Medicare Part D Prescription Drug Benefit
Congressional research reportNov 14, 2023
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Medicare Part D Prescription Drug Benefit
Updated November 14, 2023
Congressional Research Service
https://crsreports.congress.gov
R40611
SUMMARY
Medicare Part D Prescription Drug Benefit
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA;
P.L. 108-173) established a voluntary, outpatient prescription drug benefit under
Medicare Part D, effective January 1, 2006. Medicare Part D provides coverage through
private prescription drug plans (PDPs) that offer only drug coverage, or through
Medicare Advantage (MA) prescription drug (MA-PD) plans that offer coverage as part
of broader, managed care plans. Private drug plans participating in Part D bear some
financial risk, although federal subsidies cover most program costs in an effort to
encourage participation and keep benefits affordable.
R40611
November 14, 2023
Suzanne M. Kirchhoff
Analyst in Health Care
Financing
At a minimum, Medicare drug plans must offer a legislatively specified “standard” package of benefits or
alternative coverage that is actuarially equivalent to a standard plan. Plans also may offer enhanced benefits.
Although all plans must meet certain minimum requirements, there can be significant differences among offerings
in terms of benefit design, specific drugs included in formularies (i.e., lists of covered drugs), cost sharing for
particular drugs, or the level of monthly premiums.
In general, beneficiaries can enroll in a plan, or change plan enrollment, when they first become eligible for
Medicare or during open enrollment periods each October 15 through December 7. Beneficiaries also have some
options to change enrollment during a plan year due to special circumstances. Because sponsors are allowed to
change plan offerings from year to year, beneficiaries annually face the need for careful review of their choices to
select the plans that best meet their needs.
A key element of the Part D program is enhanced coverage for low-income individuals. Medicare beneficiaries
with incomes up to 150% of the federal poverty level (FPL) and assets below set limits are eligible for extra
assistance with Medicare Part D premiums and cost sharing. Individuals enrolled in both Medicare and Medicaid
(so-called dual eligibles) and certain other low-income beneficiaries are automatically enrolled in no-premium
plans, which are Part D plans that have premiums at or below specified levels.
Of the 65 million Medicare beneficiaries in 2022 who were eligible for Part D, 49.8 million (about 77%) were
enrolled in a Part D plan and another 1.3 million (about 2%) had prescription drug coverage through a former
employer that received a Part D subsidy for a portion of the coverage. Of the remaining roughly 21% of Medicare
beneficiaries, nearly half had drug coverage as generous as Part D through another source, while about 12% of all
beneficiaries had either less generous coverage than Part D or no drug coverage at all.
Total Part D expenditures were approximately $125.7 billion in 2022. Spending is expected to moderate in the
next 10 years due in part to a redesign of the Part D benefit under the 2022 law known as the Inflation Reduction
Act (IRA; P.L. 117-169). The 2022 IRA phases in a number of significant Part D changes from 2023 to 2025,
including an annual out-of-pocket cap on Part D enrollee cost sharing, enhanced low-income subsidies, a $35
monthly cap on insulin cost sharing, and an annual limit on premium increases from 2024 to 2029. The law also
imposes a penalty on drug manufacturers that takes the form of a rebate to Medicare if drug manufacturers raise
prices of most Part D-covered drugs above an annual inflation measure. These rebates are deposited in the Federal
Supplementary Medical Insurance Trust Fund that funds Part D. The law requires the Secretary of Health and
Human Services (HHS) to negotiate the prices of certain single-source drugs with the highest total expenditures
under Medicare Part D.
Congressional Research Service
Medicare Part D Prescription Drug Benefit
Contents
Overview ......................................................................................................................................... 1
Eligibility for Medicare Part D ........................................................................................................ 2
Eligibility for Low-Income Assistance ..................................................................................... 3
Full-Subsidy-Eligible Individuals ............................................................................................. 4
Partial-Subsidy-Eligible Individuals ......................................................................................... 6
Changes in LIS Status ......................................................................................................... 7
Medicare Part D Enrollment Periods ........................................................................................ 7
Initial Enrollment Period..................................................................................................... 7
Annual Open Enrollment Period ......................................................................................... 8
Special Enrollment Periods ................................................................................................. 8
Late Enrollment Penalty ............................................................................................................ 8
Plan Selection ............................................................................................................................ 9
Plan Marketing ...................................................................................................................11
Enrollment Process...................................................................................................................11
LIS Enrollment ........................................................................................................................ 12
Auto-Enrollment ............................................................................................................... 12
Facilitated Enrollment ....................................................................................................... 13
Reassignment of Certain LIS Beneficiaries ...................................................................... 13
Part D Benefit Structure ................................................................................................................ 13
Qualified Drug Coverage ........................................................................................................ 14
Standard Prescription Drug Coverage............................................................................... 14
Actuarially Equivalent and Enhanced Plans ..................................................................... 15
The Coverage Gap................................................................................................................... 16
True Out-of-Pocket Costs........................................................................................................ 17
IRA Changes to the Medicare Part D Benefit in 2023 ...................................................... 19
Part D Standard Benefit For 2024 ........................................................................................... 19
Medicare Part D Standard Benefit in 2025 ............................................................................. 21
Part D Premiums ........................................................................................................................... 23
Premium Surcharge for Higher-Income Enrollees ............................................................ 24
IRA Premium Stabilization Program ................................................................................ 25
Low-Income Subsidies .................................................................................................................. 26
Premium Assistance ................................................................................................................ 26
Full-Subsidy-Eligible Individuals in 2023 ........................................................................ 26
Partial-Subsidy-Eligible Individuals ................................................................................. 27
Cost-Sharing Subsidies ........................................................................................................... 27
LIS Subsidy Changes Starting in 2024 ............................................................................. 29
Employer Subsidies for Retiree Drug Coverage ........................................................................... 29
Retiree Drug Subsidy .............................................................................................................. 29
Employer Group Waiver Plans ................................................................................................ 30
Formulary Requirements ............................................................................................................... 32
Drugs Covered by Other Parts of Medicare ............................................................................ 32
Formularies ............................................................................................................................. 32
Formulary Categories and Classes .................................................................................... 33
Six Classes of Clinical Concern ........................................................................................ 33
Vaccines ............................................................................................................................ 34
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Medicare Part D Prescription Drug Benefit
Plan-Year Formulary Changes .......................................................................................... 35
Transition Policies............................................................................................................. 36
Drug Utilization Management Programs ....................................................................................... 36
Tiered Formularies .................................................................................................................. 37
Other Drug Utilization Controls ....................................................................................... 38
Part D Opioid Overutilization Monitoring .............................................................................. 38
Part D Plans: Payment and Participation ....................................................................................... 39
Approval of PDP Plans ........................................................................................................... 39
Noninterference Provision ................................................................................................ 40
Plan Availability ...................................................................................................................... 41
Plan Payments ......................................................................................................................... 41
Direct Subsidies ................................................................................................................ 41
Reinsurance Subsidies ...................................................................................................... 42
Beneficiary Cost Sharing/Direct and Indirect Remuneration ........................................... 42
Risk Corridor Payments .................................................................................................... 43
Reconciliation ......................................................................................................................... 44
Reduction of Part D Plan Payments Under Sequestration ................................................ 45
Expected Shifts in Part D Sponsor Reimbursement Due to the IRA ................................ 45
Pharmacy Access and Payment ..................................................................................................... 45
Any Willing Pharmacy ............................................................................................................ 46
Preferred Pharmacy ................................................................................................................. 46
Retail Pharmacy Access .......................................................................................................... 46
Mail-Order Pharmacy Access ................................................................................................. 47
Specialty Pharmacy Access ..................................................................................................... 47
Long-Term Care Pharmacy Access ......................................................................................... 47
Home Infusion Pharmacy Access ............................................................................................ 48
Out-of-Network Access ........................................................................................................... 48
Payments to Pharmacies .......................................................................................................... 48
Coverage Determinations, Appeals, and Grievances ..................................................................... 50
Coverage Determination ......................................................................................................... 50
Appeals.................................................................................................................................... 51
Redetermination ................................................................................................................ 51
Reconsideration by an Independent Review Entity .......................................................... 52
Additional Levels of Appeal ............................................................................................. 52
Standard Hearing .............................................................................................................. 52
Grievances ............................................................................................................................... 52
Quality of Care Complaints .................................................................................................... 53
Program Spending and Financing ................................................................................................. 53
Expenditures............................................................................................................................ 53
Revenues ................................................................................................................................. 54
Beneficiary Premiums ....................................................................................................... 54
General Revenues ............................................................................................................. 54
State Contributions ........................................................................................................... 55
Estimated Future Part D Expenditures .................................................................................... 55
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Figures
Figure 1. Overview of 2023 Low-Income Subsidy (LIS) ............................................................... 6
Figure 2. 2023 Standard Medicare Prescription Drug Benefit ...................................................... 15
Figure 3. 2024 Medicare Part D Standard Benefit ........................................................................ 19
Figure 4. 2025 Medicare Part D Standard Benefit ........................................................................ 21
Figure 5. Annual Part D Base Beneficiary Monthly Premium ...................................................... 23
Tables
Table 1. Total Medicare Beneficiaries with Prescription Drug Coverage, 2022 ............................. 3
Table 2. Medicare Part D Low-Income Subsidy Enrollment .......................................................... 4
Table 3. 2023 Monthly Medicare Part D High-Income Surcharge ................................................ 25
Table 4. Sliding-Scale Premium for Partial-Subsidy-Eligible Individuals .................................... 27
Table 5. Part D Standard Benefit Cost Sharing, 2023 ................................................................... 28
Table 6. Part D Standard Benefit Cost Sharing, 2024 ................................................................... 29
Table 7. Plan Liability Under Part D Risk Corridor Provisions .................................................... 44
Table 8. Medicare Part D Risk Corridor Payments ....................................................................... 44
Table 9. Statement of Operations of Part D Account, CY2022 ..................................................... 55
Table 10. Historical and Projected Growth in Part D Benefits ...................................................... 56
Appendixes
Appendix A. Drug Rebates and PBMs in Medicare Part D ........................................................... 57
Appendix B. IRA Drug Price Negotiation in Part D ..................................................................... 60
Contacts
Author Information........................................................................................................................ 61
Congressional Research Service
Medicare Part D Prescription Drug Benefit
Overview
On January 1, 2023, the Medicare outpatient prescription drug benefit (Medicare Part D) began
its 18th year of operation. Congress created the voluntary Part D program in the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173), effective
January 1, 2006. The law also made Part D the primary source of drug coverage for individuals
covered under both Medicare and Medicaid (also called dual eligibles). Part D has been modified
by a series of statutes since its enactment including, most recently, the 2022 budget reconciliation
measure referred to as the Inflation Reduction Act of 2022 (IRA; P.L. 117-169). The IRA includes
some of the most significant changes to the Part D benefit since the program was created,
including an annual cap on enrollee out-of-pocket spending, beginning in 2024. (See “Standard
Benefit” and “Appendix B. IRA Drug Price Negotiation in Part D.”)
Part D coverage is provided through stand-alone prescription drug plans (PDPs), which offer only
drug coverage, or through Medicare Advantage (MA) prescription drug (MA-PD) plans, which
offer drug coverage as part of a broader Medicare Part C managed care benefit that also includes
medical services. Commercial insurers that offer Part D plans bear some financial risk, although
federal subsidies cover most program costs in an effort to encourage participation and keep
benefits affordable. All Part D plans must meet certain minimum requirements, but there are
significant variations among plans in terms of premiums and benefit design, including differences
in drug formularies (i.e., lists of covered drugs) and cost sharing for particular drugs.
Most Part D plans are individual products, but a number of employers and unions offer retirees
Part D benefits through special employer group waiver plans (EGWPs). (See “Employer Group
Waiver Plans.”) In addition, the MMA provides separate subsidies for employers that agree to
provide retiree drug benefits outside of Medicare, as an incentive for employers to continue
offering retiree health benefits. (See “Retiree Drug Subsidy.”)
The Part D program provides additional subsidies to low-income enrollees. Individuals with
incomes up to 150% of the federal poverty level (FPL) and limited assets are eligible for a lowincome subsidy (LIS) that reduces their out-of-pocket spending by paying for all, or some, of the
Part D monthly premium and annual deductible and that limits co-payments or coinsurance.1 An
estimated 14.2 million beneficiaries received the LIS in 2023.2
1 The federal poverty guidelines, referred to as the federal poverty level, are issued annually by the Department of
Health and Human Services (HHS) for administrative purposes such as determining eligibility for certain federal
programs. See HHS, “Poverty Guidelines,” at https://aspe.hhs.gov/poverty-guidelines.
2 Centers for Medicare & Medicaid Services (CMS), The 2023 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, March 31, 2023, Table IV.B7, p. 147,
available at https://www.cms.gov/oact/tr. (Hereinafter, 2023 Medicare Trustees Report.)
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Medicare Part D Prescription Drug Benefit
Monthly enrollment numbers are available for 2023.3 For 2023, a total of 801 PDPs were offered
nationwide, a slight increase from 2022. On average, Medicare beneficiaries have 24 PDPs and
35 MA-PD plans to choose from in their geographic area.4
During the next several years, the Centers for Medicare & Medicaid Services (CMS) is to phase
in wide-ranging changes to Part D, as required by the IRA. Effective in 2023, the IRA eliminated
enrollee cost sharing for certain Part D vaccines and set a $35 cap on enrollee cost sharing for
insulin.5 Effective in 2024, the IRA caps annual enrollee out-of-pocket spending at $8,000. In
2025, the IRA reduces the Part D out-of-pocket spending cap to $2,000 (and then adjusts the cap
based on drug price inflation in subsequent years). The IRA also expands LIS subsidies (effective
in 2024) and limits annual premium increases from 2025 to 2029, among other changes.6
This report provides information about the current Part D benefit structure and describes the IRA
changes to the Part D standard benefit that are to be phased in through 2025. For a more detailed
description of the IRA, including information about provisions (1) requiring the Secretary of the
Department of Health and Human Services to negotiate prices for certain Part D drugs and (2)
requiring that manufacturers pay mandatory rebates to CMS if they increase Part D drug prices
faster than consumer inflation, see CRS Report R47396, Health Care Provisions of the Budget
Reconciliation Measure P.L. 117-169.7
Eligibility for Medicare Part D
In general, anyone who is entitled to Medicare Part A and/or enrolled in Part B is eligible to enroll
in a Medicare Part D drug plan. In addition, an individual must be a U.S. citizen or qualified alien
and must permanently reside within one of the 34 designated PDP regions in the United States;
anyone who is living abroad or is incarcerated is not eligible.8
3 CMS, “Monthly Contract Summary Report,” August 2023, https://www.cms.gov/research-statistics-data-and-systems/
statistics-trends-and-reports/mcradvpartdenroldata/monthly/contract-summary-2023-10. Figures are based on
enrollment data for the Part D component of Medicare plans including Medicare Advantage prescription drug (MAPD) plans, the PACE (Program of All-inclusive Care for the Elderly), 1876 Cost Plans, and certain employer/union
only group plans (EGWPS). Figures are updated monthly and are the most recent available, so may vary from projected
enrollment figures from other sources. As of October 2023, about 52 million Medicare beneficiaries were enrolled in
Part D plans. Of that total, about 22.5 million were in prescription drug plans (PDPs), about 29 million were in MA-PD
plans, and about 408,000 were in other types of plans
4 Juliette Cubanski and Anthony Damico, “Medicare Part D: A First Look at Prescription Drug Plans in 2023,” Kaiser
Family Foundation, November 10, 2022, at https://www.kff.org/medicare/issue-brief/medicare-part-d-a-first-look-atmedicare-drug-plans-in-2023/.
