2014 Medicare Part D deductible down as donut hole widens

2014 Medicare Part D Costsby Hank Pomeranz

Centers for Medicare & Medicaid Services has reported that disabled and senior Medicare beneficiaries will enjoy lower drug costs next year. At the same time, insurers offering additional benefits with their plans will have their taxpayer subsidies reduced due to low spending growth.

Medicare Part D will be about 4.6 percent lower in 2014 than 2013 at $310. Copayments for the drug program initiated in 2006 will also be reduced.

According to the U.S. government, this is the first time the program’s beneficiaries will enjoy an annual reduction in their out-of-pocket drug costs. The record-breaking low growth in spending for about 50 million Medicare beneficiaries has also forced the government to reduce its payments to the Medicare Advantage plans that insurance firms offer by 2.2 percent.

The Executive Director of Families USA, Ron Pollac, said the move will have a positive and direct impact on what Medicare recipients spend from their pockets. This addresses some of the concerns people have about the sustainability of the program, which is likely to minimize the tendency to shift more cost burdens on the beneficiaries in future budget deliberations. Families USA is a Washington-based health consumer advocacy body.

A statement the Congressional Budget Office issued on February 5 showed that 2012 marked the slowest growth in Medicare spending in over a decade. The report stated that costs rose three percent, which amounts to about 16 billion dollars, and is expected to reach about four percent this year.

Different reasons have been given for the slow growth. According to Jonathan Blum of the Congressional Budget Office, Affordable Care Act that President Obama signed in 2010 has strengthened Medicare Part D. Blum explained they were working to ensure Medicare beneficiaries had affordable access to drug and health plans that provide value to both taxpayers and Medicare.

About 25 percent of Medicare Beneficiaries opt for Advantage plans that provide extra benefits worth about $900 annually for the beneficiaries.

America’s Health Insurance Plans said it was reviewing the announcement but declined to give any further comment. The lobby group represents different insurers, including UnitedHealth that has the largest number of Advantage customers.

Editor’s Note: Donut Hole Widening

While checking the facts of this story another rollback was discovered. For the 2014 plan year, CMS is proposing to reduce the Initial Coverage Limit (ICL) from $2,970 to $2,850 – $120 less than in 2013. The ICL is the figure that plunges seniors into the dreaded “donut hole”. About 19 percent of all seniors reach the coverage gap, forcing them to pay more for their prescriptions until they reach the catastrophic coverage limit.

The Affordable Care Act (ACA) is supposed to do away with the donut hole, but there’s a bottom-side loophole that allows the government to play a few games. The ICL itself is not controlled by the ACA; it only has control over the out-of-pocket maximum.

ICL is determined by a formula tied to per-capita total Part D drug expenses, which shrank by 4 percent. The overall effect is that the donut hole shrinks by $80 in 2014, but more seniors will fall into it, thus shifting more of the cost burden to seniors.

Health reform is doing its job, by reducing the share of drug costs borne by seniors who enter the gap, but this change is going to come as a big surprise to many. “More people could reach the coverage gap next year, but there will be better coverage in the gap once you get there,” says Tricia Neuman, vice president of Kaiser and director of the foundation’s Medicare policy work.

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Hank Pomeranz is the owner of Medicarebenefits.com and has been writing about Medicare since 1998. You can follow Hank on Twitter.