Medicare Part D, the outpatient prescription drug benefit for Medicare beneficiaries, provides catastrophic coverage for high out-of-pocket drug costs, but there is no limit on the total amount that beneficiaries have to pay out of pocket each year. Medicare Part D enrollees with drug costs high enough to exceed the catastrophic coverage threshold are required to pay 5% of their total drug costs unless they qualify for Part D Low-Income Subsidies (LIS). In 2021, the catastrophic threshold is set at $6,550 in out-of-pocket drug costs, which includes what beneficiaries themselves pay and the value of the manufacturer discount on the price of brand-name drugs in the coverage gap (sometimes called the “donut hole”), which counts towards this amount. With no hard cap on out-of-pocket drug spending, Medicare beneficiaries without LIS who take high-cost drugs for conditions such as cancer, multiple sclerosis, rheumatoid arthritis, or hepatitis C may pay thousands of dollars in out-of-pocket costs for their medications after exceeding the catastrophic threshold.

Policymakers on both sides of the aisle support proposals to modify the design of the Part D benefit and establish a hard cap on out-of-pocket prescription drug spending by Part D enrollees. This proposal is included in H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act, which passed the U.S. House of Representatives in December 2019 and was recently reintroduced in the 117th Congress; H.R. 19, the Lower Costs, More Cures Act, the House GOP prescription drug bill; bipartisan legislation that passed out of the Senate Finance Committee in the 116th Congress (S. 2543, Prescription Drug Pricing Reduction Act of 2019); and other legislation. Under H.R. 3, out-of-pocket drug spending under Part D would be capped at $2,000, while under H.R. 19 and the Senate Finance bill, the cap would be set at $3,100 (both amounts exclude the value of the manufacturer price discount).

By design, catastrophic coverage is intended to protect Part D enrollees with high drug costs, which may affect only a small share of enrollees in any given year but a larger share over time, including those who have persistently high drug costs over multiple years and others who have high costs in one year but not over time. To inform discussions about proposals to add a hard cap on out-of-pocket spending under Part D, we analyzed the number of Part D enrollees without low-income subsidies who have exceeded the catastrophic coverage threshold annually, and over multiple years, based on 2007-2019 Part D claims data for Part D enrollees without low-income subsidies from the Centers for Medicare & Medicaid Services Chronic Conditions Data Warehouse.

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