5 See CRS In Focus IF12203, Selected Health Provisions of the Inflation Reduction Act.
6 The 2022 budget reconciliation measure referred to as the Inflation Reduction Act of 2022 (IRA; P.L. 117-169),
requires the HHS Secretary to negotiate prices for high-spending drugs in Medicare Part D and in Medicare Part B,
which covers physician-administered prescription products. The first negotiated prices take effect in 2026. For more
information on price negotiation, see CRS Report R47396, Health Care Provisions of the Budget Reconciliation
Measure P.L. 117-169.
7 The rebates are deposited in the Federal Supplementary Medical Insurance Trust Fund, which helps fund the Part D
program.
8 In February 2015, CMS issued final rules for the Medicare Advantage and Part D programs for calendar year (CY)
2016. Under the rules, going forward, to be eligible for Medicare prescription drug benefits a potential enrollee had to
be a U.S. citizen or qualified alien who is lawfully present in the United States. The rules also require involuntary
disenrollment of individuals from Part D plans when they lose eligibility due to unlawful presence status. CMS, “CMS
Finalizes Program Changes for Medicare Advantage and Prescription Drug Benefit Programs for Contract Year 2016,”
February 6, 2015, at https://www.cms.gov/newsroom/fact-sheets/cms-finalizes-program-changes-medicare-advantageand-prescription-drug-benefit-programs-contract.
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For most people, joining Part D is voluntary, although Medicare-Medicaid dual-eligible
beneficiaries are automatically enrolled. Medicare beneficiaries cannot be turned down for Part D
coverage due to preexisting health conditions or high utilization of prescription drugs.
Of the 65 million Medicare beneficiaries who were eligible for Part D, in 2022, 49.8 million
(about 77%) were enrolled in a Part D plan and another 1.3 million (about 2%) had prescription
drug coverage through a former employer that received a Part D subsidy for a portion of the
coverage. Of the remaining roughly 21% of Medicare beneficiaries, nearly 10% of total
beneficiaries had drug coverage as generous as Part D through another source, such as the Federal
Employees Health Benefits program (FEHB), TRICARE coverage for the military, or private
coverage; about 12% of beneficiaries had either less generous coverage than Part D or no drug
coverage at all.9 (See Table 1.)
Table 1. Total Medicare Beneficiaries with Prescription Drug Coverage, 2022
Description
Medicare Beneficiaries Eligible for Part D
Medicare Part D
Stand-Alone PDP
MA with Drug Coverage
Medicare Retiree Drug Subsidy (RDS)
Other Creditable Drug Coverage
Total Beneficiaries with Drug Coverage
Beneficiaries Without Equivalent Coverage
Number of Medicare
Beneficiaries
(in millions)
65.0
49.8
23.3
26.5
1.3
6.5
57.6
7.4
Percentage of Eligible
Beneficiaries
100.0%
77%
47%
53%
2%
10%
89%
12%
Source: Based on Medicare Payment Advisory Commission (MedPAC), Report to Congress, Medicare Payment
Policy, March 2023, Table 12-1 and report text. Based on monthly Part D enrollment data.
Notes: Totals may not add due to rounding.
Eligibility for Low-Income Assistance
Beneficiaries with limited incomes and resources may qualify for assistance with Part D
premiums, cost sharing, and other out-of-pocket expenses. In 2023, a forecast estimated that 14.2
million Medicare beneficiaries are expected to receive low-income subsidies (LIS). (See Table 2
below.) In addition to financial assistance, LIS beneficiaries have other added benefits, such as
the right to change plans more frequently than other Part D enrollees.
For 2023, there are two categories of LIS beneficiaries: (1) those with the lowest income and
assets who are eligible for the full LIS subsidy and (2) those with slightly higher income and
assets who qualify for a partial LIS subsidy. Individuals may be automatically deemed eligible for
the full LIS if they are dually eligible for Medicaid.
The IRA requires that the two LIS categories be merged into one LIS classification starting in
2024. The new LIS program will provide the more generous benefits of the previous full subsidy
LIS and will allow individuals to qualify based on the higher income and resource allowances
previously used to determine the partial LIS. (See “Low-Income Subsidies.”)
9 Medicare Payment Advisory Commission (MedPAC), Report to the Congress: Medicare Payment Policy, March 15,
2023, Chapter 12, Table 12-1, p. 394, https://www.medpac.gov/document/march-2023-report-to-the-congressmedicare-payment-policy/.
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Table 2. Medicare Part D Low-Income Subsidy Enrollment
(in millions)
Year
Medicaid,
Full-Benefit
Dual Eligible
Other, with
Full Subsidy
Other, with
Partial
Subsidy
Total
2006
5.7
2.3
0.2
8.3
2007
5.9
3.0
0.3
9.2
2008
6.3
3.2
0.3
9.7
2009
6.4
3.3
0.3
10.0
2013
7.2
4.0
0.3
11.5
2014
7.4
4.1
0.3
11.8
2015
7.6
4.2
0.3
12.1
2016
7.8
4.3
0.3
12.4
2017
8.0
4.4
0.3
12.7
2018
8.1
4.5
0.3
12.9
2019
8.2
4.5
0.3
13.1
2020
8.2
4.7
0.3
13.2
2021
8.3
4.7
0.3
13.2
2022
8.7
4.7
0.2
13.6
2023
9.1
4.8
0.2
14.2
Source: Centers for Medicare & Medicaid Services (CMS), The 2023 Annual Report of the Boards of Trustees of the
Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, March 31, 2023, Table IV.B7,
available at https://www.cms.gov/oact/tr
Notes: Figures are for calendar years. Totals may not add due to rounding.
Full-Subsidy-Eligible Individuals
Certain groups of Medicare beneficiaries automatically qualify and are deemed eligible for the
full LIS. The full-benefit dual eligibles who qualify for Medicaid benefits based on income and
assets are automatically eligible for the full Part D LIS. Additionally, those who receive Medicare
premium and/or cost-sharing assistance from Medicaid through the Medicare Savings Program
(MSP),10 plus those eligible for Supplemental Security Income (SSI) cash assistance,11 are
automatically deemed eligible for full LIS. These three categories include all eligible persons who
(1) have incomes below 135% of the FPL, or $19,683 for an individual and $26,622 for a couple
in 2023;12 and (2) have resources below $9,090 for an individual and $16,630 for a couple in
10 The Medicare Savings Program includes the Qualified Medicare Beneficiary program (QMB), Specified Low-
Income Medicare Beneficiary program (SLMB), and Qualifying Individual program (QI). These programs help
Medicare beneficiaries of modest means pay all or some of Medicare’s cost-sharing amounts (i.e., premiums,
deductibles, and co-payments). To qualify, an individual must be eligible for Medicare and meet certain annual income
limits.
11 Supplemental Security Income (SSI) is a federal income supplement program funded by general tax revenues (not
Social Security taxes). It is designed to help aged, blind, and disabled people who have little or no income, and it
provides cash to meet basic needs for food, clothing, and shelter.
12 Social Security benefits, veterans’ benefits, public and private pensions, annuities, and in-kind support are counted as
(continued...)
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2023.13 The limits are increased annually by the percentage increase in the Consumer Price Index
for urban consumers (CPI-U) as of September of the previous year.14 (See Figure 1.)
CMS deems individuals automatically eligible for the LIS effective as of the first day of the
month that they attain qualifying status (e.g., become eligible for Medicaid or SSI). The end date
is, at a minimum, through the end of the calendar year within which the individual becomes
eligible. Beneficiaries who are deemed LIS-eligible for any month during the period of July
through December of one year are deemed eligible through the end of the following calendar
year. CMS changes an individual’s deemed status in mid-year only when such a change qualifies
the beneficiary for lower cost sharing.
Eligibility for the LIS is not always continuous from year to year. For example, LIS beneficiaries
who lose eligibility for Medicaid or SSI during a year are not automatically qualified to receive
the LIS the next year. Each September, CMS notifies such individuals that their LIS-deemed
status will end on December 31 of that year. Such individuals may reapply for the LIS, and might
qualify for the LIS through the application process. (See “LIS Enrollment.”)
At the end of each plan year, CMS reassigns LIS beneficiaries to a new Part D plan if their Part D
plan has terminated. CMS also reassigns full LIS beneficiaries who are enrolled in PDPs if their
plan raises its monthly premiums to a level above a set LIS benchmark premium for the plan
region.15 (See “Reassignment of Certain LIS Beneficiaries.”)
income. HHS sets separate poverty levels for Alaska and Hawaii. See SSA Program Operations Manual, “HI
03001.020 Eligibility for Extra Help (Prescription Drug Low-Income Subsidy),” at https://secure.ssa.gov/poms.nsf/lnx/
0603001020. See also SSA,”HI 03001.005 Medicare Part D Extra Help (Low-Income Subsidy or LIS),” at
https://secure.ssa.gov/poms.nsf/lnx/0603001005; and SSA, “Understanding the Extra Help with Your Medicare
Prescription Drug Plan,” at https://www.ssa.gov/pubs/EN-05-10508.pdf. HI 03001.020 Eligibility for Extra Help
(Prescription Drug Low-Income Subsidy), https://secure.ssa.gov/poms.nsf/lnx/0603001020.
13 In addition, program resource limits provide for a $1,500 burial allowance. SSA, “HI 03030.025, Resource Limits for
Subsidy Eligibility,” at https://secure.ssa.gov/poms.nsf/lnx/0603030025.
14 42 C.F.R. §423.773(b)(2). The CPI-U, published by the U.S. Department of Labor, is a measure of consumer
inflation for urban consumers.
15 The low-income benchmark premium is the weighted average of monthly premiums for basic PDP plans, enhanced
PDP plans, and MA-PD plans in a Part D region. CMS, Medicare Part D Prescription Drug Manual, Chapter 13,
“Premium and Cost-Sharing Subsidies for Low-Income Individuals,” Section 50.2.1, Rev. October 1, 2018, at
https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Chapter-13Premium-and-Cost-Sharing-Subsidies-for-Low-Income-Individuals-v09-14-2018.pdf. See also, Medicare Part D
Prescription Drug Manual, Chapter 3, “Eligibility, Enrollment and Disenrollment,” Section 40.1.4, Rev. August 12,
2020, at https://www.cms.gov/files/document/cy2021-pdp-enrollment-and-disenrollment-guidance.pdf. CMS will
attempt to reassign beneficiaries within the same organization wherever possible. If the organization does NOT offer
another qualifying PDP, CMS would randomly reassign affected beneficiaries to other PDP sponsors that have at least
one qualifying PDP in that region.
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Figure 1. Overview of 2023 Low-Income Subsidy (LIS)
Source: CRS table based on Social Security Administration (SSA) and CMS data.
Note: Beginning in 2024 there will be one LIS category. The new LIS program will provide the more generous
benefits of the previous full LIS subsidy and will allow individuals to qualify based on the higher income and
resource allowances previously used to determine the partial LIS.
Partial-Subsidy-Eligible Individuals
Individuals with limited incomes and resources who do not automatically qualify for the LIS may
apply and have their eligibility determined by either the Social Security Administration (SSA) or
their state Medicaid agency. This group includes all other persons who (1) are enrolled in a PDP
plan or MA-PD plan; (2) have incomes below 150% of the FPL, which is $21,870 for an
individual and $29,580 for a couple in 2023;16 and (3) have assets below $15,160 for an
individual and $30,240 for a couple in 2023 (increased in future years by the percentage increase
in the CPI-U).17
An individual who applies, and is determined eligible for the LIS, can begin receiving benefits on
the first day of the month in which the application was submitted. In most cases, this means that
LIS status is applied retroactively. For example, if an LIS beneficiary was enrolled in a Part D
plan prior to a determination of LIS eligibility, the Part D plan sponsor must ensure that the
16 CMS, “2023 Medicare Part D Low-Income Subsidy (LIS) Income and Resource Standards,” October 25, 2022,
https://www.cms.gov/files/document/lis-memo.pdf.
17 See SSA, “HI 03001.020 Eligibility for Extra Help (Prescription Drug Low-Income Subsidy),” at
https://secure.ssa.gov/poms.nsf/lnx/0603001020; SSA,”HI 03001.005 Medicare Part D Extra Help (Low-Income
Subsidy or LIS),” at https://secure.ssa.gov/poms.nsf/lnx/0603001005; and SSA, “HI 03030.025, Resource Limits for
Subsidy Eligibility,” at https://secure.ssa.gov/poms.nsf/lnx/0603030025. See also SSA, “Understanding the Extra Help
with Your Medicare Prescription Drug Plan,” at https://www.ssa.gov/pubs/EN-05-10508.pdf. Also see HHS, “Poverty
Guidelines for 2023,” https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines.
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beneficiary is reimbursed for any premiums or cost sharing that should have been covered by the
subsidy. If a person was not already eligible for Medicare, the LIS subsidy takes effect on the first
day of the month when his or her Medicare eligibility begins.18
Initial LIS eligibility determinations are for no longer than 12 months. If the SSA or a state
Medicaid agency later decides that an individual is no longer eligible for the LIS, that same entity
also decides when the LIS benefits end. The end date is always the last day of a calendar month,
though it may occur in any month of the year.
Changes in LIS Status
Throughout each plan year, CMS uses SSA data and state files of individuals dually eligible for
Medicare and Medicaid to initiate the LIS eligibility process for new recipients and to look for
changes in LIS eligibility status for current LIS beneficiaries.19 Part D law allows forbearance in
some instances. For example, in the case of a death, the surviving spouse of an LIS-eligible
couple receives a grace period for a redetermination of benefits.20
Medicare Part D Enrollment Periods
A Medicare beneficiary who is signing up for Part D for the first time may do so in one of three
specified enrollment periods,21 depending on the individual’s circumstances:
•
•
•
Initial Enrollment Period for Part D;
Annual Open Enrollment Period (or Annual Coordinated Election Period, AEP);
or
Special Enrollment Period (SEP).
