The 2013 Part D Benefit Structure Small but Helpful Changes from 2012

After I posted the last blog about getting ready for Part D I realized I hadn’t blogged about the changes to the Part D benefit structure for 2013. Although it’s very close to this year’s structure, the good news is that, if you go into the donut hole, Part D will pay a tiny chunk more for your brand name drugs than in 2012, and, likewise, an even larger chunk more for your generics. On the other hand, there are slight increases in the annual deductible, the initial coverage limit, etc. My guess is, given that premiums will be about what they were in 2012, and the structure is a whisker more favorable for beneficiaries in 2013, that most will be paying about what they were in 2012, or a just a bit less.

And you should also know that there will be some expansion of the Part D drug formularies in 2013. This is because statutory changes now provide that Part D plans will now have to cover benzodiazepines, as well as barbiturates for people with epilepsy, certain types of cancer and chronic mental health conditions. And, in addition, as can happen when formularies are changed, new generics, some of which are alternatives to brand named medicines, have been put in a number of plans’ formularies.

In 2013 the four bands of the recommended benefit structure are as follows: (Remember, of course, that your plan’s structure, or that of any plan that you are considering, may look very close to this or not at all like it, because plans are allowed to vary from this as long as their structure is “actuarially equivalent” to it.)

Annual Deductible Band: From $0 to $325

The recommended deductible is $325, up $5 from 2012. The beneficiary is responsible to pay all of this out-of-pocket. Of course, many if not most plans will have a smaller or no deductible.

25% Coinsurance Band: From $325 to $2,970

After the deductible is satisfied, the next $2,645 of drug costs falls into this band. (In 2012, this figure was $2,610.) The plan will pay 75% of the cost of a drug, and the beneficiary, 25%. The beneficiary will remain in this band until the plan has paid a total of a $1,983.75 and the beneficiary, $661.25.

At this point, the beneficiary has spent $986.25 ($325.00 plus $661.25) and the plan, $1,983.75, for a total of $2,970. (You may see this figure referred to as the “initial coverage limit;” it was $2,930 in 2012.) The beneficiary now goes into the “donut hole.”

Donut Hole Band: From $2,970 to “Drug Expenses” of $4,750

Once in the donut hole, also known as the “coverage gap:”

For brand name drugs, the plan will pay 52.5% of the cost of a drug, and the beneficiary, 47.5%. (These figures were 50% - 50% in 2012, so in 2013 the beneficiary gets a slightly better deal here.)

For generic drugs, the government will pay 21% and the beneficiary, 79%. (In 2012 the government paid 14% and the beneficiary, 86%, so again, the beneficiary gets a better deal.)

The beneficiary will remain in the donut hole until their “drug expenses” total $4,750 (this was $4,700 in 2012). By “drug expenses” we mean anything spent to meet the deductible, anything spent in the 25% band, and whatever the beneficiary spends in the donut hole plus the 50% their plan pays for their brand name drugs in the donut hole (but not the extra 2.5% being added this year, nor anything spent by the government on their generics.)

[It never fails to amaze me how complicated Medicare can become, so a bit of explanation may be required, but disregard this if you already have had enough detail! Of the 52.5% Part D will pay on a Medicare beneficiary’s brand name drugs in the donut hole, 50% is really paid by the drug manufacturer and the additional 2.5% for 2013 is paid by your Part D plan, and you get “credit” only for the 50%, not the 2.5%. If you ask me why, I can only say, like Janet Reno, “It’s the law.” And you don’t get credit on the discount you get for generics (it was this way in 2012, too) as technically this is paid not by the plan nor by the manufacturer, but by the government.]

And while it will be different for each beneficiary, I estimate that in general you will actually pay somewhat over $2,000 of your own money on your Part D drugs before you get out of the donut hole and into the next band.

Catastrophic Band: From $4,750 Up

And once a beneficiary’s “drug expenses” reach $4,750 (this was $4,700 in 2012), the beneficiary goes into the Catastrophic Band, where the beneficiary pays 5% of the cost of a drug, and the plan, 95%. This is sometimes called the “5% Band” for obvious reasons.  There are no upper limits to this band.

And be advised that there have been tiny changes made to the minimum amount you must pay in this Catastrophic Band. The minimum you must pay on a generic or preferred multi-source drug is $2.65 (up a nickel from 2012), and, for other drugs (typically a brand-name), $6.60, (up a dime from 2012).