2021 TrOOP (the 25% of retail costs you pay plus the 70% drug manufacturer discount).

For example, if you reach the 2021 Donut Hole and purchase a brand name medication with a retail cost of $100, you will pay $25 for the formulary medication, and receive $95 credit toward meeting your 2021 TrOOP (which is the Donut Hole exit point).

So, what exactly is “TrOOP” and is it the same as my actual out-of-pocket drug costs?

There is not a short answer to this question, so please read on!

TrOOP is the Medicare Part D program’s annual "Total out-of-pocket costs" and is known as "True out-of-pocket costs".

In general, TrOOP includes all payments for medications listed on your Part D plan's formulary and purchased through a preferred or standard network pharmacy.  Both the payments you make, and payments that Pharma companies make on your behalf, count towards TrOOP.  If you switch Medicare Part D plans during a plan year, your TrOOP will be transferred to your new plan (it travels with you).

TrOOP is important because after it reaches $6,550 in 2021 (an increase of $200 from the 2020 level), you move to the final state of your Medicare Part D coverage, known as Catastrophic Coverage.  In the Catastrophic Coverage stage, your medication costs are reduced to $3.70 for generics or $9.20 for brand-name drugs (or 5% of the drug cost - whichever is greater).

The components of TrOOP are as follows:  it includes the amount of your Initial Deductible (if any) and your co-payments or co-insurance during the ICL phase; and as noted above it includes what you pay and a portion of what the Pharma companies pay while you are in the Donut Hole (of the 75% Donut Hole discount on brand-name drugs, 70% of that counts towards TrOOP as that portion is paid by the drug manufacturer). The additional 5% Donut Hole discount on brand-name drugs and the 75% Donut Hole discount on generics do not count toward TrOOP, as they are paid by your Medicare Part D plan.

TrOOP also includes payments made for your drugs by any of the following programs or organizations: "Extra Help" from Medicare; Indian Health Service; AIDS drug assistance programs; most charities; and most State Pharmaceutical Assistance Programs (SPAPs).

TrOOP does not include monthly premiums or non-formulary drug purchases.

Because TrOOP includes the lion’s share of what drug manufacturer’s pay on your behalf for brand-name drugs while in the Donut Hole, your actual out-of-pocket costs at time of Donut Hole exit likely will be much lower.

Will you exit the Donut Hole and enter the 2021 Catastrophic Coverage phase?

Based on CMS drug cost estimates, if your monthly retail formulary drug costs approach $850, you are likely to exit the 2021 Donut Hole and enter Catastrophic Coverage.

Medicare Part D plan sponsors can offer the Standard Part D plan design, or a design under which the measured actuarial value equals or exceeds the actuarial value of Standard Part D coverage.  Actuarial equivalence is a required test to confirm that expected paid claims under the plan sponsor's prescription drug coverage are at least as much as expected paid claims under the standard design.  Plans sponsors with multiple benefit options must apply the actuarial value test for each option.

Until next time,

Andrew Herman

2021 Medicare Part B Premiums Increase by $3.90/Month

On November 6th, The Centers for Medicare & Medicaid Services (CMS) announced the 2021 monthly Medicare Parts A and B premiums, deductibles, and coinsurance amounts.

Medicare Part B Premiums/Deductibles

Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A.  

The standard monthly premium for Medicare Part B enrollees will increase from $144.60 in 2020 to $148.50 in 2021, an increase of $3.90 per month.  Recent legislation signed by President Donald Trump significantly dampens the 2021 Medicare Part B premium increase that would have occurred given the estimated growth in Medicare spending next year. According to CMS, Medicare spending is estimated to grow due to people seeking care they may have delayed during the COVID-19 public health emergency, availability of more COVID-19 treatments, and availability of COVID-19 vaccines.

CMS also announced that the annual deductible for Medicare Part B enrollees will increase from $198 in 2020 to $203 in 2021, an increase of $5.  The additional $5 in 2021 will be borne by enrollees as an out-of-pocket expense under all Medicare Supplement Insurance plans (also known as 'Medigap') available to newly eligible Medicare beneficiaries.

Medicare Part A Premiums/Deductibles

Medicare Part A covers inpatient hospital, skilled nursing facility, and some home health care services. About 99 percent of Medicare beneficiaries do not pay a Part A premium since they have at least 40 quarters of Medicare-covered employment.

The Medicare Part A inpatient deductible that beneficiaries will pay when admitted to the hospital is $1,484 in 2021, an increase of $76 from $1,408 in 2020. Medigap plans automatically adjust benefits in 2021 so that the higher inpatient deductible is covered.

Medicare Annual Election Period (10/15 - 12/7)

Medicare beneficiaries can choose to enroll in fee-for-service Original Medicare (Parts A and B) or can select a private Medicare Advantage plan to receive their Medicare benefits. Premiums and deductibles for Medicare Advantage and Medicare Prescription Drug plans (Medicare Part D) are already finalized and are unaffected by this announcement.

During the ongoing Medicare Annual Election Period, which began on October 15th and ends on December 7th, Medicare beneficiaries can compare coverage options like Original Medicare (Part A and Part B) and Medicare Advantage, and choose health and prescription drug plans for 2021. Medicare health and drug plan costs and covered benefits can change from year-to-year. Over the past three years, CMS has redesigned its useful Medicare Plan Finder so that Medicare beneficiaries may:

• Compare pricing between Original Medicare, Medicare Advantage plans, Medicare prescription drug plans (Medicare Part D), and Medigap policies;
• Compare coverage options on their smartphones and tablets;
• Compare up to three Medicare Part D drug plans or three Medicare Advantage plans side-by-side;
• Get plan costs and benefits, including which Medicare Advantage plans offer extra benefits;
• Build a personal drug list and find Medicare Part D prescription drug coverage that best meets their needs.

Highlights for 2021 Open Enrollment include:

• A 34 percent decrease in average monthly premiums for Medicare Advantage plans since 2017.
• More than 4,800 Medicare Advantage plans are offered for 2021, nearly double the offerings in 2017. Similarly, more Medicare Part D plans are available, and the average basic Part D premium has dropped 12 percent since 2017. 
• Medicare beneficiaries can join a prescription drug plan that will offer many types of insulin at a maximum copayment of $35 for a 30-day supply. More than 1,600 Medicare Advantage and Part D prescription drug plans are participating in the Part D Senior Savings Model for 2021. People who enroll in a participating plan could save up to an estimated $446 a year in out-of-pocket costs on insulin. CMS has added a new “Insulin Savings” filter on Medicare Plan Finder to display plans that will offer the capped out-of-pocket costs for insulin. Beneficiaries can use the Medicare Plan Finder to view plan options and look for a participating plan in their area that covers their insulin at no more than a $35 monthly copay.

At AH Insurance Services Inc., we are available to make it easy for Medicare Beneficiaries to learn more about 2021 plan options.  We can help you determine whether a Medicare Advantage plan -- or a Medigap policy plus a Part D plan -- will be most suitable to meet your medical needs.  Additionally, we can assist in projecting your 2021 out-of-pocket drug costs based on your current medicine list and preferred pharmacy.  There is no obligation to buy.

Contact us at (850) 450-3622 or info@ahinsuranceservices.com.

Until next time,

Andrew Herman

President, AH Insurance Services, Inc.