Individuals who qualify for the LIS may enroll at any time.
Initial Enrollment Period
The initial enrollment period is the time during which an individual is first eligible to enroll in a
Part D plan.22 Beneficiaries not yet enrolled in Medicare may join a drug plan at any time during
their seven-month initial Medicare enrollment period. The Part D initial enrollment period is the
same as the initial enrollment period for Medicare Part B.23 Coverage for new enrollees begins on
18 CMS, Medicare Part D Prescription Drug Manual, Chapter 13, “Premium and Cost-Sharing Subsidies for Low-
Income Individuals,” Rev. October 1, 2018, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/
PrescriptionDrugCovContra/Downloads/Chapter-13-Premium-and-Cost-Sharing-Subsidies-for-Low-IncomeIndividuals-v09-14-2018.pdf.
19 CMS Informational Bulletin, “Annual Redetermination of Medicare Part D Low-Income Subsidy Deemed Status
(Re-deeming),” July 25, 2017, available at https://www.hhs.gov/guidance/document/annual-re-determination-medicarepart-d-low-income-subsidy-deemed-status-re-deeming-0.
20 The extension is for one year from the date upon which the couple’s next scheduled redetermination would have
occurred. CMS, Medicare Part D Prescription Drug Manual, Chapter 13, “Premium and Cost-Sharing Subsidies for
Low-Income Individuals,” Section 40, Rev. October 1, 2018, at https://www.cms.gov/Medicare/Prescription-DrugCoverage/PrescriptionDrugCovContra/Downloads/Chapter-13-Premium-and-Cost-Sharing-Subsidies-for-Low-IncomeIndividuals-v09-14-2018.pdf.
21 CMS, “Understanding Medicare Part C & D Enrollment Periods,” January 2023, at https://www.medicare.gov/Pubs/
pdf/11219-Understanding-Medicare-Part-C-D.pdf.
22 CMS, Medicare & You 2023, Section 1, at https://www.medicare.gov/pub/medicare-you-handbook.
23 CRS Report R40082, Medicare Part B: Enrollment and Premiums.
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the first day of the month following the month of enrollment, but no earlier than the first month
they are entitled to Medicare.
Individuals who become eligible for Medicare but have creditable coverage, which is prescription
drug coverage that CMS estimates will provide at least the same level of benefits as the Part D
standard prescription drug benefit, may choose not to sign up for Part D during their initial
enrollment period. Sources of possible creditable coverage include some employer-based
prescription drug coverage, including FEHB; qualified State Pharmaceutical Assistance programs
(SPAPs); and military-related coverage (e.g., VA, TRICARE). However, these individuals could
face a late enrollment penalty if they let their creditable coverage lapse before enrolling in Part D.
(See “Late Enrollment Penalty.”)
Annual Open Enrollment Period
In general, an individual who does not sign up for Part D during his or her initial enrollment
period may enroll only during the annual open enrollment period, held from October 15 to
December 7 each year. Coverage then begins the following January 1. Beneficiaries already
enrolled in Part D may change plans during the annual open enrollment period.
Beneficiaries may want to change plans for a variety of reasons, including changes in their health
status and prescription drug needs or in response to plan modifications. Generally, sponsors make
changes to plan benefits effective at the start of each calendar year. After the open enrollment
period closes, most beneficiaries are locked into their Part D plans for the upcoming benefit year.
Special Enrollment Periods
There are limited occasions outside the annual open enrollment period when an individual may
enroll in, or disenroll from, a Part D plan or switch from one Part D plan to another. In general,
special enrollment periods (SEPs) are open to individuals who (1) move to a new geographic
area,24 (2) involuntarily lose creditable coverage, (3) receive inadequate information about their
creditable coverage status, (4) are subject to a federal error, or (5) are enrolled in a PDP that has
failed or has been terminated.25
Late Enrollment Penalty
A Part D late enrollment penalty is assessed on persons who go without creditable drug coverage
for 63 continuous days or more after the close of their initial enrollment period, and then sign up
for Part D. The penalty is intended to encourage wider enrollment and prevent adverse selection,
which can occur when healthy people put off buying insurance while those with a real or
perceived need immediately enroll. If Part D enrollees are mainly those who are ill or have higher
prescription drug spending, per capita program costs can rise. Higher premiums and/or cost
sharing, in turn, may cause other enrollees (presumably healthier, less costly ones) to end
coverage. Over time, if more persons drop out, program costs could become prohibitive.
24 This includes being released from jail or out of an institution.
25 CMS, “Understanding Medicare Part C & D Enrollment Periods,” January 2023, at https://www.medicare.gov/Pubs/
pdf/11219-Understanding-Medicare-Part-C-D.pdf. The publication includes other examples of SEPs. See also CMS,
Medicare Prescription Drug Benefit Manual, Chapter 3, “Eligibility, Enrollment and Disenrollment,” Section 30.3,
Rev. August 12, 2020, at https://www.cms.gov/files/document/cy2021-pdp-enrollment-and-disenrollmentguidance.pdf.
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The Part D late enrollment penalty is based on the number of months an individual does not have
creditable coverage and is applied to premiums on a monthly basis thereafter.26 The penalty is
calculated by multiplying 1% of the national base premium ($32.74 per month for 2023)27 by the
number of full months an individual has been eligible but has gone without coverage. The final
amount is rounded to the nearest $0.10. For example, if a beneficiary was eligible for Part D in
June 2020 but did not sign up until the 2023 open enrollment period, (with coverage effective
January 2023), and did not have creditable coverage during the 30-month interim period, the
individual would pay an additional $9.80 per month.28
The late enrollment penalty is applied permanently to Part D premiums. Because the national
base premium is recalculated annually, and the penalty is based on the base premium, the penalty
amount would increase in subsequent years if the base premium rises. Generally, LIS
beneficiaries are not subject to the late enrollment penalty.
Plan Selection
Sponsors may alter a plan benefit package at the beginning of a new program year, including
changing the mix of drugs in a formulary and/or modifying required cost sharing for certain
drugs. Sponsors must mail an Annual Notice of Change (ANOC) to plan enrollees, to be
delivered by September 30. The document describes any modifications to the plan’s premiums,
drug coverage, cost sharing, and other features for the coming benefit year. The delivery deadline
is designed to ensure that beneficiaries have at least two weeks to review the information prior to
October 15, the first day of the annual enrollment period.
Sponsors are required to send plan enrollees other enrollment-related materials and information
such as the Summary of Benefits and Evidence of Coverage documents.29 These documents offer
information about a plan’s formulary, general utilization management and pricing policies,
information on beneficiary rights, and other information.
Each year, Medicare beneficiaries have an opportunity to review the cost of their current drug and
health plans, (if in Medicare Advantage) including premiums, co-payments, and deductibles, and
compare the cost and coverage to other plans in their area. Additionally, beneficiaries can
examine whether plans have price tiers that increase or decrease cost sharing for the drugs they
use, whether the plans offer preferred pharmacy options, and what utilization management
requirements the plans impose for drugs, such as prior authorization. (See “Drug Utilization
Management Programs.”)
26 The late enrollment penalty is calculated based on the national base beneficiary premium, not the premium of the
enrollee’s plan. Therefore, the penalty is billed to an applicable enrollee even if the enrollee is in a Part D plan with a
$0 premium.
27 CMS, “Annual Release of Part D National Average Bid Amount and other Part C & D Bid Information,” July 29,
2022, at https://www.cms.gov/files/document/july-29-2022-parts-c-d-announcement-pdf.pdf.
28 CMS, “Part D Late Enrollment Penalty?,” at http://www.medicare.gov/part-d/costs/penalty/part-d-late-enrollmentpenalty.html. (To calculate, 1% × 30 months equals 0.30, and $32.74 × 0.30 equals $9.822. The amount is then rounded
to $9.80.)
29 Starting in 2019, the time frame for delivery of the annual Evidence of Coverage (EOC) information was moved to
the first day of the Annual Election Period (AEP), rather than fifteen days prior to that date. In addition, Part D plans
were allowed to deliver more documents, including the EOC, by notifying enrollees that the documents have been
posted on the Internet. Enrollees have the right to request hard copies. CMS, “Medicare Program: Contract Year 2019
Policy and Technical Changes to Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-Service, Medicare
Prescription Drug Benefit Programs, and PACE Program,” 83 Federal Register, April 16, 2018, p. 16621; at
https://www.gpo.gov/fdsys/pkg/FR-2018-04-16/pdf/2018-07179.pdf.
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CMS posts information on Medicare.gov to help beneficiaries compare Part D plan information.
Beneficiaries, and persons assisting them, can also use the Medicare drug plan finder to search for
information on individual drugs.30 After a beneficiary enters information into the plan finder
regarding prescribed medications, the dosages, and specific pharmacy to be used, the plan finder
displays applicable Part D plans in the area. The plan finder also provides information on quality
ratings to make it easier to compare plans based on cost, quality, and performance ratings.31 CMS
sends annual notices to beneficiaries in low-quality plans encouraging them to look at other,
higher rated plans. (See “Low-Quality Plans.”)
Information on plan availability and characteristics can be obtained from a number of additional
sources, including the Medicare toll-free information number (1-800-MEDICARE), State Health
Insurance Assistance Programs (SHIPs),32 and other local organizations.
Low-Quality Plans
CMS uses a star-rating system to assess the quality of Part D plans. MA-PD plan sponsors are
rated on up to 40 quality and performance measures, while PDP sponsors are assessed on up to 12
measures.33 Plans are ranked on a scale of one to five stars, with five stars considered excellent.
Part D sponsors must provide star rating information to beneficiaries through a standard
document distributed with enrollment information and prominently posted on plan websites.
CMS has determined that three stars is the lowest acceptable quality rating for a plan. Plans must
display a special icon if they have an aggregate star rating of 2.5 or lower for three years of data.
Plans with star ratings of less than three stars for three consecutive years may be terminated by
CMS. In addition, CMS may disable the online enrollment function for plans with a low-rating
icon, and beneficiaries would have to contact the plan directly if they want to enroll.34 Plans that
receive five-star ratings may display a special icon recognizing them as high-performing plans.
All Part D enrollees qualify for a special enrollment period during which they can switch from
their current plan to a five-star plan, provided they meet other enrollment requirements.35
30 Medicare Plan Finder, at http://www.medicare.gov/find-a-plan/questions/home.aspx.
31 The plans are rated on how well they perform in different categories, including (1) drug plan customer service; (2)
member complaints and number of beneficiaries staying with the same drug plan; (3) member satisfaction with drug
plans; and (4) drug pricing and patient safety, including how often drug plans update their prices and formulary
information on the Medicare website and how similar a drug plan’s estimated prices on the Medicare website are to
prices members pay at the pharmacy.
32 SHIPs are state-based programs that use community-based networks to provide Medicare beneficiaries with local
personalized assistance on a wide variety of Medicare and health insurance topics. SHIPs receive federal funding for
their activities. See “Contact Medicare,” http://www.medicare.gov/contacts.
33 CMS, “Medicare 2023 Part C & D Star Ratings Technical Notes,” p. 4. Available at https://www.cms.gov/Medicare/
Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/PerformanceData. Only a portion of the quality measures for
MA-PD plans are directly targeted at the administration of the prescription drug benefit. Other measures are targeted at
other non-drug related health care quality and delivery performance.
34 Beginning in 2016, CMS began to exercise its authority to terminate Part D plans that had received three years of low
ratings. CMS issues contract nonrenewal notices for the affected plans each February, with an effective date of
December 31 of the same year. See CMS, “Advance Notice of Methodological Changes for Calendar Year (CY) 2017
for Medicare Advantage (MA) Capitation Rates, Part C and Part D Payment Policies and Call Letter,” February 19,
2016, p.101, at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Advance
2017.pdf. For definitions see 42 C.F.R. §423.186 and 42 C.F.R. §423.509.
35 Medicare Part D Prescription Drug Manual, Chapter 3, “Eligibility, Enrollment and Disenrollment,” Section 30.3.8,
subsection 12, Rev. August 12, 2020, at https://www.cms.gov/files/document/cy2021-pdp-enrollment-anddisenrollment-guidance.pdf.
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Plan Marketing
Plan sponsors must provide timely and accurate information in their marketing materials. For
example, a plan that has received a four-star rating for one of the categories on which it is
assessed but has an aggregate three-star quality rating across all the CMS measures cannot create
promotional material stating that the plan is a four-star plan.36 Plans are not allowed to market via
unsolicited contacts, such as door-to-door sales, and also face limits on marketing and sales
events. All plan sponsors must have interpreters in their call centers.37
Plans must provide certain documents upon request or enrollment, such as a summary of benefits,
the plan formulary, and a directory of contracting pharmacies. Plan sponsors may offer nominal
gifts (worth $15 or less per item or $75 in the aggregate per person, per year) to potential
enrollees, though they may not take the form of cash or rebates.38
In 2022, CMS issued new rules increasing federal oversight of third-party marketing
organizations, which are outside firms hired to drum up enrollees for Part D plan sponsors. CMS
issued the rule to protect Medicare beneficiaries from what it termed “confusing and potentially
misleading activities” by the marketing organizations.39
Enrollment Process
Beneficiaries can join a Part D plan in a variety of ways,40 including (1) filling out a paper
application; (2) visiting a plan’s website and enrolling online; (3) using the Medicare online
information site and enrollment center at http://www.medicare.gov;41 (4) calling the company
offering the drug plan; or (5) calling 1-800-MEDICARE. In general, a plan sponsor may not deny
a valid enrollment request from any Part D-eligible individual residing in its service area.
An individual (or his/her legal representative) must complete an enrollment request, and include
all information required to process the enrollment. Upon receiving an enrollment request, a plan
sponsor must provide, within 10 calendar days, (1) a notice of acknowledgement of receipt of the
beneficiary’s application, (2) a request for more information in cases of incomplete applications,
or (3) a notice that the application has been denied, along with an explanation as to why.
36 CMS, “Medicare Communications and Marketing Guidelines (MCMG,” February 9, 2022, https://www.cms.gov/
Medicare/Health-Plans/ManagedCareMarketing/FinalPartCMarketingGuidelines. Plans may provide provider and/or
pharmacy directories electronically without prior consent from an enrollee. Part D plans may (1) send enrollees the plan
formulary in hard copy, which may be abridged, or (2) send a distinct and separate notice (in hard copy) describing
where enrollees can find the formulary online and how enrollees can request a hard copy.
