Had a $2,000 out-of-pocket cap been implemented in 2021:
The Biden administration and Congress have repeatedly insisted that an out-of-pocket limit for seniors’ drug costs is essential to any upcoming drug pricing plan. The commercial market has such guardrails in place to protect consumers from the high costs, but there is no similar protection for Medicare Part D beneficiaries.
Today, 9 in 10 seniors take prescription medications, including the 1 in 2 who take four or more, so an out-of-pocket cap is expected to reduce costs for a significant number of Medicare beneficiaries, but there is no estimate on how many Part D beneficiaries would reach a cap. Other estimates have considered the savings beneficiaries would see, but not the total number of beneficiaries reaching a cap.
Creating an out-of-pocket has been a bipartisan interest, including provisions in the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) and Senator Grassley’s Prescription Drug Pricing Reduction Act of 2019 (PDPRA). While both propose to ease the burden of high drug costs for seniors by creating limits on out-of-pocket spending, the PDPRA cap is set to $3,100 compared to the $2,000 limit outlined in H.R. 3.
This analysis examines the potential proportion of Medicare Part D beneficiaries who could benefit from the benefit design changes outlined in H.R. 3.
The figure below outlines the difference in out-of-pocket expenses for both the standard benefit design and the benefit design proposed in H.R. 3. Under the standard Part D design (Design A), beneficiaries face 25% of the drug costs until they reach the catastrophic phase (at $6,550) where they continue to pay 5% of drug costs. Since there is no out-of-pocket limit, seniors with $15,000 in annual drug costs would pay $2,393. Under the H.R. 3 proposed benefit design (Design B), seniors would not pay any portion of their drug costs after they reach the $2,000 cap.
Using 2018 pharmacy claims data from a 5% random sample of Part D beneficiaries enrolled in Stand-Alone Prescription Drug Plans (PDPs), we identified beneficiaries with total drug spend that would trigger the out-of-pocket cap based upon the benefit design proposed under HR 3. We used two methods to adjust 2018 drug spend to 2021 prices: (1) 2021 drug costs that would trigger the cap ($6,665) were deflated to 2018 dollars ($6,447) using spending growth estimates from the 2020 Trustees Report; and (2) 2018 brand drug costs were inflated to 2021 costs using an IQVIA price growth estimate (1.17%). We then summed total drug costs for 2018 beneficiaries to identify the number of beneficiaries reaching the out-of-pocket trigger. Beneficiaries receiving a Low-Income Subsidy (LIS) were excluded from the analysis.
Based on Method 1, we estimate 13.0%, or 3.1 million, of non-LIS PDP beneficiaries have drug costs that would trigger the our-of-pocket cap in 2021. Under Method 2, 14.6%, or 3.5 million, non-LIS PDP beneficiaries would reach the cap.
Separately, we estimated beneficiary savings under the cap by identifying beneficiaries with out-of-pocket costs above $1,935 in 2018, which mirrors the approach in Method 1. We calculated savings as the difference between actual out-of-pocket and the adjusted cap, inflating savings to 2021 using the Method 1 approach. Under this analysis, we estimate that beneficiaries reaching the cap would save an average of $1,529 annually. This estimate is similar to that obtained by the Kaiser Family Foundation, which estimated beneficiaries would save $1,216.¹
In 2018, the catastrophic threshold was set to $5,000 and has since been raised to $6,500; consequently, seniors are paying 25% of their drug costs for an even longer duration of their plan. Therefore, our savings estimate is likely conservative; this does not, however, affect our estimate of the number of beneficiaries who would reach the cap based on total drug spend.
The core structure of the Medicare Part D benefit design has changed little since it was enacted in 2006, including the beneficiary responsibility for 5% of drug costs in the catastrophic phase. Both the number and share of beneficiaries reaching the catastrophic phase of the Part D benefit is growing over time, with the share of beneficiaries more than doubling from 2010 to 2019. As brand drug prices continue to rise, an out-of-pocket cap is increasingly necessary to limit beneficiary exposure to high out-of-pocket costs in the catastrophic phase.
Under the current Part D program, 1 in 4 seniors find it “difficult” to afford their medications. Because of cost-related medication non-adherence, an estimated 1.1 million seniors will die prematurely due to high drug costs by 2030. A $2,000 out-of-pocket cap would limit financial exposure for approximately 15% of Medicare Part D non-LIS PDP beneficiaries, reducing spending for up to 3.5 million individuals.
¹ The Kaiser Family Foundation also estimated the number of beneficiaries who would reach the out-of-pocket cap based on the 2019 benefit design, estimating 1.2 million beneficiaries would reach the cap. We found similar results (0.8 million non-LIS PDP beneficiaries in 2018) using a similar approach; however, given substantial changes in the benefit design and brand drug costs in 2021, we focus our analysis on the 2021 approach.