The Closing of the Coverage Gap

Note: This is a reprint of an article we originally published in October 2015.

One of the provisions of the 2010 Affordable Care Act (ACA) is to close the coverage gap in Part D Prescription Plans (PDPs). By 2020, PDP members (that’s you) will only pay 25% of the cost of both generics and name brand drugs while in the coverage gap.  The key questions are what is the schedule for this reduction and how will that affect the premiums for the PDPs?

Name Brand Drugs

Starting in 2011, pharmaceutical companies were required to give members a 50% discount off the retail cost of brand name drugs when the member entered the coverage gap.  The member paid the other 50%. In 2013 and 2014 the PDP paid 2.5% of the cost of brand name drugs reducing the members’ share to 47.5%.  The manufacturers still contribute with their 50% discount.  In 2015 and 2016 the PDP now pays 5% of the cost of brands while the member is in the coverage gap.  The member’s share is reduced to 45%. (See chart #1 below)

The manufacturers’ discount remains at 50% as represented by the light blue.  The dark blue represents the declining amount that the member pays.  The medium blue represents the increasing share that the PDP pays.  Thus, from 2017 to 2020 the PDP pays 5% more every year. Unless the plan receives an increased subsidy from Medicare, it has no other alternative then to raise the premium for the plan in order to raise more revenue to pay for their increasing share of the costs while a member is in the coverage gap.


As far as the PDP having to pay more for generics, the situation is very similar to what they will be required to do while their members are in the coverage gap.  The only difference is that there is no manufacturers’ discount. We can assume that the margins for generics are much thinner, so there is little or no room for discounts.

Starting in 2011, the plan paid 7% of the costs of generics when the member entered the gap.  The member’s cost was reduced from 100% in 2011 to 93% in 2012.  Every year until 2019 the PDP will pay an additional 7% and the member pays 7% less.  In 2020 the member receives another 12% discount, reducing his/her share to just 25% of the cost of the generic drug.  (See chart #2 below.)

The member’s share is represented by the dark blue, and the PDPs’ increasing share is represented by the medium blue.  The declining share of the costs for the member certainly is advantageous for him/her, however, the PDP is being required to shoulder more of the costs.

Similar to paying more for brand name drugs, the increasing percent of the coverage for generics for the PDPs will add to their costs.  This all puts pressure on premiums, pressure that pushes them higher.

Another factor that adds to premium increases is the increased costs for drugs. The PDP passes this cost along in higher copays or moving a drug from a “preferred” brand to a “non-preferred” brand.  This change approximately doubles the copay for the member.

There is another strategy that the PDP uses to mitigate its increased costs. The PDP can drop a more expensive brand, or generic, as long as it has two drugs covering each therapeutic category. For example, most of the cholesterol drugs have gone generic.  Many plans no longer cover Crestor, the only remaining name-brand statin drug, in their formulary.  Since they cover lovastatin, pravastatin, simvastatin, and atorvastatin (Lipitor), they have the therapeutic category of cholesterol drugs covered.  They do not have to cover the expensive brand, Crestor.  Editor’s Note: This article was originally published in October of 2015.  Since then, Crestor (Rosuvastatin) has gone generic.

In regards to premium increases, there is some good news. There is competition among the various insurance companies’ PDPs. We can assume that most of them would like to gain more market share.  The competition has caused the copays for many inexpensive generics to go down.  A couple of companies’ plans have either no copays or very small copays when the member orders his/her prescriptions through the companies’ mail order pharmacy.

Understanding the Estimated Annual Spend for PDPs

What is meant by the annual cost, annual spend, or estimated annual cost when we do a prescription drug plan (PDP) search on your behalf on

Put simply, the estimated annual spend is how much will you spend for your entire prescription drug plan package for the entire year (or remainder of the current year). This number includes the PDP plan premium, your copays and, if applicable, the deductible.

Example: After doing a search on, the plan that shows up as the best buy for Sam Fuller (fictitious), using his preferred pharmacy has an annual cost of $444. The name of the plan is Good Health Rx (fictitious), and Sam’s annual spend will be $444.

The plan premium is $25 per month. $25 per month x 12 months = $300 for the year.

Let’s say Sam has all tier 1 and 2 generics with low copays. Good Health Rx also has no deductible for tier 1 and 2 generics.

Here’s the list of his prescriptions.

Name of Drug Dose Frequency Tier Copay
Atorvastatin 40 mg 30/month Tier 2 $4
Metformin 500mg 60/month Tier 1 $1
Lisinopril 20 mg 30/month Tier 1 $1
Amlodipine 5 mg 30/month Tier 2 $4
Citalopram 10mg 30/month Tier 1 $1
Meloxicam 15mg 30/month Tier 1 $1
Total monthly copays $12


Sam’s prescription copays are $12 per month. $12/month x 12 months = $144.