37 CMS call center requirements at 42 CFR § 422.111(h)(1)(iii) and § 423.128(d)(1)(iii) require that interpreter services
be provided to non-English speaking and limited English proficient (LEP) individuals at no cost.
38 CMS, “Medicare Communications and Marketing Guidelines (MCMG),” February 9, 2022, https://www.cms.gov/
Medicare/Health-Plans/ManagedCareMarketing/FinalPartCMarketingGuidelines.
39 CMS Fact Sheet, “CY 2023 Medicare Advantage and Part D Final Rule (CMS-4192-F),” April 29, 2022,
https://www.cms.gov/newsroom/fact-sheets/cy-2023-medicare-advantage-and-part-d-final-rule-cms-4192-f. See also
CMS, “Medicare Program: Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and
Medicare Prescription Drug Benefit Programs; etc.,” May 9, 2022, https://www.regulations.gov/document/CMS-20220012-4335. In addition, under the new rule, Part D plans must provide a multi-language insert in the top 15 languages
used in the United States, as well as in any additional non-English language that is the primary language of at least 5%
of the individuals in a plan benefit area, informing individuals that interpreter services are available for free.
40 Medicare Part D Prescription Drug Manual, Chapter 3, “Eligibility, Enrollment and Disenrollment,” Section 40.1,
Rev. August 12, 2020, at https://www.cms.gov/files/document/cy2021-pdp-enrollment-and-disenrollmentguidance.pdf.
41 Drug plan participation in Medicare’s online enrollment center is voluntary, so not all Part D plans offer this option.
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Prior to the effective date of enrollment, a plan sponsor must provide necessary information about
being a member of the plan. In addition, the sponsor must provide: a copy of the completed
enrollment form, if needed; a notice acknowledging receipt of the enrollment request providing
the expected effective date of enrollment; and proof of health insurance coverage so that a
beneficiary may begin using plan services as of the effective date. For all enrollment requests, the
plan sponsor must submit the information necessary for CMS to add a beneficiary to its records as
an enrollee within seven calendar days of receipt of the completed enrollment request.
LIS Enrollment
Special enrollment rules apply to LIS individuals. Generally, there is a two-step process for lowincome persons to gain Part D coverage. First, a determination must be made that they qualify for
the LIS; second, they must enroll, or be enrolled, in a specific Part D plan.42
LIS enrollees were once allowed to change plans at any time during the plan year, unlike other
Part D enrollees who generally may switch plans only during the annual enrollment period. Since
2019, LIS enrollees have been allowed a SEP once per calendar quarter during the first nine
months of the year and also are eligible for SEPs (1) within three months after the start of
coverage or notification that they have been enrolled by CMS or a state in a Part D plan and (2)
within three months after a change to their LIS or Medicaid status.43 Federal regulations place
limits on SEPs for LIS enrollees who are identified by CMS as at risk of opioid abuse. (See “Part
D Opioid Overutilization Monitoring.”)
Auto-Enrollment
Full-benefit, dual-eligible individuals who have not elected a Part D plan are automatically
enrolled into a PDP by CMS.44 CMS first uses data provided by state Medicaid agencies to
identify full-benefit, dual-eligible individuals. CMS then identifies plan sponsors that offer at
least one Part D plan in the region offering basic prescription drug coverage with a premium at or
below the low-income premium subsidy amount. If more than one sponsor in a region meets the
criteria, CMS auto-enrolls beneficiaries on a random basis among available PDP sponsors. CMS
next identifies individual plans offered by the sponsor that include basic drug coverage with
premiums at or below the low-income premium subsidy amount. The beneficiary is then
randomly assigned among the sponsor’s plans meeting the criteria.
Some dual-eligible beneficiaries may be auto-enrolled in a plan that does not meet their needs.
For this reason, they are provided with opportunities to change enrollment, with the new coverage
effective the following month. (See “LIS Enrollment.”) If an enrollee selects a new plan with a
premium above the low-income benchmark, however, he or she must pay the difference.45
42 CMS, Medicare Part D Prescription Drug Manual, Chapter 13, “Premium and Cost-Sharing Subsidies for Low-
Income Individuals,” Section 40, Rev. October 1, 2018, at https://www.cms.gov/Medicare/Prescription-DrugCoverage/PrescriptionDrugCovContra/Downloads/Chapter-13-Premium-and-Cost-Sharing-Subsidies-for-Low-IncomeIndividuals-v09-14-2018.pdf.
43 CMS, “Medicare Program: Contract Year 2019 Policy and Technical Changes to Medicare Advantage, Medicare
Cost Plan, Medicare Fee-for-Service, Medicare Prescription Drug Benefit Programs, and PACE Program,” 83 Federal
Register, April 16, 2018, p. 16514, at https://www.gpo.gov/fdsys/pkg/FR-2018-04-16/pdf/2018-07179.pdf.
44 Full-benefit duals who live in another country, live in one of the five U.S. territories, are inmates in a correctional
facility, have already enrolled in a Part D plan, or have opted out of auto-enrollment into a Part D plan, are excepted
from this process.
45 CMS, Medicare Prescription Drug Manual, “Chapter 3 - Eligibility, Enrollment and Disenrollment,” Section 40.1.4,
(continued...)
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Facilitated Enrollment
CMS established a process labeled “facilitated enrollment” for enrollees in Medicare Savings
programs (MSPs), SSI enrollees, and persons who applied for and were approved for the LIS. The
basic features applicable to auto-enrollment for dual eligibles (i.e., identification of eligibility
through SSA and/or Medicaid data, random assignment to plans with premiums below the lowincome benchmark, and assignment of MA enrollees to the lowest-cost MA-PD plan offered by
the MA organization) are the same for facilitated enrollment.
Reassignment of Certain LIS Beneficiaries
Drug plans may increase premiums at the beginning of a plan year, in some cases raising them
above the benchmark for LIS beneficiaries. When that is the case, CMS is to reassign full LIS
recipients to different plans so they can continue to receive benefits without paying Part D
premiums (or continue paying only a minimal amount). CMS may also automatically reassign
LIS recipients if their current plan terminates operations. LIS beneficiaries who have voluntarily
changed plans in previous years are not automatically reassigned by CMS, even if their plans
charge premiums above the benchmark. LIS beneficiaries in MA-PD plans are automatically
reassigned to PDPs if their current plan ceases operations or they are affected by a reduction in
the plan’s service area.
About 463,000 LIS beneficiaries were enrolled in benchmark PDPs in 2022 that did not qualify as
benchmark plans in 2023. CMS randomly reassigned 457,932 beneficiaries to different PDPs, and
4,460 were assigned to the same plan despite a premium increase. Another 517,183 LIS
beneficiaries were not reassigned because they had previously switched plans voluntarily.46
Part D Benefit Structure
The 2003 MMA set out a minimum drug benefit structure, known as the standard Part D benefit.
Plan sponsors may, and usually do, offer different benefit designs and cost-sharing requirements,
so long as they meet or exceed the standard benefit specifications.
Under the standard benefit, with some exceptions, over the course of a year a beneficiary is
responsible for paying (1) a monthly premium, (2) a capped, annual deductible, and (3) copayments or coinsurance for drug purchases. There MMA did not set an annual cap on enrollee
out-of-pocket spending in the standard benefit, except for certain LIS enrollees. Additionally,
under the MMA, for a certain portion in the annual benefit called the coverage gap (also known
as the doughnut hole), non-LIS beneficiaries initially faced 100% out-of-pocket costs.
The Part D benefit has been reconfigured by Congress several times since the MMA was enacted.
For example, the Patient Protection and Affordable Care Act of 2010 (ACA; P.L. 111-148, as
amended) “closed” the coverage gap, in the sense that enrollees in 2023 pay 25% rather than
100% of drug costs in this portion of the benefit. The ACA also required drug manufacturers that
participate in Part D to provide a discount on certain drugs purchased in the coverage gap. (See
“The Coverage Gap.”)
Rev. August 12, 2020, available at https://www.cms.gov/medicare/eligibility-and-enrollment/medicarepresdrug
eligenrol.
46 Data on 2023 reassignment are available at https://www.cms.gov/Medicare/Eligibility-and-Enrollment/LowIncSub
MedicarePresCov/Reassignment.html.
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The 2022 IRA makes significant changes to the Medicare Part D standard benefit, including
capping annual enrollee out-of-pocket spending. The new provisions are to be implemented
gradually through 2025. The following sections of the report first discuss the 2023 Part D
standard benefit, including several IRA changes that took effect in 2023, followed by a detailed
discussion of additional changes to the standard benefit to be implemented in 2024 and in 2025.47
For information on the drug price negotiation provisions of the IRA, see Appendix B.
Qualified Drug Coverage
Part D plan designs may vary, but all PDPs and MA-PD plans must offer at least a minimum
package of benefits. This minimum benefit, referred to as qualified prescription drug coverage,
may include either a standard package of prescription drug coverage established under law (the
standard benefit) or an alternative package that is actuarially equivalent.48 Plans may also offer
enhanced coverage that exceeds the value of standard coverage. Premiums for these enhanced
plans are generally higher than for standard plans. Actual costs to Part D beneficiaries vary from
plan to plan depending on the benefit structure and coverage offered, the costs and amount of
drugs they use, and the level of any additional assistance, such as through the LIS.
Standard Prescription Drug Coverage
For 2023, under the standard Part D benefit, a beneficiary first pays a deductible ($505). After the
deductible has been met, the beneficiary is responsible for 25% of the cost of prescription drugs
(with the plan covering the remaining 75%) up to the initial coverage limit ($4,660).49 (See
Figure 2.)
To reach the $4,660 initial coverage limit in a 2023 standard plan, a beneficiary would pay the
$505 deductible plus $1,038.75 in prescription costs, for total true out-of-pocket spending
(TrOOP) of $1,543.75. The plan would pay the remaining $3,116.
After the initial coverage threshold has been reached, a beneficiary enters the coverage gap or
“doughnut hole” where he or she remains until accumulating $7,400 in total TrOOP in 2023 (for
those not receiving the LIS) and reaches the catastrophic threshold.50 Total drug spending needed
by a non-LIS beneficiary to move through the deductible, the initial coverage limit, and the
coverage gap to the catastrophic threshold is about $11,206.28,51 with a portion paid by the
beneficiary, a portion covered by the plan, and a portion offset by manufacturer discounts in the
coverage gap. (See “The Coverage Gap.”)
47 See CRS In Focus IF12203, Selected Health Provisions of the Inflation Reduction Act. The IRA also requires the
HHS Secretary to negotiate the price of certain Part D drugs, and requires pharmaceutical manufacturers to pay rebates
to CMS if they increase the price of Part D drugs above an allowable rate of annual inflation.
48 Social Security Act, §1860D-2.
49 The 2023 thresholds were published in the 2023 Call Letter. CMS, “Announcement of Calendar Year (CY) 2023
Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment,” April 4, 2022, p. 68, at
https://www.cms.gov/files/document/2023-announcement.pdf. The standard plan annual deductible, initial coverage
limit, out-of-pocket threshold, and beneficiary cost sharing are adjusted annually under a set formula. See 42 C.F.R.
§423.104(d). The standard plan deductible is the maximum deductible that can be charged for Part D plans.
50 LIS beneficiaries do not face a coverage gap, per say, because they have set, lower cost sharing throughout the
benefit. The more generous Medicare LIS drug cost-sharing subsidies count as TrOOP. For LIS enrollees, total drug
spending needed to generate sufficient TrOOP to reach the catastrophic threshold in 2023 is $10,516.25. For non-LIS
beneficiaries (who may count the manufacturer discount as TrOOP) the total amount of spending needed to reach the
threshold in 2023 is about $$11,206.28.
51 Total spending per beneficiary will vary depending on plan design and purchases of brand-name vs. generic drugs.
CMS thresholds are based on average spending data across all plans.
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Figure 2. 2023 Standard Medicare Prescription Drug Benefit
Source: Figure created by CRS based on data from CMS, “Announcement of Calendar Year (CY) 2023
Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call
Letter,” Attachments IV and V.
Note: Beneficiaries above the catastrophic threshold pay the greater of a $4.15 co-payment for generic drugs
and a $10.35 co-payment for brand-name drugs or 5% cost sharing in 2023. LIS beneficiaries pay less out of
pocket than other beneficiaries. For example, full-benefit dual eligibles pay no deductible, minimal cost sharing in
the coverage gap, and no cost sharing above the catastrophic threshold. (See Table 5.)
Actual spending per beneficiary will vary depending on plan design and use of brand-name vs.
generic drugs. After the catastrophic threshold has been reached, under the standard benefit an
enrollee pays the greater of a nominal set co-payment for drugs or 5% coinsurance.52 Medicare
subsidizes 80% of each plan’s costs for catastrophic coverage, known as Part D reinsurance, and
plan sponsors are liable for 15% of costs.
CMS uses a set formula to update annual Part D coverage parameters, including the standard
deductible, initial coverage limit, and amount of beneficiary TrOOP required to reach the
catastrophic threshold.53 Annual percentage increases are based on average per-capita spending
for covered outpatient drugs for Medicare beneficiaries during the 12-month period ending in
July of the previous year.
Actuarially Equivalent and Enhanced Plans
Plan sponsors have a number of options when designing pricing and benefits. Insurers may offer
basic plans that provide the same level of coverage as the Part D standard plan, but may modify
certain parameters such as reducing the maximum $505 deductible, while also imposing costsharing requirements that are higher than 25%. For example, nearly all plans use a tiered costsharing structure, where beneficiaries have a lower co-payment for generic drugs, and higher cost
sharing for more expensive brand-name drugs. (See “Tiered Formularies.”)
Insurers may also offer enhanced coverage that exceeds the value of defined standard coverage.
Enhanced coverage includes basic coverage and supplemental benefits such as reductions in cost
52 Nominal cost sharing is defined as the greater of (1) a co-payment of $4.15 in 2023 for a generic drug or preferred
multiple source drug and $10.35 for other drugs, or (2) 5% coinsurance.
53 Social Security Act, §1860D-2.
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sharing. A PDP sponsor may not offer an enhanced plan unless it also offers a standard or
actuarially equivalent plan in the same region. The requirement is designed to ensure that
Medicare beneficiaries have options for lower-cost plans. MA-PDs are more likely to offer
enhanced benefits than PDPs, because MA-PD sponsors are allowed to use some of their
Medicare payments to enrich Part D benefits.
In 2022, 54% of Part D enrollees in PDPs were in plans offering enhanced benefits and 46% were
in plans that were actuarially equivalent to the standard benefit.54 Some 1% of enrollees in MAPD plans were in plans that offered basic benefits; the other 99% were in enhanced plans.
