On March 23, 2010, President Obama signed into law the Patient Protection and
Affordable Care Act, Public Law 111-148 (H.R. 3590) (PPACA). One week later, he
signed into law a set of proposed changes to PPACA contained in the Health Care
and Education Affordability Reconciliation Act (H.R. 4872) (Reconciliation Act).
These two pieces of legislation combined (referred to herein as the
Healthcare Reform Bill) constitute the current efforts to reform healthcare in
the United States, including addressing the ever-expanding coverage gap of the
Medicare Part D program. The changes vary as to when they take effect, with some
being retroactively effective to Jan. 1, 2010, and others not being implemented
for several more years.
Cash Rebate for 2010
The first provision of the Healthcare Reform Bill that seeks to alleviate the
financial burden imposed on Part D beneficiaries in the coverage gap is to
provide those beneficiaries with a $250 rebate for their brand-name prescription
drug expenses for the year 2010. Although the beneficiaries are still
responsible for 100% of their prescription drug costs while in the coverage gap,
they at least have the assistance of the $250 rebate toward their brand-name
medications. This rebate is only for 2010 and is discontinued thereafter.
Prescription Drug Discount Program
The next and perhaps most significant way the Healthcare Reform Bill seeks to
lessen the financial burden on Part D beneficiaries in the coverage gap is
through a discount program. Pursuant to this discount program, manufacturers
must enter into written agreements with the Secretary of the U.S. Department of
Health and Human Services that will require the manufacturer to provide
applicable beneficiaries access to discounted prices for applicable drugs
covered by Part D (i.e., brand-name prescription drugs within the formulary of
the beneficiary’s prescription drug plan).
Manufacturers will be required to enter into such agreements in order to be
eligible for reimbursement through the Medicare program. The discount program
calls for 50% discounts on the total cost of brand-name drugs for beneficiaries
within the coverage gap. This discount program becomes effective Jan. 1, 2011,
and according to recently released draft guidance issued by the Centers for
Medicare & Medicaid Services (CMS), the 50% manufacturer discount will be given
at the point of sale.
Due to extenuating circumstances acknowledged by CMS, including the fact that
Medicare Part D formularies for 2011 are already in place, manufacturers may
exclude certain drugs from the discount program and still be reimbursed for
those drugs by Medicare Part D during 2011. However, after 2011, manufacturers
will be required to enter into a written agreement with the Secretary of the
U.S. Department of Health and Human Services as a condition of coverage for
Medicare prescription drug reimbursement.
Federal Subsidy for Prescription Drug Expenses
In addition to the 50% discount on applicable brand-name drugs for
beneficiaries in the coverage gap, the Healthcare Reform Bill also provides for
a 25% federal subsidy for brand-name drugs for Part D beneficiaries in the
coverage gap. The subsidy will operate to lower the beneficiary’s coinsurance
rate while in the coverage gap from 100% to 75% over time. This federal subsidy
is to be phased in gradually beginning in 2013, and increasing incrementally
until it reaches the full 25% subsidy in 2020.
While the above provisions only apply to brand-name prescription drugs, the
Healthcare Reform Bill seeks to minimize the financial burden on beneficiaries
in the coverage gap imposed by the expenses of generic drugs too. Specifically,
the Healthcare Reform Bill also provides for a federal subsidy for generic drug
expenses during the coverage gap. Like the federal subsidy for brand-name
prescription drugs, this subsidy will also be phased in gradually beginning in
2011 at a rate of 7%, and will increase each year to 75% in 2020. Again, this
subsidy will reduce the beneficiary’s coinsurance rate while in the coverage gap
for generic drugs from 100% down to 25%.
Lower Catastrophic Coverage Eligibility Threshold
Finally, the Healthcare Reform Bill lowers the eligibility threshold for
catastrophic coverage in an effort to further reduce out-of-pocket expenses for
beneficiaries with high prescription drug expenses between 2014 and 2019.
By bringing the ceiling of the coverage gap lower, the Healthcare Reform Bill
seeks to allow the beneficiaries with the greatest prescription drug expenses to
take advantage of catastrophic coverage and its 5% coinsurance rate. However,
this cost-saving measure is temporary. In 2020, the out-of-pocket amount will
revert to that which it would have been had the reductions for the years 2013
through 2019 not existed.
If you have any questions about the content of this article, or how it might
relate to your practice or clients, please feel free to contact the authors.
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Reform section for additional updates and resources.