50% Discount on Part D Brand Name Drugs Continues for 2012; 14% Discount on Generics

Starting January 1, 2012, beneficiaries who reach the Part D coverage gap, or donut hole, continue to have a 50% discount on their brand name drugs, and their generic drug discount will double to 14%, up from 7% in 2011. Both discounts will gradually increase until beneficiaries pay just 25% of their drug costs in 2020. See a chart of the increased discounts over the next 8 years at Healthcare.gov. These again are some of the positive Medicare changes that are a result of the Affordable Care Act passed in March 2010.

A Review on How the Donut Hole Discounts Work

Part D plan members who reach the donut hole (after incurring $2,930 in drug costs in 2012) will receive their discount immediately when paying for their drugs at the pharmacy. There should be no delays or forms to fill out. The 50% brand-name drug discount applies to all “applicable” Part D covered drugs on the plan’s formulary and/or a drug granted by an exception. Beneficiaries will pay 50% of the brand name drug’s cost, plus a small dispensing fee (usually $2 – $5) charged by the pharmacy which will not be discounted.

“Applicable drugs” refer to brand name drugs provided by manufacturers who have signed an agreement with the Centers for Medicare and Medicaid Services (CMS) to participate in the discount program. Drugs sold by manufacturers who do not sign an agreement will not be covered under Part D and cannot be requested by exception. Beneficiaries with non-applicable drugs will receive the 14% generic drug discount.

What Costs Count Toward TrOOP — True Out-Of-Pocket Costs?

For brand name drugs, the total cost of the drug will be counted toward one’s TrOOP, not just the 50% the beneficiary pays. For generics, however, only the amount the beneficiary pays, which in this case includes the dispensing fee, will count toward their TrOOP. This is because the 14% discount is provided through an additional subsidy from Medicare, rather than through rebates from the drug manufacturers.

For example, Anne just entered the donut hole and her brand-name prescription drug costs $70, plus a $2 dispensing fee. She’ll pay $37 ($35 for 50% of the drug’s cost + $2 dispensing fee), but $70 will be counted toward her TrOOP.

Anne also takes a generic drug which costs $10 plus a $2 dispensing fee. The 14% subsidy applies to both her drug cost and the dispensing fee, so she’ll pay a total of $10.32, all of which will count toward her TrOOP.

Are There Exceptions?

Yes, there are exceptions.

  1. The brand name and generic drug donut hole discounts do not apply to people with the low-income subsidy (LIS) and/or people in a retiree drug subsidy program.
  2. As mentioned, the discount is only available if the drug’s manufacturer has signed an agreement to participate in the discount program. Drugs sold by manufacturers who do not sign an agreement will not be covered under Part D and cannot be requested by exception.
  3. The discount is only available if Medicare Part D is the primary payer. If there is secondary insurance, it will pay after the Part D discount has been applied.

In addition, if a beneficiary fills a prescription that crosses Part D stages of coverage, also referred to as a “straddle claim,” the discount will only apply to the portion of the prescription that falls under the donut hole.

Additional Part D Plan Changes and Updates

In 2012, California will have 33 Part D prescription drug plans (PDPs) available. 2012 PDP premiums will range from $15.10 to $114.90.

In addition, next year California will have 6 benchmark plans (plans with premiums below the average in California), which is up from 5 in 2011. The regional benchmark figure, however, will be lower at $30.86, down from $32.35.

2012 Part D Standard Plan Costs

The chart below describes the required basic coverage under Part D. Part D plans must offer coverage that is at least as good as this standard plan. Most of the costs for 2012 are slightly higher than they were for 2011. This means it will take beneficiaries a bit longer to reach the donut hole.

Drug costs Beneficiary pays (TrOOP) Plan pays
Before meeting deductible 0-$320 100% = $320 0%
Initial coverage >$320-$2,930 25% = $652.50 75%
Coverage gap
(doughnut hole)
>$2,930-$6,657.50 100% = $3,727.50 minus discounts 0%
Catastrophic coverage >$6,657.50 5% or $2.60/$6.50, whichever is greater 95%

Shopping for Coverage

With the Annual Election Period (AEP) having started earlier this year (Oct 15 – Dec 7), it’s time for beneficiaries to review their current plan and its changes for 2012 and to see if it will still meet their prescription drug needs at a reasonable cost. If not, it’s time to shop.

When comparing drug plans, beneficiaries should look at each plan’s total annual costs, including the premium and cost-sharing (the deductible, copays and coinsurance), and carefully review plan formularies. They should make sure the drugs they take are available with as few restrictions (such as prior authorization requirements) as possible. To view and compare the premiums, deductibles, copays, formularies and restrictions of the plans in one’s area, visit Medicare.gov.

Karen Joy Fletcher

Our blogger Karen Joy Fletcher is CHA’s Communications Director. With a Masters in Public Health from UC Berkeley, she is the online “public face” of the organization, provides technical expertise, writing and research on Medicare and other health care issues. She is responsible for digital content creation, management of CHA’s editorial calendar, and managing all aspects of CHA’s social media presence. She loves being a “communicator” and enjoys networking and collaborating with the passionate people and agencies in the health advocacy field. See her current articles.