The Coverage Gap
One unique feature of the Medicare Part D drug benefit is the coverage gap (also referred to as
the doughnut hole)—the period in which Part D enrollees initially were required to pay 100% of
total drug costs until they reached the catastrophic threshold. Congress included the coverage gap
in the benefit structure when the MMA was enacted in 2003 because the cost of continuous
coverage would have exceeded budget limitations regarding total spending on the new program.
As originally enacted, Part D provided a basic level of coverage for all beneficiaries, and extra
protection for those with the highest drug costs (above the catastrophic limit). Part D enrollees
who did not receive a low-income subsidy generally paid the full cost of drugs while in the
coverage gap. The ACA, as amended,55 gradually phased out the coverage gap between 2011 and
2020, meaning that by 2020 enrollees in standard plans had a 25% cost share from the time they
meet a standard plan deductible until they reached the catastrophic threshold, after which cost
sharing was a maximum of 5%. (Congress included provisions in BBA 2018 that closed the Part
D coverage gap for brand-name drugs in 2019, a year earlier than required by the ACA.56)
The ACA closed the coverage gap two ways.
•
•
For brand-name and biologic drugs, the ACA required manufacturers
participating in Part D to pay a mandatory discount on drugs purchased in the
coverage gap, while phasing in a 25% Medicare/Part D plan subsidy. (The ACA’s
original manufacturer discount of 50% was increased to 70% in the BBA 2018
and expanded to cover biosimilars.) Medicare/Part D plans now provide a 5%
subsidy in the coverage gap, and enrollees pay 25% coinsurance.
For generic drugs, the ACA gradually increased the Medicare subsidy to 75% and
set enrollee cost sharing at 25%. There is no generic manufacturer discount.
Even though the coverage gap has been closed (in the sense that the Part D standard benefit has
25% cost sharing from the deductible to the catastrophic threshold), for 2023 and 2024 the
coverage gap is still an important part of the benefit structure for purposes of (1) calculating
mandatory manufacturer discounts for certain drugs; and (2) determining the required level of
enrollee cost sharing and out-of-pocket spending in that portion of the benefit.57 Some enrollees
54 MedPAC, (MedPAC), Report to the Congress: Medicare Payment Policy, March 2023, Chapter 12, Table 12-2, p.
396, at https://www.medpac.gov/document/march-2023-report-to-the-congress-medicare-payment-policy/.
55 §3301 of the ACA created the coverage gap manufacturer discount program. §1101 of the Health Care and Education
Reconciliation Act of 2010 (P.L. 111-152 ) added the phase-in of government subsidies to close the coverage gap by
2020.
56 Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123), §53116.
57 Non-LIS beneficiaries are allowed count manufacturer on brand-name drugs in the coverage gap as their own out-ofpocket spending. See “Phase Out of the Coverage Gap.”
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may actually pay higher cost sharing in the coverage gap than in some other phases of the benefit
due to rules governing cost sharing by Part D plans. (See textbox below.)
Supplemental Cost Sharing in the Coverage Gap
Part D plan sponsors may offer plans with supplemental coverage, such as lower deductibles or cost sharing than
in the standard benefit. Under Part D law and regulation, if a plan sponsor offers a supplemental benefit in the
coverage gap (such as a low, set co-payment rather than 25% coinsurance) the “the applicable beneficiary shall not
be provided a discounted price for an applicable drug under this section until after such supplemental benefits have
been applied with respect to the applicable drug.”
For example, if a sponsor offered a plan with a $10 co-payment on a $100 drug in the coverage gap, the plan
sponsor’s liability would be calculated as ($100 - $10), or $90. The manufacturer discount would be applied to the
$10 co-payment ($10 x 0.70 = $7). The enrollee would pay the remaining share ($100 – ($90 + $7) = $3).
If the plan sponsor did not offer an enhanced benefit, the manufacturer discount would be 70% of the negotiated
price of $100 ($100 x 0.70 = $70). The enrollee would pay 25% coinsurance on the $100 negotiated price ($100 x
0.25 = $25), and the plan sponsor would be liable for the remaining $5 ($100 - ($70 + $25). The policy can act as
a disincentive for plan sponsors to offer supplemental cost sharing in the coverage gap.
Source: SSA §1860D-14(A)(c)(2) and CRS analysis.
True Out-of-Pocket Costs
Before catastrophic protection begins, Part D enrollees must incur a certain level of out-of-pocket
spending. TrOOP are costs that are incurred by a beneficiary or are counted by CMS as incurred
by a beneficiary, including a plan deductible, cost sharing up to the initial coverage limit, and the
cost sharing for drugs while in the coverage gap.
Enrollee spending for Part D covered drugs is treated as TrOOP58 if paid by an enrollee (including
through a Medical Savings Account, Health Savings Account or Flexible Spending Account);
paid by family members or friends; paid by a Qualified State Pharmacy Assistance Program;
covered by the LIS; paid by most charities; covered by a drug manufacturer discount under the
Medicare Coverage Gap Discount Program; covered by the Indian Health Service;59 or paid by an
AIDS Drug Assistance Program.60
58 CMS, Medicare Prescription Drug Benefit Manual, Chapter 5, “Benefits and Beneficiary Protection,” Section 30,
Rev. September 20, 2011, at http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/
Downloads/MemoPDBManualChapter5_093011.pdf.
59 Added by §3314 of the ACA.
60 Added by §3314 of the ACA.
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Examples of TrOOP Spending
Consider a non-LIS enrollee in a 2023 standard plan. To reach the initial coverage limit, the enrollee would need
to incur TrOOP spending consisting of the $505 deductible plus 25% coinsurance or co-payments on total drug
spending from the $505 deductible to the $4,660 initial coverage limit ($505 deductible + $1038.75 cost sharing =
$1,543.75). While beneficiaries move into the coverage gap on the basis of plan plus enrollee spending,
beneficiaries move out of the coverage gap and into the catastrophic portion of the benefit based solely on
enrollee out-of-pocket spending (which includes the value of manufacturer discounts.) The beneficiary would now
face $5,856.25 of additional out-of-pocket spending in the doughnut hole before he or she would reach the
catastrophic threshold (a total of $7,400 in out-of-pocket spending).
While in the coverage gap in 2023, a beneficiary would pay 25% of the cost of brand-name drugs, including any
pharmacy dispensing fees. The manufacturer provides a 70% discount on the negotiated price of brand-name drugs
and biologic and biosimilar products, which under law counts toward TrOOP. The federal government provides a
subsidy of 5% of the cost of the brand-name drug, which would not count toward TrOOP.
A beneficiary who purchases generic drugs in the coverage gap in 2023 would pay 25% of the cost of drugs,
including pharmacy dispensing fees, which would count toward TrOOP. The federal government provides a 75%
coverage subsidy that does not count toward TrOOP.
In one example, the beneficiary buys a brand-name drug that has a negotiated price of $60 and a $2 pharmacy
dispensing fee. The total cost is $62. The beneficiary will pay 25% of the cost of the drug and dispensing fee ($62 ×
0.25 = $15.50). The manufacturer discount reduces the price of the drug by $42 (70% of the $60 negotiated
price). In this case, TrOOP will be $57.50 (the $15.50 beneficiary price, including a portion of the dispensing fee,
plus the $42 manufacturer discount). The remaining $4.50 ($3.00 cost of the drug and $1.50 of the dispensing fee)
is borne by the plan and does not count toward TrOOP.
In another example, the beneficiary buys a generic drug. The price for the generic drug is $20 and the dispensing
fee is $2. The beneficiary will pay 25% of the cost of the generic drug plus the pharmacy fee ($22 × 0.25 = $5.50).
The $5.50 will count as TrOOP. The government’s 75% coverage portion will not count as TrOOP.
Source: CRS analysis of CMS, “Costs in the Coverage Gap,” at https://www.medicare.gov/drug-coverage-part-d/
costs-for-medicare-drug-coverage/costs-in-the-coverage-gap.
Incurred costs do not include Part D premiums; costs for drugs not on a plan formulary; coverage
by other insurance, including group health plans, workers’ compensation, Part D plans’
supplemental or enhanced benefits, or other third parties; or Patient Assistance Programs
operating outside of Part D. Additionally, while manufacturer discounts count toward TrOOP,
federal subsidies for brand-name or generic drugs in the coverage gap do not count.61
In 2021, 4.1 million Part D enrollees exceeded the out-of-pocket threshold and reached the
catastrophic phase of the benefit.62 Medicare picks up a larger share of spending (80%
reinsurance) for enrollees who reach the catastrophic threshold, and reinsurance accounted for
55% of 2021 Part D spending. Non-LIS enrollees were 36% of those reaching the catastrophic
threshold in 2021, while LIS enrollees made up 64%. Although LIS enrollees were more likely to
reach the catastrophic phase of the benefit, the LIS share of enrollees reaching the catastrophic
threshold has declined from more than 80% in 2010 and earlier years. The change reflects more
rapid growth in Part D enrollment by non-LIS individuals, as well as an increase in the average
price of drugs used by the non-LIS population.63
61 For example, the Part D 70% manufacturer discount on brand-name, biologics, and biosmilar drugs in the coverage
gap is counted as enrollee out of pocket spending, in addition to an enrollee’s 25% cost share. However, the Medicare
75% contribution to the cost of generic drugs in the coverage gap does not count against enrollee out-of-pocket
spending. An individual using only generic drugs is likely to accumulate TrOOP more slowly than an individual taking
brand-name drugs. In addition, Part D plan sponsors have the option of providing supplemental coverage in the
coverage gap, which could affect enrollee TrOOP.”
62 MedPAC, July 2023 Data Book, Health Care Spending and the Medicare Program, Chart 10-19, at
http://www.medpac.gov/-documents-/data-book. The data are the most recent available.
63 MedPAC, 2023 Report to Congress, Chapter 12, p. 404.
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IRA Changes to the Medicare Part D Benefit in 2023
The IRA made several changes to the Part D standard benefit, effective in the 2023 plan year.
Starting in 2023,
•
•
Part D plans may no longer apply a deductible, coinsurance, or other cost-sharing
requirement for adult vaccinations recommended by the Centers for Disease
Control and Prevention’s (CDC’s) Advisory Committee on Immunization
Practices (ACIP) that are covered Part D drugs (e.g., shingles vaccine).
Part D deductibles no longer apply to covered insulin products,64 and there is a
$35 monthly cap on insulin cost sharing.65
Part D Standard Benefit For 2024
In 2024, under the IRA, the defined standard benefit thresholds, the drug-inflation formula for
updating the thresholds, and the manufacturer coverage gap discount program are unchanged.
However, for 2024 and following plan years, enrollee out-of-pocket spending is capped at the
catastrophic threshold, meaning enrollees have no cost sharing for prescriptions once they reach
the annual threshold.66
Figure 3. 2024 Medicare Part D Standard Benefit
Source: CRS and CMS 2024 Call Letter.
64 Under the 2022 IRA, a “covered insulin product” means an insulin product that is a covered Part D drug covered
under the prescription drug plan or MA-PD plan that is approved under §505 of the Federal Food, Drug, and Cosmetic
Act or licensed under §351 of the Public Health Service Act and marketed pursuant to such approval or licensure,
including any covered insulin product that has been deemed to be licensed under §351 of the Public Health Service Act
pursuant to §7002(e)(4) of the Biologics Price Competition and Innovation Act of 2009 and marketed pursuant to such
section.
65 For more detailed information, see CRS Report R47396, Health Care Provisions of the Budget Reconciliation
Measure P.L. 117-169.
66 Under SSA §1860D-2(b)(6) the dollar amounts of thresholds are adjusted based on the annual percentage increase in
average per capita aggregate expenditures for covered Part D drugs in the United States for Part D eligible individuals,
as determined by the Secretary for the 12-month period ending in July of the previous year.
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In 2024 under the standard Part D benefit, a beneficiary pays a deductible ($545). (See Figure 2.)
After the deductible is met, the beneficiary is responsible for 25% of the cost of prescription
drugs (with the plan covering the remaining 75%) up to the initial coverage limit ($5,030).67
To reach the $5,030 initial coverage limit in a 2024 standard plan, a beneficiary would pay the
$545 deductible plus $1,121.25 in prescription costs, for total out-of-pocket costs of $1,666.25.
The plan would pay the remaining $3,363.75. After reaching the initial coverage threshold, a
beneficiary enters the coverage gap, where he or she remains until accumulating $8,000 in TrOOP
and reaching the catastrophic threshold.68 Total estimated drug spending needed by a non-LIS
beneficiary to move through the deductible, initial coverage limit, and coverage gap to the
catastrophic threshold in 2024 is estimated at $12,447.11.69 Once a beneficiary reaches the
catastrophic threshold, he or she pays $0 cost sharing.
The IRA makes a series of changes to the Part D standard benefit, effective in 2024, including the
following:
•
For 2024, Medicare reinsurance continues to subsidize 80% of each plan’s costs
for drugs dispensed to enrollees who exceed the catastrophic threshold. Part D
plan sponsors are liable for 15% of costs, as in 2023, plus another 5% of costs
that will no longer be borne by enrollees due to the new out-of-pocket spending
cap.70 In total, plan sponsors will be liable for 20% of catastrophic drug costs.
Starting in 2024, the two separate categories of LIS subsidy (full and partial) are to be merged
into one new LIS category.71 (See “
•
•
Low-Income Subsidies.”)
Beginning in 2024 and running through 2029, annual increases in the Part D base
beneficiary premium are to be capped at a maximum of 6%. Currently, there is no
annual cap on the base premium. (See “Premiums”)
In addition to the IRA changes, a 2022 CMS regulation takes effect in 2024 that is forecasted to
reduce enrollee cost sharing. Starting in 2024, Part D plans that impose fees on pharmacies as
penalties for failing to meet contractual quality or other targets, or for the right to participate in
certain programs, must apply the fees as a reduction to the price of a drug at the point of sale.
67 The thresholds for 2024 were published in the 2024 Call Letter. CMS, “Announcement of Calendar Year (CY) 2024
Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment,” March 31, 2023, p. 134.
68 For those receiving a LIS (who are not eligible for manufacturer discounts in the doughnut hole because they have
set, lower cost sharing throughout the benefit), total spending needed to generate sufficient out-of-pocket spending to
reach the catastrophic threshold is $11,477.39.
69 Total spending per beneficiary will vary depending on plan design and purchases of brand-name vs. generic drugs.
CMS thresholds are based on average spending data across all plans.
70 CMS, “Announcement of Calendar Year (CY) 2024 Medicare Advantage (MA) Capitation Rates and Part C and Part
D Payment Policies,” March 31, 2023, p. 134, https://www.cms.gov/medicare/health-plans/medicareadvtgspecratestats/
announcements-and-documents/371979854/2024.
