Healthcare Reform Bill Tries to Address Medicare Part D Coverage Gap Crisis

May 11, 2010

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 This discount program becomes effective Jan. 1, 2011, and according to recently released draft guidance issued by the Centers for Medicare & Medicaid Services (CMS), the 50% manufacturer discount will be given at the point of sale.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.

Visit the Healthcare Reform section for additional updates and resources.

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