Updated: Smoothing the Out Of Pocket Cap


By Maddie Mason, Associate, Policy

The Medicare Prescription drug benefit, or Part D, is an optional program from the Federal Government that helps older adults pay for their prescription drugs. Under Part D, the government and the individual share the cost of drugs up to a certain point. Once an individual has paid $5,100 out-of-pocket (OOP) for their part of prescriptions, they are responsible for paying five percent of their drug costs going forward. Under current law, there is no limit, or cap, on what an individual might be required to pay for these costs in Part D. That means patients can see very large bills at the pharmacy counter that they may be unprepared for or unable to pay at that moment. In addition, those that reach these high OOP costs are most often those that have the most significant health needs.

Current, pending legislation from both the House and the Senate have proposed putting a cap on OOP costs once Medicare Part D beneficiaries hit a certain threshold. The Senate Finance has proposed an OOP cap of $3,100, and Speaker Pelosi’s drug pricing plan, H.R. 3, sets the OOP cap at $2,000.

The NHC believes that imposing an OOP cap in Part D can help make drugs more affordable for the patient community and limit the expense that people with the highest level of prescription costs must bear. However, to really make a difference for older adults, we encourage Congress to include a “smoothing” mechanism that would distribute OOP expenses throughout the calendar year. Even if an OOP cap is put in place, patients may continue to face significant costs for prescriptions within the first few months of the calendar year. The NHC believes that patients should be able spread out – or “smooth” – the cap over the course of the year by allowing a monthly payment option for the annual cap. This will make budgeting easier, especially for seniors who are often on fixed incomes.

For instance, if someone takes a drug that causes them to reach a cap of $3,100 in February, they could choose to pay that $3,100 bill all at once, or they could spread it out over time and make 11 monthly payments of $281. This would allow them to minimize the impact of prescription drug costs on their budget. It is important that Congress works alongside stakeholders, including patient advocates, to implement an OOP cap and smoothing mechanism that would best benefit the people who need it the most.

Update – October 11, 2019:

On October 11, Avalere Health released an issue brief demonstrating the financial impact for Medicare Part D Enrollees who reach the catastrophic threshold early in the calendar year. The report found:

  • By limiting exposure to additional cost sharing in the catastrophic phase, an OOP cap could significantly reduce overall OOP expenditures for beneficiaries who reach catastrophic, particularly for those who do so in the first few months of the year;
  • On average the earlier in the year beneficiaries reach the catastrophic phase of the benefit, the higher their annual OOP spending;
  • Forty-five percent of Part D enrollees with high drug costs faced OOP costs of more than $1,000 in any month;
  • Beneficiaries who filled at least one prescription after reaching catastrophic in January incurred about $4,800 in OOP costs for prescriptions that fell in the catastrophic phase;
  • Individuals might benefit from additional policies that reduce their monthly expenditures. These types of additional affordability reforms could, for example, spread OOP costs over additional months or limit OOP spending on a monthly or per-script basis; and
  • Without additional policy changes to the Part D benefit structure, a portion of beneficiaries could continue to face OOP costs that are concentrated during one or more months of the plan year.

Update – October 16, 2019:

On October 16, the Energy and Commerce Committee released a revised version of H.R. 3. One of the provisions, Sec. 302: Allowing Certain Enrollees of Prescription Drug Plans and MA-PD Plans Under Medicare Program to Spread Out Cost Sharing under Certain Circumstances, would require regulations that would allow Medicare Part D beneficiaries facing high OOP costs for their prescriptions to pay what they owe in installments throughout the calendar year.

During the markup of the legislation, Representative Anna Eshoo, chair of Health Subcommittee, stressed that this this provision is needed to help Medicare Part D beneficiaries smooth out high up-front costs overtime. She argued this would help patients with high OOP costs to pay in installments rather than all at once, allowing them to better budget for the yearly costs of their medications.