71 Under current law, certain groups of Medicare beneficiaries automatically qualify and are deemed eligible for the full
LIS. Full-benefit dual eligibles who qualify for Medicaid benefits based on income and assets are automatically
deemed eligible for the full LIS. Additionally, those who receive Medicare premium and/or cost-sharing assistance
from Medicaid through the Medicare Savings Program, plus those eligible for Supplemental Security Income cash
assistance, are automatically deemed eligible for full LIS. Others may qualify for the full LIS if they have income
below 135% of the federal poverty level (FPL) and meet certain resource levels. Individuals may be eligible for the
partial LIS if they have income below 150% of the FPL and meet slightly higher resource levels.
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According to the 2023 Medicare Trustees Report, the change will reduce the point-of-sale drug
cost by 7% during the next decade.72 (For more details, see “Payments to Pharmacies.”)
Medicare Part D Standard Benefit in 2025
In 2025, the IRA requires a number of broad changes to the Part D standard benefit, including
reducing the catastrophic threshold to $2,000; eliminating the coverage gap and existing
manufacturer discount program; and implementing a new manufacturer discount program. (See
Figure 4.) CMS has not released the specific dollar amounts of the benefit thresholds for 2025,
but Figure 4 shows the outlines of the redesigned standard benefit.
Figure 4. 2025 Medicare Part D Standard Benefit
Source: CRS analysis of P.L. 117-169. The dollar threshold for the deductible had not been set by CMS when
this report was prepared.
Note: Phase-in for small manufacturers: For sales of drugs by specified manufacturers to LIS beneficiaries, or in
cases where one Part D drug accounts for a significant share of a specified manufacturer’s revenues, the 2025
manufacturer discounts would be 1% both below and above the catastrophic threshold.
Under the IRA,
•
•
Starting in 2025, there is no initial coverage limit or coverage gap. Under the
redesigned standard benefit, enrollees pay average 25% cost sharing from the
deductible to the catastrophic threshold and no cost sharing above the
catastrophic threshold.
For the 2025 plan year, the amount of annual TrOOP required to reach the
catastrophic threshold is reduced to $2,000 (by comparison, in 2024 an enrollee
must have $8,000 in TrOOP to reach the catastrophic threshold). The $2,000
catastrophic threshold and plan deductible will be adjusted in subsequent years
using the current law formula, which is based on Part D drug price inflation.
72 2023 Medicare Trustees Report, p. 149. Many enrollees pay coinsurance for drugs based on the negotiated price at
the point of sale.
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•
•
•
•
Total enrollee drug spending needed to generate $2,000 in TrOOP under the
reconfigured benefit will depend on factors including (1) the dollar amount of the
deductible in each plan, (2) the specific drugs used by an enrollee, and (3)
whether an enrollee has other sources of coverage that, beginning in 2024, are to
count as TrOOP.
For 2025 and subsequent years, Part D enrollees may count as TrOOP
reimbursement through other insurance, a group health plan, or certain other
third-party payment arrangements. The IRA does not define certain other thirdparty arrangements, except to say they do not include Part D coverage. (Under
the current law through 2024, the LIS subsidy, the manufacturer discount and
other selected assistance, such as Ryan White AIDS Act, the Indian Health
Service, and charitable assistance count as TrOOP. Most of those provisions
continue,73 but the manufacturer discount will no longer count as TrOOP [see
next bullet point].)
Starting in 2025, the current Part D manufacturer discount program ends and a
new Part D manufacturer discount program takes effect. The new program
provides a 10% discount on applicable drugs (brand-name drugs, biologics, and
biosimilars) between the deductible and the catastrophic threshold and a 20%
discount on applicable drugs above the catastrophic threshold. LIS beneficiaries,
who were not covered under the previous manufacturer discount program, are
eligible for the new manufacturer discount.
Starting in 2025, Medicare reinsurance to Part D plan sponsors for drug costs above the
catastrophic threshold is reduced to 20% from 80% for brand-name drugs, biologics, and
biosimilars and to 40% from 80% for generics. The new manufacturer discount program
is to be phased in gradually for drugs produced by specified manufacturers when (1) the
drugs are dispensed to LIS beneficiaries,or (2) one drug covered by a Part D
manufacturer discount agreement makes up more than 80% of total spending for all of a
specified manufacturer’s drugs under such agreements.74 In such cases,
•
For applicable drugs dispensed to enrollees who have exceeded the
deductible but have not reached the catastrophic threshold, the 10%
manufacturer discount is to be phased in as follows: for 2025, 1%; for
2026, 2%; for 2027, 5%; for 2028, 8%; and for 2029 and each
subsequent year, 10%.
73 Under current law and regulations, enrollees may also count as TrOOP: costs incurred by another person of behalf of
the enrollee (including charities, if they are not otherwise excluded); costs paid by Medicare on behalf of a LIS
enrollee; costs paid by a State Pharmaceutical Assistance Program, the Indian Health Service, or the Ryan White AIDS
program. CMS, Medicare Prescription Drug Benefit Manual, Chapter 5, “Benefits and Beneficiary Protection,” Section
30, Rev. September 20, 2011, at http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCov
Contra/Downloads/MemoPDBManualChapter5_093011.pdf. Single-source drugs that are subject to a HHS Secretary
negotiated price under IRA will not be subject to the manufacturer discount. (The first negotiated prices take effect in
2026.) If a drug subject to a negotiated price is dispensed to a Part D enrollee who has not had sufficient spending to
reach the catastrophic threshold, the HHS Secretary is to provide the Part D plan sponsor with a subsidy equal to 10%
of the Part D plan’s negotiated drug price.
74 Specified manufacturers are defined as manufacturers of applicable drugs, for which in 2021 a Part D coverage gap
discount agreement with HHS was in effect; total spending for all the manufacturer’s specified drugs covered by Part D
discount agreement(s) was less than 1% of total Part D drug spending; and total spending for all the manufacturer’s
specified drugs that were single-source drugs and biological products covered under Medicare Part B during such year
represented less than 1% of total expenditures under Part B for all drugs or biological products during such year.
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•
For applicable drugs dispensed to enrollees who have incurred costs
equal to or above the annual catastrophic threshold, the 20%
manufacturer discount is to be phased in at for 2025, 1%; for 2026, 2%;
for 2027, 5%; for 2028, 8%; for 2029, 10%; for 2030, 15%; and for 2031
and each subsequent year, 20%.
Beginning in 2025, Part D enrollees may choose to spread out their prescription cost sharing by
paying required coinsurance or co-payments in capped, monthly installments.
Part D Premiums
The majority of beneficiaries enrolled in Part D pay monthly premiums for Part D coverage. On
average, beneficiary premiums represent about 25.5% of the cost of a standard Part D plan, as
determined through annual bids submitted by insurers. (See “Standard Prescription Drug
Coverage.”)75 The actual dollar amounts of Part D premiums vary by plan.
Figure 5. Annual Part D Base Beneficiary Monthly Premium
(in current dollars)
Source: CMS, “Annual Release of Part D National Average Bid Amount and other Part C & D Bid Information.”
Notes: Amounts reflect 25.5% of the annual average of participating drug plan bids to provide basic Part D
benefits.
Beneficiary premiums are based on the weighted average of annual bids submitted by
participating sponsors for standard benefits (the base beneficiary premium) and are adjusted to
reflect the difference between the standardized bid amount of the plan the beneficiary enrolls in
75 Base Part D premiums are based on annual sponsor bids for providing standard coverage. Bids do not include
expected reinsurance payments, which are direct Medicare subsidies for 80% of each plan’s costs above a set
catastrophic threshold. (See “Reinsurance Subsidies.”) However, plan sponsors provide estimates of projected
reinsurance subsidies, which are used by CMS to make monthly prospective payments to the plans. In 2005 rules to
implement the Part D program, CMS noted that congressional intent was that average monthly premiums were to be
based on total estimated standard benefits, including benefits subject to reinsurance. To ensure premiums cover a
portion of the cost of reinsurance, CMS adjusts the base premium under a set formula. See CMS, “Medicare Program:
Medicare Prescription Drug Benefit; Final Rule,” 70 Federal Register, 4303, January 28, 2005, at
https://www.govinfo.gov/content/pkg/FR-2005-01-28/pdf/05-1321.pdf.
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and the nationwide average bid. For 2023, the base beneficiary monthly premium, 25.5% of the
average adjusted bid amount, is $32.74.76 Historic base premiums are shown in Figure 5.
Beneficiaries in plans with higher costs for standard coverage face higher-than-average
premiums, while enrollees in lower-cost plans pay lower-than-average premiums for such
coverage. (Plans that offer supplemental benefits may set higher premiums but do not receive
Medicare subsidies for the supplemental benefits.) Additionally, enrollees in MA-PD plans may
have lower premiums if their sponsors choose to buy down, or reduce, the Part D premium.77 The
monthly premium is applied evenly to all persons enrolled in a specific plan, except those who
are receiving the LIS or are subject to a late enrollment penalty (LIS beneficiaries have lower or
zero premiums, and late enrollees pay a monthly penalty in addition to their plan premium).
There are special rules for employer-sponsored Part D plans. Beneficiaries may pay plans directly
or have premiums deducted from their Social Security benefits.78
Premium Surcharge for Higher-Income Enrollees
Since 2011, as required by the ACA, Part D enrollees with higher incomes have been required to
pay higher premiums. (The Part D high-income requirements are similar to the income-based
premium structure under Medicare Part B.)79 Part D beneficiaries with modified adjusted gross
income (MAGI) above set thresholds are assessed a surcharge,80 referred to as an income-related
monthly adjustment amount (IRMAA), in addition to their regular plan premiums.
The higher-income surcharge is calculated as the difference between the Part D base beneficiary
premium (which in 2023 represents 25.5% of the average national bid amount) and 35%, 50%,
65%, 80%, or 85% of the national average cost for providing Part D benefits,81 excluding federal
reinsurance or subsidies. The surcharge is based on beneficiary income, with higher-income
beneficiaries facing a larger surcharge. Because individual plan premiums vary, the law specifies
that CMS calculate the Part D surcharge using the base premium, rather than each beneficiary’s
individual plan premium amount.82 (See Table 2.)
76 CMS, “Annual Release of Part D National Average Bid Amount and other Part C & D Bid Information,” July 29,
2022, at https://www.cms.gov/files/document/july-29-2022-parts-c-d-announcement-pdf.pdf.
77 MA plans that earn a Part C rebate (by having estimated benefit costs below the maximum possible Medicare
payment) must spend the rebate on supplemental benefits, reduced cost sharing or reduced Part B or D premiums.
78 Social Security deductions are limited to $300 per month, the harm limit. SSA, HI 03001.001, “Description of the
Medicare Part D Prescription Drug Program,” at https://secure.ssa.gov/poms.nsf/lnx/0603001001.
79 See CRS Report R40082, Medicare Part B: Enrollment and Premiums.
80 The definition of modified adjusted gross income (MAGI) used for the calculation is the total of adjusted gross
income and tax-exempt interest income. The income data is based on the most recent tax information that the Internal
Revenue Service is able to provide the Social Security Administration. Generally, the tax information is from two years
prior to the year for which the premium is being determined but not more than three years prior. Social Security
Administration, “Medicare Premiums: Rules for Higher-Income Beneficiaries,” at https://www.ssa.gov/benefits/
medicare/medicare-premiums.html. MAGI has more than one definition in federal tax law, with the definition varying
based on the program or provision utilizing the concept. See CRS Report R43861, The Use of Modified Adjusted Gross
Income (MAGI) in Federal Health Programs. The income thresholds are the same as those used for calculating
Medicare Part B premiums.
81 CMS, “2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly
Adjustment Amounts,” September 27, 2022, https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-bpremiums-and-deductibles-2023-medicare-part-d-income-related-monthly.
82 Social Security Act §1860D-13(a)(7). See also SSA, “Medicare Premiums: Rules for Higher-Income Beneficiaries,”
at https://www.ssa.gov/benefits/medicare/medicare-premiums.html.
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Table 3. 2023 Monthly Medicare Part D High-Income Surcharge
File Individual Tax Return
File Joint Tax Return
2023 Payment Is
$97,000 or less
$194,000 or less
Plan Premium
Above $97,000 to $123,000
Above $194,000 to $246,000
$12.20 + Plan Premium
Above $123,000 to $153,000
Above $246,000 to $306,000
$31.50 + Plan Premium
Above $153,000 to $183,000
Above $306,000 to $366,000
$50.70 + Plan Premium
Above $183,000 and less than
$500,000
Above $366,000 and less than
$750,000
$70.00 + Plan Premium
$500,00 and above
$750,000 and above
$76.40 + Plan Premium
Source: Medicare.gov, “Monthly Premium for Drug Plans.”
Notes: Income figures refer to modified adjusted gross income.
There is a separate IRMAA calculation for beneficiaries who are married and lived with their
spouses at any time during a year, but filed separate tax returns. In such cases for 2023,
•
•
Individuals with MAGI between $97,000 and $403,000 pay $70.00 per month,
plus a plan premium.
Individuals with MAGI greater than or equal to $403,000 pay $76.40 per month,
plus a plan premium.
Under the original ACA provisions, high-income Part D enrollees were placed into one of four
IRMAA categories, depending on their income. The BBA 2018 added a fifth high-income
category beginning in 2019 for individuals with annual income of $500,000 or more or couples
filing jointly with income of $750,000 or more. Enrollees with income equal to or exceeding
these thresholds pay premiums that cover 85% of the average per capita cost of the Part D
benefits (instead of 80%, as they would have prior to this change). The threshold for couples
filing jointly in this new income tier is calculated as 150% of the individual income level rather
than 200%, as in the other income tiers. The bottom four high-income categories are adjusted
annually for inflation based on the CPI-U; however, the new top high-income threshold is frozen
through 2027 and then adjusted annually for inflation starting in 2028.83
Beneficiaries pay the surcharge directly to the federal government, rather than to Part D plans.
When applicable, IRMAA is withheld from an enrollee’s monthly Social Security check, Railroad
Retirement benefit, or federal pension payment, unless the benefit is not sufficient.84
IRA Premium Stabilization Program
The IRA created a Part D premium stabilization program, effective in 2024. Under the IRA, for
2024-2029, the annual base premium is to be equal to the lesser of (1) the base premium for the
previous year (e.g., 2023 for the applicable year 2024) increased by 6%, or (2) the base premium
for the applicable year (in this case, 2024) as computed under the underlying Part D statutory
formula of 25.5% of weighted plan bids.85
83 These threshold changes also apply to Part B income-related monthly adjustments. See CRS Report R40082,
Medicare Part B: Enrollment and Premiums.
84 In cases where an enrollee’s benefit payment check is not sufficient to have the IRMAA withheld, or if an enrollee is
not receiving such benefits, the beneficiary must be billed directly for the IRMAA. See 42 C.F.R. §423.293.
