IBM Medicare Via Benefits Part D 2019 Drug Insurance Cost Structure

The dreaded doughnut hole has closed for brand name drugs!  I wrote a long blog post about part D's cost structure in April 2018.  I got most of it right but there were several errors. Mostly, when I reread it last week it was a rambling mess that I had a hard time following .... and I wrote it!

I decided to try to simplify and skip the history lesson by using a series of bullets.  It's still a complicated description, but the whole structure is very complicated.

• Prescription Drug Prices Vary from part D plan to part D plan
  
  That's because each plan negotiates prices with pharmaceutical companies and/or distributors (the middle men) and/or retail pharmacies.  It is important to always fill prescriptions at preferred pharmacies for your insurance policy to get the lowest price for a prescription. The insurer also puts brand name drugs in a tier of their choosing, so a drug might be more or less expensive because of tier placement.  There is no government negotiation with pharmaceutical companies on drug prices and no requirements for drug tier placement for brand name drugs.  Generic drugs are usually in cheaper tiers.  If a drug company puts a generic drug in tier 1 then the policy holder has no copay.  That is a Medicare rule.  Drug prices can (and do) change during the year because insurance companies negotiate prices with pharmaceutical companies throughout the year.
            
• Prescription Drug Insurance Plans might have deductibles
  
  If there is a deductible it cannot be higher than the Medicare dictate. In 2019 the deductible maximum is $415. That means a policy holder has to pay the full (negotiated) price for drugs until the policy deductible is met.  Then, insurance policy co-pays start. Until the deductible is met, the only benefit from Rx insurance is the negotiated price. If a drug is generic and in tier 1 there is no payment for the drug so the deductible does not apply.  However, deductibles are not as important to consider as the total annual insurance plan cost. That's the total annual cost to you for the premium + deductible + co-payments.  Usually, pick a plan that provides the lowest annual cost. Plans with no deductibles can have higher  co-pays to make up for the lack of a deductible or place brand name drugs in higher co-pay tiers. Reminder, the insurers are in the business of making money and structure their plans accordingly. 
     
  There are two reasons (I can think of) to buy a plan with no deductible beyond picking it because it provides the lowest annual cost.  First, the policy holder doesn't have recurring prescriptions.  The policy holder will likely not meet the deductible so the benefits they get from drug insurance is the negotiated drug price (if they need a prescription filled) and avoiding the Medicare penalty for not having part D insurance. If so, it might be more cost effective to buy the cheapest premium part D and try other ways to fill a prescription before using insurance, such as asking the pharmacy what the cost is without insurance.  For example, Costco sometimes sells drugs at a "better price" than using an insurance plan and you do not need to be a member to use their pharmacy. The second reason to have a no deductible plan is if the person has serious cash flow problems - ergo they don't have a cash reserve to be able to meet the up front deductible.  Although the total annual cost might be higher, some people simply do not have a cash reserve to pay for their drugs in the "deductible phase".
      
• Prescription Drug Insurance has 3 phases of payment
     
  The first stage is the initial stage of payment.  After the deductible (if there is one), the policy holder pays a copay determined by the drug tier assignment. On average, for a brand name drug, the policy holder pays 25% of the cost of the drug.  However, the plan decides the tier placement so that percentage can be higher or lower.  The copay amount the policy holder pays for generic drugs depends on the tier too.  In tier 1, as mentioned, the copay is always $0 whether or not there is a deductible. The policy holder stays in the initial stage of co-payments until the total cost of their drugs is $3,820 in 2019. That includes both what you and the plan paid for the drugs.
  
  The second stage of payment is called the coverage gap or the doughnut hole. The structure of this stage has changed over time.  In 2019, in the coverage gap, the policy holder pays (based on negotiated prices)  a 25% copay for a brand name drug and about a 37% copay for a generic drug that is not in tier 1.  (In 2020 the generic percentage will drop to 25%.)  Therefore, the cost of your co-pays might change in the second stage and go down for brand name drugs and increase for some generics.  In this stage, the pharmaceutical companies are required to discount the negotiated cost of brand name drugs by 70%. Medicare pays the 63% cost of generic drugs.
  
  The third stage of payment is called the catastrophic stage.  The policy holder enters the catastrophic phase when policy holder deductible + co-payments + pharmaceutical company discounts in stage 2 = $5,100 in 2019.  The amount Medicare pays for generics is not added into the total.  Also, the copay amount in the second stage will not be counted at 100%.  There will be a 50 cent deduction each time a drug is dispensed in the this phase. Ergo, if you filled a prescription 10 times the total copay will be $5 less than what you actually paid.  In catastrophic coverage, the policy holder pays 5% of the cost of a brand name drug or $8.50 (whichever is greater) and 5% or $3.50 (whichever is greater) for a generic drug.
  
  
  I hope this is a better explanation.