Counting the manufacturer discount as beneficiary out-of-pocket spending has contributed to a growing number of non-LIS Part D enrollees qualifying for catastrophic coverage, doubling from just under 500,000 in 2011 to 1.0 million in 2016.Enrollees who take only brands in the coverage gap will face $375 in additional direct out-of-pocket costs in 2020, with the remainder covered by the manufacturer discount. This is due to the expiration of the ACA provision that slowed the growth rate of this threshold between 20. Between 20, the annual out-of-pocket spending threshold-the amount beneficiaries must spend before the coverage gap ends and catastrophic coverage begins-is projected to increase by $1,250.Recent calls to modify the BBA changes to the coverage gap could lead to higher beneficiary out-of-pocket costs and higher Medicare spending. Under changes made by the Bipartisan Budget Act of 2018 (BBA), Part D enrollees’ out-of-pocket costs for brands in the gap will decline from 35 percent of total costs in 2018 to 25 percent in 2019-rather than in 2020-while plans’ share of costs for brands will decrease to 5 percent and the manufacturer discount will increase from 50 percent to 70 percent.Due to provisions in the Affordable Care Act (ACA) to phase out the coverage gap, average out-of-pocket costs for non-LIS Part D enrollees who reach the coverage gap decreased substantially between 20 but have increased somewhat in recent years. In 2016, the most recent year of available data, more than 5 million Part D enrollees without low-income subsidies (LIS) reached the coverage gap, spending $1,569 out of pocket, on average, and receiving an average manufacturer discount of $1,090.

This data note presents trends on the Part D coverage gap and discusses recent and proposed changes affecting out-of-pocket costs for Part D enrollees who reach the coverage gap. Subsequent legislative changes are phasing out the coverage gap by modifying the share of total costs paid in the gap by Part D enrollees and plans and requiring drug manufacturers to provide a discount on the price of brand-name drugs in the gap. The coverage gap was included in the initial design of the Part D drug benefit in the Medicare Modernization Act of 2003 in order to reduce the total 10-year cost of the benefit. As of 2019, Medicare beneficiaries enrolled in Part D prescription drug plans will no longer be exposed to a coverage gap, sometimes called the “donut hole”, when they fill their brand-name medications.

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