Budget Deal's Part D Gift to Insurers

If experience proves anything, it’s that policy provisions inserted into legislation at the eleventh hour are done so for a reason. Usually, that reason is because it’s bad policy. The Bipartisan Budget Act of 2018 (BBA) announced Wednesday includes a provision that would fundamentally change the competitive structure of the Medicare Part D prescription drug program. This is bad policy.


Medicare Part D helps seniors afford prescription drugs. Under Part D, private insurance companies negotiate with drug manufacturers to provide seniors with access to deeply discounted medicines. These private negotiations and the competition the program fosters have kept the program affordable, provided seniors with a wide range of treatment options, and made the program widely popular among seniors.

Unfortunately, the Part D provision in the BBA threatens to unravel the competitive structure that makes it successful. Part D drug plans have four coverage stages. During the deductible stage, the patient pays the full price of drug costs until the deductible is reached. In the initial coverage stage, the patient pays a copay and the insurance company pays most of the costs. If the combined total exceeds $3,750, the patient enters the coverage gap stage, also known as the “doughnut hole,” where they are on the hook for up to 44 percent of their drug costs.

The last stage of coverage is called the catastrophic stage. Once a patient spends $5,000 in the doughnut hole, they enter this final stage, where patients pay 5 percent of a drugs cost, the insurance company pays a small percentage, and the government covers the clear majority.

The provision in the BBA closes the doughnut hole in 2019 instead of 2020, but at the expense of undermining the basic competitive structure of the program that has saved Medicare beneficiaries and the government millions of dollars. Specifically, the change will incentivize insurance plans to push patients through the initial coverage stage into the catastrophic stage much faster, costing taxpayers more in the long run and undermine patients’ access to medicines.


Pushing patients to the catastrophic stage more quickly also undermines the negotiating process, decreasing competition in the program and ultimately leading to fewer choices for Part D beneficiaries.

These long-term unintended consequences have not been well thought out. This is what happens when last minute provisions are introduced to must-pass legislation without a single hearing or debate on the floor of the House or Senate.


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