There is no annual limit on out-of-pocket
costs under Medicare Part D
Howard Sorkin, a financial adviser in Chicago,
is on a mission to educate clients and other advisers about the high cost of
prescription drugs for some Medicare beneficiaries. People requiring specialty
drugs for cancer, multiple sclerosis, hepatitis and other serious illnesses may
be on the hook for thousands of dollars a year.
"Even though, as an adviser, I discussed
these topics with clients, I never fully understood the true costs of
medications under Part D until I was confronted with it myself," Mr.
Sorkin wrote to me in an email.
Mr. Sorkin was diagnosed with stage 4 nonsmokers
lung cancer, including a brain tumor, in November 2016, when he was 68.
Fortunately, he has had few symptoms and qualified for a new targeted drug
therapy in lieu of chemotherapy.
Unfortunately, the drug is very expensive. It
retails for about $18,000 per month, although he is able to buy it at a
discounted price of about $15,000 per month through his hospital.
Since its inception in 2006, the Medicare Part
D prescription drug benefit has helped improve the affordability of medications
for millions of people with Medicare. Yet
many beneficiaries continue to face high out-of-pocket costs for their
medications. Prescription drugs accounted for $1 in every $5 that Medicare
beneficiaries spent out-of-pocket on health-care services in 2016, not
including premiums, according to new report by the Kaiser Family Foundation.
Specialty tier drugs — defined by Medicare as
drugs that cost more than $670 per month in 2019 — are a particular concern for
Part D enrollees, according to a recent analysis by
the nonprofit organization. While specialty tier drugs are taken by a
relatively small share of enrollees like Mr. Sorkin, spending on these drugs
has increased over time and now accounts for over 20% of total Part D spending,
up from 6% to 7% before 2010.
Median annual out-of-pocket costs in 2019 for
28 specialty tier drugs reviewed by Kaiser range from $2,622 for Zepatier (for
hepatitis C) to $16,551 for Idhifa (for leukemia), based on a full year of use,
according to the Kaiser analysis.
Part D plans are allowed to charge between 25%
and 33% coinsurance for specialty tier drugs before enrollees reach the
coverage gap. Then they pay 25% of the cost of their drugs. Once their total
out-of-pocket spending exceeds an annual threshold of $5,100 in 2019, enrollees
pay 5% of the total drug costs above the catastrophic coverage threshold.
In Mr. Sorkin's case, 5% of his
$15,000-per-month drug cost translates into $750 per month. There is no upper
limit on out-of-pocket spending.
In addition, there are monthly premiums for
Medicare Part B and Part D, including additional high-income surcharges, and
hundreds of dollars of monthly vitamins and supplements not covered by
insurance.
"My medical costs have far exceeded what
I ever thought I would need to spend at my age," said Mr. Sorkin, who is
71 and still working part time. "I am fortunate, but how many seniors can
afford this expense?"
Mr. Sorkin, who also teaches a Certified
Financial Planning course at a local university, has discovered a newfound
appreciation for the interaction of retirement income, taxes and Medicare
premiums. Individuals whose income exceeds $85,000 and married couples whose
joint income tops $170,000 a year pay higher monthly premiums for
both Medicare Part B, which covers outpatient services and doctors' fees, as
well as Part D prescription drug coverage.
Certain types of income do not count in the
calculation that can trigger high-income Medicare surcharges, including
qualified distributions from health savings accounts, loans from cash value
life insurance policies, proceeds from reverse mortgages and qualified
charitable distributions from individual retirement accounts for account owners
who are 70½ and older.
"I am on a mission," Mr. Sorkin
said. "I tell my students: You need to know this stuff for yourself, your
parents and your clients."
Medicare Part D out-of-pocket costs are
scheduled to grow exponentially in the future unless Congress acts, said Mary
Johnson, a Social Security and Medicare policy analyst with The Senior Citizens
League.
The annual threshold for the catastrophic
level of drug coverage grew relatively slowly over the past decade, rising $550
since 2010 to the current level of $5,100 in 2019. But the threshold is
scheduled to take an enormous jump of $1,250 next year, to $6,350, due to an
expiring provision of the Affordable Care Act. Unless Congress steps in, the
threshold before catastrophic drug coverage begins will continue to increase
rapidly, reaching $9,450 by 2027.
"One of the most valuable things your
readers can do is check their health and drug plan choices every year and
switch plans when it makes sense to do so," Ms. Johnson said.
During Medicare open enrollment, which
runs from Oct. 15 to Dec. 7 every year, Medicare beneficiaries can switch
prescription drug plans and enroll in or switch Medicare Advantage plans. Ms.
Johnson suggests individuals take advantage of free Medicare benefits
counseling through local Area Offices on Aging or State Health Insurance
Programs.
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