Plan premium = $300 for the year.

Drug copays = $144 for the year.

Sam’s annual cost = $444    ($300 + $144 = $444)

Note: If your plan effective date is mid-year, the annual spend refers to your estimated cost for the remaining portion of the year. Let’s say your Medicare A and B are effective July 1, 2018. You sign up for a PDP in May with a July 1 effective date. Using the above example, your annual cost will be half of the $444 annual or just $222. End

Important Notes for December 2017

Annual Election Period (AEP)

The AEP, also known as Medicare open enrollment, ends December 7th. This is the deadline for changing your Part D Prescription plan (PDP) or changing or adding a Medicare advantage with prescription drugs (MA-PD) plan.

We have republished some excerpts from a previous article detailing the kinds of changes you can make during the AEP.

  1. Change from one PDP to another PDP.
  2. Adding a new PDP. Please keep in mind that you may be subject to a late enrollment penalty (LEP) if you never have had a PDP.
  3. Change from one MA-PD to another MA-PD.
  4. Disenroll from your MA-PD and switch to original Medicare (OM) only.
  5. You want to switch from a Medicare supplement plan to an MA-PD. Be sure to cancel your Medsupp plan the end of December.
  6. You currently have an MA-PD and want to go to a Medicare supplement.
    1. This one is a little tricky. If you are voluntarily leaving your MA or MA-PD plan, you have to apply and medically qualify for a Medicare supplement. This is NOT a guarantee issue! Then, if you do qualify, you will need to notify your MA or MA-PD plan that you want to disenroll and return to original Medicare effective Jan. 1, 2018.
    2. If you received a disenrollment letter from your MA-PD plan, you do NOT need to notify your MA-PD provider.

For a smooth transition, be sure to work with us on this one.

The Special Enrollment Period (SEP) begins December 8th

The those who have received a disenrollment notice from your Medicare advantage plan provider, you have a Special Enrollment Period that runs from December 8 through the end of February 2018.

Some people have frantically contacted us thinking that they have a December 7 deadline. While that is true for people switching plans, it is NOT the case for those that have received a disenrollment notice from their Medicare advantage company. Medicare wants you to have plenty of time to choose a new plan! Please contact us if you have yet to decide which way you want to go.


Changing a Medicare Supplement (Medsupp) plan

A question that comes up every year is when can I change my Medsupp plan. The answer is that you can change your Medsupp plan any month of the year subject to medical qualification. Please refer to the more detailed article in our September issue of Northwest Senior News.

A common misunderstanding among some people is thinking that the AEP is open enrollment for a Medsupp plan. Yes, it can be confusing. Remember, for most people, once you are past 65 ½, you can change your Medsupp plan any month of the year, again, subject to medical qualification.


Prescription Drug Plans

After running hundreds of people’s combinations of prescriptions on’s website, we have noticed another interesting trend. Four or five years ago we signed up people for two low cost PDPs that offered the lowest estimated annual cost for many people. (Please refer to our companion article in this issue discussing what is meant by the annual cost.)

Times have changed. For the most part, these plans have become also-rans. In many cases they are substantially more expensive compared to newer designed plans. This is why we pound the table with a strong recommendation that you have us shop your PDP every year.

In many cases, your current PDP may still be the most competitive one for 2018. If that is the case, we will notify you to stay the course.

However, in one case here is what we discovered. Alice Rankton (fictitious) signed up for the Super Health Medicare Saver PDP plan (a real example with a fictitious name) a few years ago. We re-ran her meds on Using her preferred pharmacy of Shopko her annual spend for Super Health would have been $1,369. This plan wasn’t even close to being her best buy.

Again, using Shopko the Bargain Scripts Value Plus (another fictitious name) came in with an annual spend of $709. Wow, her also-ran Super Health would have cost her almost double compared to the Bargain Value plan.

We might add that in this case Bargain Value does not work with agents, so we gave Alice their phone number to sign herself up for this new plan. We are not compensated when we do this.


The Key Takeaway

Understandably, we don’t like change. Personally, I (Lance) am annoyed when a website revamps their format forcing me to learn it all over again. Fortunately, Isaac comes to my rescue.

Regarding PDP’s, I’ve heard too many people say: I don’t want to change!

I well understand how those people feel. However, the plans are changing on you, and if you don’t stay current with the most competitive plans, it can financially cost you dearly. End