The Affordable Care Act Reduces Out-of-Pocket Drug Costs for Millions of People with Medicare

Nearly Four Million Seniors Received Cost Relief, 50 Percent Discount on Prescription Drugs Saves Seniors $38 Million in Just Two Months

Summary

The Affordable Care Act has strengthened the Medicare Part D prescription drug program by beginning to close the coverage gap (also called the “donut hole”).  The Centers for Medicare & Medicaid Services (CMS) has successfully implemented many of these provisions of the Affordable Care Act, allowing millions of people with Medicare to see reduced out-of-pocket costs for their prescription drugs.  Many more will receive benefits as the coverage gap is further reduced over the next several years.  This report summarizes the Affordable Care Act’s progress in reducing out-of-pocket prescription drug costs for Medicare beneficiaries and reports on how many individuals have received tangible benefits in the law’s first year.

Key Findings:

• To date, 3.8 million people who had drug expenses that put them in the donut hole in 2010 have received a one-time $250 rebate check.  Approximately 2.2 million (58 percent) of the recipients of the rebate check are women.  Nearly one-fourth of Medicare beneficiaries receiving assistance (942,000) were either under age 65 and disabled, or age 85 and older.  The five states with the largest number of individuals who received a rebate check are: California, Florida, New York, Pennsylvania, and Texas.

• Beginning in 2011, the Affordable Care Act provides a 50 percent discount on covered brand name prescription drugs to seniors who reach the donut hole.  As of February 28, 2011, nearly 48,000 Medicare beneficiaries have received assistance under this program.  In just two months, the program reduced these beneficiaries’ out-of-pocket costs by $38 million, an average savings of nearly $800 per individual.  Nearly 11,000 Medicare enrollees with very high prescription drug costs have already hit the annual out-of-pocket limit and their individual savings have averaged $1,775. 

Background

The Affordable Care Act takes several steps to close the coverage gap and reduce out-of-pocket drug costs for people with Medicare.  Most Medicare prescription drug plans include a coverage gap for enrollees who do not qualify for low-income subsidy (LIS) assistance.¹  Prior to 2011, once they reached the coverage gap, beneficiaries had to pay the full costs of their prescription drugs until they reached a limit ($4,550 in total out-of-pocket costs in 2010). 

The Affordable Care Act phases-out the coverage gap and reduces out-of-pocket prescription drug costs in three primary ways.  First, for 2010, Medicare beneficiaries who did not receive LIS assistance and had drug costs in the donut hole received a one-time, tax-free $250 rebate check from Medicare to help pay for their prescription drugs.  The rebate checks were automatically mailed to these Medicare beneficiaries.  CMS began mailing the rebate checks in June 2010 and continued the mailings on a regular basis.  CMS estimated that about 4 million Medicare beneficiaries would receive coverage gap rebate payments, based on historical data from 2009; with 3.8 million checks mailed to date, and the remaining checks on their way, this expectation will be met.  

Second, the Affordable Care Act requires CMS to establish the coverage gap discount program, where brand-name drug manufacturers agree to provide a 50 percent discount on covered brand-name drugs that are purchased by Medicare beneficiaries in the coverage gap.  If a brand-name drug manufacturer did not agree to participate in the discount program, it will not have its brand-name drugs covered by Medicare Part D at all.  Seniors and people with disabilities on Medicare do not have to take any action to receive this discount.  The discounts are automatically provided to beneficiaries at the point-of-sale at the retail or mail-order pharmacy.  In September 2010, CMS announced that it had agreements with all manufacturers of medically necessary brand-name drugs to participate in the program. 

Third, the Affordable Care Act will gradually expand coverage for generic drugs as well over the next 10 years.  For 2011, coverage for generic drugs in the coverage gap has been increased by 7 percent.  This means that the donut hole for generic drugs is correspondingly smaller.  When combined with the drug discount program, these gradual increases in coverage will close the coverage gap by 2020.

$250 Rebate Check Program

CMS has mailed almost 3.8 million rebate checks to people with Medicare, providing nearly $1 billion in out-of-pocket relief.  Medicare beneficiaries in every State and territory received a rebate check, and the distributions were in close proportion to the general Medicare non-LIS enrollment.  California has the greatest number of Medicare beneficiaries who received a check, followed by Florida, New York, Pennsylvania, and Texas.  CMS anticipates mailing final checks for claims that are still coming in with dates of service in 2010.

The majority, 2.2 million or 58 percent, of the individuals who received a rebate check are women (Figure 1).  This is slightly lower than the proportion of non-LIS beneficiaries who are women (58.9 percent). 

It is clear that the $250 rebate checks provided significant financial relief to these individuals.  Those receiving the $250 rebate cashed their checks, on average, within 15 days of the checks being issued, with almost half of all beneficiaries cashing the check within 10 days of issue.  By 30 days, 92 percent of beneficiaries had cashed their rebate check.

The Coverage Gap Discount Drug Program

The coverage gap discount drug program began providing assistance for Medicare beneficiaries’ out-of-pocket costs on January 1, 2011.  As of February 28, 2011, 47,718 Medicare beneficiaries have received assistance, receiving average savings of nearly $800 each, in just two months.  Collectively, the program has reduced these beneficiaries’ out-of-pocket costs by $38 million.  Millions more beneficiaries are expected to benefit from the program over the course of the year. 

Of these beneficiaries, those with the greatest drug spending are benefiting the most from the program.  The 10,859 beneficiaries who have out-of-pocket spending that moved them completely through the coverage gap are receiving, on average, discounts of $1,775.  Another 36,859 beneficiaries who have not moved completely through the coverage gap are receiving, on average, a discount of $510 on their brand-name prescription drugs.  The majority, 25,608 or 54 percent, of the individuals who received a coverage gap discount are women(Figure 3).  This is slightly lower than the proportion of non-LIS beneficiaries who are women (58.9 percent). 

The proportion of beneficiaries receiving assistance from the discount program who are under age 65 (about 13,784, or 29 percent) is significantly higher than the general non-LIS population.  Nearly one-half of the recipients of the discount program are between the ages of 65-74 years old (about 19,967, 42%) (Figure 4). (In the general Medicare population, 19 percent of non-LIS beneficiaries are under 65 and 42% percent are between ages 65-74.)

Appendix 1: Medicare Beneficiaries Who Received A $250 Coverage Gap Rebate Check: By State

*One territory has a small cell count (of less than 11).  The information for the territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the Virgin Islands) has been combined to protect beneficiary information.

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 We refer to this group as non-LIS beneficiaries in the rest of the report.