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R40611: Medicare Part D Prescription Drug Benefit

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R40611: Medicare Part D Prescription Drug Benefit Medicare Part D Prescription Drug Benefit Suzanne M. Kirchhoff Analyst in Health Care Financing October 27, 2016 The House Ways and Means Committee is making available this version of this Congressional Research Service (CRS) report, with the cover date shown, for inclusion in its 2016 Green Book website. CRS works exclusively for the United States Congress, providing policy and legal analysis to Committees and Members of both the House and Senate, regardless of party affiliation. Congressional Research Service 7-5700 www.crs.gov R40611 Medicare Part D Prescription Drug Benefit Summary The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173) established a voluntary, outpatient prescription drug benefit under Medicare Part D, effective January 1, 2006. Medicare Part D provides coverage through private prescription drug plans (PDPs) that offer only drug coverage, or through Medicare Advantage (MA) prescription drug plans (MA-PDs) that offer coverage as part of broader, managed care plans. Private drug plans participating in Part D bear some financial risk, though federal subsidies cover most program costs in an effort to encourage participation and keep benefits affordable. At a minimum, Medicare drug plans must offer a “standard coverage” package of benefits or alternative coverage that is actuarially equivalent to a standard plan. Plans also may offer enhanced benefits. Although all plans must meet certain minimum requirements, there can be significant differences among offerings in terms of benefit design, specific drugs included in formularies (i.e., list of covered drugs), cost sharing for particular drugs, or the level of monthly premiums. In general, beneficiaries can enroll in a plan, or change plan enrollment, when they first become eligible for Medicare or during open enrollment periods each October 15 through December 7. For plan year 2016, there are between 19 and 29 PDPs in each of the nation’s 34 PDP regions, as well as Medicare Advantage plans. Because sponsors are allowed to change plan offerings from year to year, beneficiaries must review their annual choices carefully to select the plans that best meet their needs. A key element of the Part D program is enhanced coverage for low-income individuals. Persons with incomes up to 150% of the federal poverty level (FPL) and assets below set limits are eligible for extra assistance with Medicare Part D premiums and cost sharing. Individuals enrolled in both Medicare and Medicaid (so-called dual eligibles), and certain other low-income beneficiaries, are automatically enrolled in no-premium plans, which are Part D plans that have premiums at or below specified levels. In 2015, about 39 million Medicare beneficiaries received prescription drug benefits through a PDP or an MA-PD, with almost one-third receiving a low-income subsidy. Another 2 million received drug assistance through a Part D-subsidized retiree health plan, and 8 million Medicare beneficiaries had separate, private drug coverage. Overall, about 88% of Medicare beneficiaries had drug coverage through either PDP or MA-PD plans, retiree coverage, or private insurance of comparable scope. Total Part D expenditures were close to $90 billion in calendar year 2015. Medicare Part D has cost less than originally forecasted, due in part to lower-than-predicted enrollment and increased use of less expensive generic drugs. However, the Medicare Trustees project that spending on Part D benefits will accelerate over the next 10 years due to expectations of further increases in the number of enrollees, costs associated with the gradual elimination of the out-of-pocket cost coverage gap, changes in the distribution of enrollees among coverage categories, a slowing of the trend toward greater generic drug utilization, and an increase in the use and the prices of specialty drugs. Congressional Research Service Medicare Part D Prescription Drug Benefit Contents Overview ......................................................................................................................................... 1 Eligibility ......................................................................................................................................... 2 Eligibility for Low-Income Assistance ..................................................................................... 3 Full-Subsidy-Eligible Individuals ............................................................................................. 3 Other-Subsidy-Eligible Individuals........................................................................................... 5 Changes in LIS Status ............................................................................................................... 6 Enrollment in Part D ........................................................................................................................ 6 Enrollment Periods .................................................................................................................... 6 Initial Enrollment Period..................................................................................................... 7 Annual Open Enrollment Period ......................................................................................... 7 Special Enrollment Periods ................................................................................................. 7 Late Enrollment Penalty ............................................................................................................ 8 Plan Selection ............................................................................................................................ 8 Plan Marketing .................................................................................................................. 10 Enrollment Process .................................................................................................................. 10 LIS Enrollment .................................................................................................................. 11 Auto-Enrollment ................................................................................................................ 11 Facilitated Enrollment ....................................................................................................... 12 Reassignment of Certain LIS Beneficiaries ...................................................................... 12 Part D Benefit Structure ................................................................................................................ 12 Premiums ................................................................................................................................ 13 Premium Surcharge for Higher-Income Enrollees ............................................................ 14 Qualified Drug Coverage ........................................................................................................ 16 Standard Prescription Drug Coverage............................................................................... 16 The Coverage Gap ......................................................................................................................... 18 Phase-Out of the Coverage Gap .............................................................................................. 19 True Out-of-Pocket Expenses ................................................................................................. 21 Low-Income Subsidies .................................................................................................................. 23 Premium Assistance ................................................................................................................ 23 Full-Subsidy-Eligible Individuals ..................................................................................... 23 Partial-Subsidy-Eligible Individuals ................................................................................. 23 Cost-Sharing Subsidies ........................................................................................................... 24 Employer Subsidies ....................................................................................................................... 25 Retiree Drug Subsidy .............................................................................................................. 25 Employer Group Waiver Plans ................................................................................................ 26 Drug Coverage .............................................................................................................................. 27 Drugs Covered by Other Parts of Medicare ............................................................................ 28 Formularies ............................................................................................................................. 28 Formulary Categories and Classes .................................................................................... 28 Six Classes of Clinical Concern ........................................................................................ 29 Vaccines ............................................................................................................................ 30 Plan-Year Formulary Changes .......................................................................................... 30 Transition Policies............................................................................................................
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