85 See SSA §1860D–13(a)(2). The current law formula is about 25.5% of the cost of a standard Part D plan, as
determined through annual bids submitted by insurers.
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For 2024, the base premium is required to be the lesser of (1) the 2023 base premium of $32.74
increased by 6%, or $34.70, or (2) the base premium derived from the underlying Part D formula.
CMS announced in July 2023 that the 2024 base premium would be a 6% increase to $34.70.
According to CMS, absent the IRA premium stabilization 6% cap, the 2024 base premium (as
calculated through the underlying Part D statutory formula of 25.5% of weighted plan bids)
would have been $39.35.86 That would have been a 20% increase, which would have been the
largest annual rise in the base premium since Part D was implemented. (See Figure 5).
For 2030 and subsequent years, the base premium is to be calculated as the percentage of average
plan bids necessary to ensure that the base premium in 2030 is equal to the lesser of (1) the base
premium for 2029 increased by 6% or (2) the base premium that would have been computed for
2030 using the underlying Part D formula of 25.5% of the average adjusted bid amount.
However, the base premium for 2030 and subsequent years may not be set at less than 20% of the
weighted average of all plan bids.
In addition, under the IRA premium stabilization program, Medicare’s direct subsidies to Part D
plan sponsors increase in any year from 2024 to 2029 in which the base premium would have
risen by more than 6% from the previous year, absent the cap. After 2030, the direct subsidy level
to plan sponsors could be adjusted, if the IRA formula for setting the base beneficiary premium
from 2030 on produced a different percentage than 25.5% of weighted bids.87
Low-Income Subsidies
Medicare Part D provides subsidies to assist low-income beneficiaries with premiums and cost
sharing.88 For 2023, LIS cost sharing varies according to a beneficiary’s assets and income and,
also, whether a beneficiary is institutionalized, or is receiving community-based care. (See
“Eligibility for Low-Income Assistance.”)
Premium Assistance
Full-Subsidy-Eligible Individuals in 2023
Low-income beneficiaries who qualify for a full subsidy do not pay monthly plan premiums if
they enroll in certain, lower-cost Part D plans. A PDP qualifies as a lower-cost or “benchmark”
plan if it offers basic Part D coverage and charges premiums equal to, or below, a regional lowincome premium subsidy amount calculated by CMS each year. (See “Availability of Low86 CMS, “CMS Releases 2024 Projected Medicare Part D Premium and Bid Information,” July 31, 2023,
https://www.cms.gov/newsroom/fact-sheets/cms-releases-2024-projected-medicare-part-d-premium-and-bidinformation.
87 See CBO Letter to Rep. Jason Smith, August 4, 2022, at https://www.cbo.gov/system/files/2022-08/58355Prescription-Drug.pdf. For example, if the base premium would have risen more than 6% for a year absent the cap, P.L.
117-169 would adjust the direct subsidy to Part D plans (set to average 74.5% of the average cost of a Part D standard
benefit) to compensate, basically holding plans harmless. After 2030, the direct subsidy level would be equal to 100%
minus the percentage amount of the base premium for 2030, which is to be derived under the IRA formula. According
to the CBO letter, “That subsidy and subsequent reduction in premiums would increase federal spending by roughly
$40 billion over the 2024-2031 period, CBO estimates. Beneficiaries’ spending on premiums would be lower under the
premium-stabilization provision than it would be without it. That estimate is an average effect among the possible paths
of premiums that CBO considered when modeling the uncertainty of future outcomes. Under some of those paths,
premiums would grow by less than 6 percent a year, and the provision would have no cost; under others, premiums
would grow faster, and the provision would generate costs.”
88 While assistance with Part B premiums and cost sharing for low-income beneficiaries is primarily paid for by state
Medicaid programs (through their Medicare Savings Programs), the Part D low-income subsidy is federally funded.
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Income Plans.”) If a LIS beneficiary selects a plan with a premium that is higher than the regional
benchmark, he or she must pay the extra cost.
Partial-Subsidy-Eligible Individuals
For plan year 2023, partial-subsidy-eligible individuals receive premium assistance based on an
income sliding scale, as specified in Table 4.
Table 4. Sliding-Scale Premium for Partial-Subsidy-Eligible Individuals
Federal Poverty Level (FPL) and Asset Thresholds
Percentage of
Premium Subsidy
Amount
Income up to or at 135% FPL; assets that do not exceed the calendar year resource limits
for individuals or couples.
100%
Income above 135% FPL but at or below 140% FPL; assets that do not exceed the calendar
year resource limits for individuals or couples.
75%
Income above 140% FPL but at or below 145% FPL; assets that do not exceed the calendar
year resource limits for individuals or couples.
50%
Income above 145% FPL but below 150% FPL; assets that do not exceed the calendar year
resource limits for individuals or couples.
25%
Source: SSA Program Operations Manual, Section HI 03030.025, “Resource Limits for Subsidy Eligibility,” at
https://secure.ssa.gov/poms.nsf/lnx/0603030025.
Cost-Sharing Subsidies
Cost-sharing subsidies for LIS enrollees are linked to the standard prescription drug benefit but
represent the maximum cost sharing that can be applied to LIS enrollees in any type of Part D
plan. Full-subsidy dual eligibles have no deductible, minimal cost sharing during the initial
coverage period and coverage gap, and no cost sharing above the catastrophic threshold. Partialsubsidy individuals have higher cost sharing. (See Table 5.)
Other specific policies related to cost sharing during the initial coverage period and coverage gap
for dual eligibles include the following:89
•
•
•
Full-benefit, dual eligibles who are residents of medical institutions or nursing
facilities have no cost sharing, with some exceptions. Enrollees with home and
community-based services in lieu of institutional care also have no cost sharing.
Other full-benefit, dual-eligible individuals with incomes up to or at 100% of
FPL pay $1.45 for a generic drug prescription or preferred multiple-source drug
prescription and $4.30 for any other drug prescription up to the catastrophic
threshold in 2023.
Full-subsidy-eligible individuals with incomes between 100% and 135% of FPL
have cost sharing, up to the catastrophic limit, of $4.15 for a generic drug or
preferred multiple-source drug and $10.35 for any other drug in 2023.
89 CMS, Medicare Part D Prescription Drug Manual, Chapter 13, “Premium and Cost-Sharing Subsidies for Low-
Income Individuals,” Section 60, Rev. October 1, 2018, at https://www.cms.gov/Medicare/Prescription-DrugCoverage/PrescriptionDrugCovContra/Downloads/Chapter-13-Premium-and-Cost-Sharing-Subsidies-for-Low-IncomeIndividuals-v09-14-2018.pdf.
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Partial-subsidy-eligible individuals have a $104 deductible in 2023, 15% coinsurance for all costs
up to the catastrophic limit, and cost sharing above that level of $4.15 for a generic prescription
or preferred multiple source drug prescription and $10.35 for any other prescription.
Each year, cost-sharing amounts for full-benefit, dual eligibles up to or at 100% of FPL are
updated by the annual percentage increase in the CPI-U. Cost sharing for all other beneficiaries,
and the deductible for other full- and partial-subsidy-eligible individuals, are increased by the
annual percentage increase in per-capita beneficiary expenditures for Part D-covered drugs.
Table 5. Part D Standard Benefit Cost Sharing, 2023
(by per capita drug spending category)
Low-Income Subsidy (LIS)-Eligible Individuals
Non-LIS Beneficiaries
Total drug
Spending
(Dollar
Ranges)
$0 up to $505
Deductible
Between
Deductible
and Initial
Coverage
Limit
($505.01$4,660)
Coverage
Gap
Between Initial
Coverage
Limit ($4,660)
and
Catastrophic
Threshold
(about $7,400)
Over
Catastrophic
Threshold
Full-Subsidy-Eligible
Other Subsidy Eligible
Paid by
Part D
Paid by
Enrollee
Paid by
Part D
Paid by Enrollee
Paid by
Part D
Paid by
Enrollee
0%
$505
$445
0
$401
$104
75%
25%
100% less
enrollee cost
sharing
85%
15%
5% (plus 70%
manufacturer
discount) for
brand name
drugs and
75% for
generic drugs
25% for
brand name
drugs and
25% for
generic drugs
100% less
enrollee cost
sharing
Institutionalized
duals: $0
Duals up to or at
100% of FPL:
$1.45/$4.30
Others:
$4.15/$10.35
Institutionalized
duals: $0
Duals under 100% of
FPL: $1.45/$4.30a
Others:
$4.15/$10.35b
85%
15%
95%
5%
100%
$0
100% less
enrollee
cost
sharing
$4.15/$10.35c
Source: CMS, “Announcement of Calendar Year (CY) 2023 Medicare Advantage Capitation Rates and Medicare
Advantage and Part D Payment Policies and Final Call Letter.” FPL is federal poverty level. Duals refers to dual
eligibles.
a. Maximum of $1.45 per prescription for generic or preferred drugs that are multiple source drugs; $4.30 per
prescription for other drugs.
b. Maximum of $4.15 per prescription for generic or preferred drugs that are multiple source drugs; $10.35
per prescription for other drugs.
c. Cost sharing is the lower of 5% coinsurance or Minimum of $4.15 per prescription for generic or preferred
drugs that are multiple source drugs; $10.35 per prescription for other drugs.
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LIS Subsidy Changes Starting in 2024
Starting in 2024, the IRA merges the two categories of LIS subsidy (full and partial) into one new
LIS category that provides the more generous benefits of the full LIS. Also, starting in 2024, outof-pocket spending for all Part D enrollees is capped at the catastrophic threshold. See Table 5 for
the 2024 cost-sharing subsidies for LIS and non-LIS enrollees.
Table 6. Part D Standard Benefit Cost Sharing, 2024
(by per capita drug spending category)
Non-LIS Beneficiaries
Total drug Spending
(Dollar Ranges)
LIS Beneficiaries
Paid by Part D
Paid by
Enrollee
Paid by
Part D
$0 up to $545 Deductible
Between Deductible and
Initial Coverage Limit
($545.01-$5,030)
0%
75%
$545
25%
$545
100% less
enrollee cost
sharing
Coverage Gap
Between Initial Coverage
Limit ($5,030.01) and
Catastrophic Threshold
($8,000)
5% (plus 70%
manufacturer
discount) for brand
name drugs and 75%
for generic drugs
25% for
brand name
drugs and
25% for
generic
drugs
0%
100% less
enrollee cost
sharing
Over Catastrophic
Threshold
100%
100%
Paid by Enrollee
0
Institutionalized duals: $0
Duals up to or at 100% of
FPL: $0
Others:
$1.55/$4.60
Institutionalized duals: $0
Duals under 100% of FPL:
$1.55/$4.60a
Others up to 150% FPL:
$4.50/$11.20b
$0
Source: CMS, “Announcement of Calendar Year (CY) 2024 Medicare Advantage Capitation Rates and Medicare
Advantage and Part D Payment Policies and Final Call Letter.” FPL is federal poverty level. Duals refers to dual
eligibles.
Notes:
a. Maximum of $1.55 per prescription for generic or preferred drugs that are multiple source drugs; $4.60 per
prescription for other drugs.
b. Maximum of $4.50 per prescription for generic or preferred drugs that are multiple source drugs; $11.20
per prescription for other drugs.
Employer Subsidies for Retiree Drug Coverage
The MMA included provisions to encourage employers to continue to offer prescription drug
benefits to their Medicare-eligible retirees. Employers have several options for such coverage.
Retiree Drug Subsidy
Employers and union groups that provide prescription drug insurance to Medicare-eligible, retired
workers may apply for federal retiree drug subsidies (RDS).90 To qualify, an employer or union
must offer drug benefits that are actuarially equivalent to, or more generous than, standard Part D
coverage. Sponsors must submit applications for CMS approval at least 90 days prior to the
beginning of a plan year.
90 CMS, “Retiree Drug Subsidy,” at https://www.rds.cms.hhs.gov/.
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Medicare provides payments for eligible retirees, defined as individuals entitled to Medicare Part
A and/or are enrolled in Part B, and who live in the service area of a Part D plan. An individual
must be a retired participant in an employer- or union-qualified group health plan or the
Medicare-enrolled spouse or dependent of a retired participant. (An employer or union may
sponsor its own Part D plan [see “Employer Group Waiver Plans” section, below].)
For each retiree enrolled in a qualified plan in 2023, sponsors receive a federal subsidy equal to
28% of gross prescription drug costs between a threshold of $505 and a cost limit of $10,350.91
The retiree subsidies have generally been less expensive for Medicare than enrolling these
beneficiaries in a Part D plan. In 2023, the average annual RDS was forecast to be about $619 per
beneficiary compared to average Medicare per beneficiary costs of $2,352 for Part D enrollees.92
Prior to enactment of the ACA, group health plans offering qualified drug coverage were eligible
to receive the Medicare RDS and, in addition, claim a federal tax deduction for the subsidy, along
with the rest of the plan’s spending on retiree health benefits. The ACA prohibited companies,
beginning in 2013, from claiming a tax deduction for the Medicare RDS.93 In addition, retiree
health plans are not eligible for the Part D manufacturer discount program. Partly as a result,
many employers have moved away from the RDS program, and toward EGWPs. The Medicare
Trustees predict that the share of beneficiaries covered through the RDS will decline from about
20% of Part D enrollment in 2010 to about 1.5% by 2032.94
Employer Group Waiver Plans
EGWPs are Part D group plans sponsored by large employers, state and local governments, and
other entities.95 EGWPs qualify for waivers of Medicare regulations in areas including
enrollment, marketing, premiums, and benefit design. The waivers allow plan sponsors
(employers or unions) to tailor Medicare EGWPs to their distinct retiree populations.96
In general, CMS may waive or modify Medicare requirements that “hinder the design of, the
offering of, or the enrollment in” employer-sponsored group Medicare plans.97 More specifically,
CMS may provide waivers of Medicare regulations to allow employers and unions to98
•
restrict enrollment in an EGWP to the employer’s own retirees and eligible
spouses and dependents of the retirees;
CMS, “Announcement of Calendar Year (CY) 2023 Medicare Advantage Capitation Rates and Medicare Advantage
and Part D Payment Policies and Final Call Letter,” p. 69.
92 2023 Medicare Trustees Report, Table IV.B9, p. 152, and Table V.D1, p. 207.
93 Internal Revenue Service, “Frequently Asked Questions: Retiree Drug Subsidy,” at https://www.irs.gov/newsroom/
frequently-asked-questions-retiree-drug-subsidy.
94 2023 Medicare Trustees Report, Table IV.B7, p. 147.
95 CMS, Medicare Prescription Drug Benefit Manual, Chapter 12, “Employer/Union Sponsored Group Health Plans,”
Rev. November 7, 2008, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/
PartDManuals. Employers and unions may offer EGWP PDPs only to retirees, while MA EGWPs, including MA-PD
plans, may be offered to retirees or current workers.
96 Employers may also offer Medicare Part C (Medicare Advantage) EGWPs, including Part C plans with a Part D
component. See CMS, “Employer Group Waiver Plans,” https://www.cms.gov/medicare/coverage/prescription-drugcoverage-contracting/employer-group-waiver-plans-egwps.
97 Specific authority for EGWPs can be found at SSA §§1857(i) and 1860D-22(b).
98 CMS, “Approved Part D Waivers,” https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrug
CovContra/Downloads/EGWP-Waivers.pdf.
91
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•
•
•
•
•
subsidize EGWP premiums and set different premiums in different geographic
areas of the country;
offer national plans rather than plans in specific geographic regions;
provide smaller networks of contracted pharmacies than are required for other
Part D plans, so long as the networks are adequate to meet enrollee needs;
offer a different benefit structure than Part D plans, so long as the EGWP meets
requirements for the gross value of the overall benefit; and
hold annual open enrollment periods at different times than the national Medicare
open enrollment period for MA and Part D (October 15 through December 15).
Employers and unions may offer EGWPs under direct contract with CMS or through third parties
that design and administer the benefit. EGWPs must comply with Part D requirements to offer an
adequate formulary, provide lower cost sharing for LIS enrollees, and other enrollee protections.
EGWP sponsors are not required to submit annual bids to CMS on the grounds that the process of
putting together a bid could “hinder the design, offering, or enrollment in employer-sponsors
coverage given the additional complexity and level of effort that would be required.”99 EGWPs
instead are paid by CMS based on the average national average bid of other Part D plans.
In addition, the coverage gap manufacturer discount is calculated differently for EGWPs than for
regular Part D plans. In 2012, CMS issued rules that changed the definition of Part D
supplemental benefits to exclude supplemental benefits offered through EGWPs.100 Under the
rule, supplemental benefits offered by an EGWP sponsor are considered non-Medicare benefits
and treated instead as other health insurance that pays in a secondary position to Medicare. That
means, in part, that manufacturer discounts in the coverage gap for EGWP plans are calculated
based on the standard Part D benefit without taking into account any supplemental benefits.101
This allows EGWP sponsors to reduce cost sharing for enrollees in the coverage gap but still
collect the maximum manufacturer discount. A MedPAC analysis found EGWPs made up about
16% of Part D enrollment in 2018 but accounted for 45% of manufacturer discounts.102 Starting
in 2025, under the IRA, there will no longer be a coverage gap for all plans, including EGWPs,
and the manufacturer discount program will be reconfigured.
99 CMS, “Insurance Standards Bulletin Series: Employer Prescription Drug Coverage that Supplemental Medicare Part
D Coverage provided through an Employer Group Waiver Plan,” January 23, 2013. CMS, “Part C and D User Call,”
November 6, 2013, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/PartDEGWP.
100 CMS, “Medicare Program; Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit
Programs for Contract Year 2013 and Other Changes; Final Rule,” 77 Federal Register, p. 22081, April 12, 2012, at
https://www.govinfo.gov/content/pkg/FR-2012-04-12/html/2012-8071.htms. In its rulemaking, CMS amended 42 CFR
§423.100 to include in the definition of “other health or prescription drug coverage” any coverage offered by EGWPs
other than basic prescription drug coverage. CMS also made a conforming change to the definition of supplemental
benefits in §423.100 to exclude benefits offered by EGWPs. “With respect to EGWPs, this would mean that a
manufacturer discount always would be applied before any additional coverage beyond Part D, whether offered by the
EGWP itself or by another party,” according to CMS.
101 In 2014, CMS published a rule requiring EGWPs to ensure that any supplemental benefits comply with any
applicable requirements for issuance under state insurance laws and/or ERISA rules (see January 25, 2013 Insurance
Bulletin from the Center for Consumer Information and Insurance Oversight: http://www.cms.gov/cciio/resources/
Regulations-and-Guidance/index.html#Health Market Reforms).
102 MedPAC, Report to the Congress: Medicare Payment Policy, March 13, 2020, p. 416, at https://www.medpac.gov/
document/http-www-medpac-gov-docs-default-source-reports-mar20_entirereport_sec-pdf/.
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Formulary Requirements
For a drug to be paid by Medicare’s prescription drug benefit, it must be a drug that is covered
under Part D and included in the formulary of an individual’s Part D plan. (See “Formularies.”)
The MMA defines covered Part D drugs as (1) outpatient prescription drugs approved by the
Food and Drug Administration (FDA), and used for a medically accepted indication; (2)
biological products that may be dispensed only upon a prescription and that are licensed under the
Public Health Service (PHS) Act and produced at a licensed establishment; (3) insulin (including
medical supplies associated with the injection of insulin); and (4) vaccines licensed under the
PHS Act. Drugs can also be treated as part of a plan’s formulary as the result of a beneficiary
coverage determination or appeal.
Certain drugs are excluded from Part D coverage by law, including drugs specifically excluded
from coverage under Medicaid. The exclusion applies to (1) drugs used for anorexia, weight loss,
or weight gain; (2) fertility drugs; (3) drugs used for cosmetic purposes or hair growth; (4) drugs
for symptomatic relief for coughs and colds; (5) prescription vitamins and minerals; and (6)
covered drugs when the manufacturer requires, as a condition of sale, that associated tests be
purchased exclusively from the manufacturer. Drugs used for the treatment of sexual or erectile
dysfunction are excluded from coverage unless they are used to treat another condition for which
the drug has been approved by the FDA.103
If a state covers excluded drugs for Medicaid beneficiaries, it must also cover them for dual
eligibles in cases where the drugs are determined to be medically necessary. Dual eligibles may
therefore receive coverage from Medicaid for some drugs that are excluded from Medicare.
Additionally, a Part D sponsor may elect to include one or more of these drugs in an enhanced
Part D plan; however, no federal subsidy is available for the associated costs.
Drugs Covered by Other Parts of Medicare
Part D drug plans are prohibited from covering drugs covered by other parts of Medicare. This
includes prescriptions provided during a stay in a hospital or skilled nursing facility that are paid
for by the Part A program, and the limited circumstances when Part B covers outpatient
prescription drugs. Part B-covered drugs include drugs that are not usually self-administered and
are provided incident to a physician’s professional services or drugs necessary for the proper
functioning of Part B durable medical equipment. These include such things as
immunosuppressive drugs for persons who have had a Medicare-covered transplant;
erythropoietin (an anti-anemia drug) for persons with end-stage renal disease; oral anticancer
drugs; drugs requiring administration via a nebulizer or infusion pump in the home; and certain
vaccines (influenza, pneumococcal, and hepatitis B for intermediate- or high-risk persons).104
Formularies
Part D plans operate formularies, which are lists of drugs that a plan covers and the terms under
which they are covered. A Part D sponsor’s formulary must be developed and reviewed by a
103 CMS, Medicare Prescription Drug Benefit Manual, Chapter 6, “Part D Drugs and Formulary Requirements,”
Section 20.1, Rev. January 15, 2016, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/
PrescriptionDrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf.
104 For an examination of Part D vs. Part B coverage issues see CMS, Medicare Prescription Drug Benefit Manual,
Chapter 6, “Part D Drugs and Formulary Requirements,” Appendix C, Rev. January 15, 2016, at https://www.cms.gov/
Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf.
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CMS-approved Pharmacy and Therapeutics (P&T) Committee.105 A majority of the committee
members must be practicing physicians or practicing pharmacists, and the committees must each
include one physician and one pharmacist who are experts in caring for elderly or disabled
individuals. CMS requires that P&T committees “must review for clinical appropriateness the
practices and policies for formulary management activities, such as prior authorizations, step
therapies, quantity limitations, generic substitutions, and other drug utilization activities that
affect enrollee access.” However, P&T committee recommendations regarding these activities are
advisory only and not binding on the Part D sponsors.106 (See “Drug Utilization.”)
Formulary Categories and Classes
Formulary drugs are grouped into categories and classes of products that work in a similar way or
are used to treat the same condition. The MMA required CMS to ask the United States
Pharmacopeial Convention (USP)107 to develop a list of categories and classes for plans and to
periodically revise such classifications. A plan formulary must include at least two drugs in each
category or class used to treat the same medical condition (unless only one drug is available in the
category or class, or two drugs are available but one drug is clinically superior). The two-drug
requirement must be met by providing two chemically distinct drugs. (Plans cannot meet the
requirement by including two dosage forms or strengths of the same drug or a brand-name drug
and its generic equivalent.)
Six Classes of Clinical Concern
In general, Part D drug plans are required to operate formularies that cover at least two drugs in
each drug class and category. However, Part D plans are required to cover substantially all
available drugs in the following six categories or classes: immunosuppressant, antidepressant,
antipsychotic, anticonvulsant, antiretroviral, and antineoplastic.108 Plan sponsors are not allowed
to steer beneficiaries who are already using these drugs toward alternative therapies via policies
such as requiring prior authorization or step-therapy mandates (see “Drug Utilization”). The
protected classes requirement, which started as CMS guidance, is designed to mitigate the risk
that drug therapy could be interrupted for vulnerable populations.
The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA; P.L. 110-275) and
the ACA codified the six protected classes requirement, while directing the HHS Secretary to
spell out more specific criteria for identifying drug categories or classes of clinical concern.109 As
105 CMS, Medicare Prescription Drug Benefit Manual, Chapter 6, “Part D Drugs and Formulary Requirements”
Section 30.1, Rev. January 15, 2016, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/
PrescriptionDrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf. The committee may be set up by a
sponsor or a pharmacy benefit manager acting on behalf of the plan sponsor. Committee members must sign conflict of
interest statements detailing economic or other relationships with entities affected by drug coverage decisions that
could influence committee decisions.
106 CMS, Medicare Prescription Drug Benefits Manual, Chapter 6, “Part D Drugs and Formulary Requirements,”
§30.1.5, Rev. January 15, 2016, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/
PrescriptionDrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf; and SSA 1860D-4(b)(3).
107 The United States Pharmacopeial Convention (USP) is a nonprofit organization that sets standards for the identity,
strength, quality, and purity of medicines, food ingredients and dietary supplements.
108 CMS, Medicare Prescription Drug Benefit Manual, Chapter 6, “Part D Drugs and Formulary Requirements,”
Section 30.2.5, Rev. January 15, 2016, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/Prescription
DrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf.
109 The MIPPA required that, beginning with plan year 2010, the HHS Secretary identify categories and classes of
drugs for which both of the following criteria are met: (1) restricted access to drugs in the category or class would have
(continued...)
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part of this process, the statutes allow HHS to revamp the current protected classes and
categories, including permitting Part D sponsors to exclude certain drugs from their formularies
(or limit access to such drugs through utilization management or prior authorization
restrictions).110 In November 2018, CMS published a proposed rule that would have given Part D
plan sponsors more authority to use step therapy and prior authorization to control enrollee
utilization in the protected classes.111 In May 2019, CMS announced it would not implement most
of the proposed changes but instead would put into regulatory form existing guidance regarding
protected class drugs. Under the final rules, plans may use step therapy and prior authorization for
enrollees beginning a course of therapy with drugs in the six protected classes to confirm a drug’s
intended use is for a protected class indication; to ensure clinically appropriate use; and to
promote utilization of preferred formulary alternatives, or a combination thereof. Step therapy
and prior authorization are not allowed for antiretroviral (HIV/AIDs) medications.112 CMS
decided against a broader expansion of step therapy because the risks of inappropriately
interrupting therapy outweighed the potential clinical benefits and cost savings.113
Vaccines
The Advisory Committee on Immunization Practices (ACIP) provides guidance to HHS and the
CDC on the use of vaccines, including recommending immunization schedules for the U.S.
population, with certain vaccine dosages based on age.
The Tax Relief and Health Care Act of 2006 (P.L. 109-432) required that Part D plans, beginning
in 2008, include all commercially available vaccines in their drug formularies, with the exception
of vaccines covered under Medicare Part B. Medicare Part B generally covers vaccinations for
influenza, pneumonia, and the Hepatitis B vaccine for intermediate to high-risk cases. Part B will
major or life threatening clinical consequences for individuals who have a disease or disorder treated by the drugs in
such category or class and (2) there is significant clinical need for such individuals to have access to multiple drugs
within a category or class due to unique chemical actions and pharmacological effects of the drugs within the category
or class. The ACA specified that the six drug categories or classes of clinical concern would remain in place until the
HHS Secretary established new criteria to identify drug categories or classes of clinical concern under §1860D–
4(b)(3)(G) of the Social Security Act through notice and rulemaking.
110 In January 2014, CMS issued proposed rules that would have narrowed the protected classes to anticonvulsants,
antiretrovirals, and antineoplastics, beginning in plan year 2015. Antipsychotic drugs would have continued to be
treated as a class of clinical concern in 2015 and until CMS determined that it was appropriate to change the criteria for
these products. In May 2014, CMS announced it would not finalize the proposed regulations relating to the six
protected classes. See CMS, “Medicare Program; Contract Year 2015 Policy and Technical Changes to the Medicare
Advantage and the Medicare Prescription Drug Benefit Programs; Proposed Rule,” 79 Federal Register, pp. 1936 and
2063, January 10, 2014, at http://www.gpo.gov/fdsys/pkg/FR-2014-01-10/pdf/2013-31497.pdf.
111 CMS, “Modernizing Part D and Medicare Advantage To Lower Drug Prices and Reduce Out-of-Pocket Expenses,”
Proposed Rule, 83 Federal Register, November 30, 2018, p. 62152; https://www.federalregister.gov/documents/2018/
11/30/2018-25945/modernizing-part-d-and-medicare-advantage-to-lower-drug-prices-and-reduce-out-of-pocketexpenses.
112 Ibid, §30.2.5. Part D sponsors may not implement prior authorization or step therapy requirements designed to steer
enrollees already taking a drug to a preferred alternatives within the six classes. This includes beneficiaries already
enrolled in a Part D plan as well as new enrollees who were actively taking drugs in any of the six classes of clinical
concern prior to enrollment into the plan. If a sponsor cannot determine at the point of sale whether an enrollee is
currently taking a drug (e.g., new enrollee filling a prescription for the first time), the sponsor is to treat such enrollee
as though he or she is currently taking the drug.
113 CMS, “Modernizing Part D and Medicare Advantage To Lower Drug Prices and Reduce Out-of-Pocket Expenses,”
Final Rule, 84 Federal Register, May 23, 2019, p. 23840, at https://www.federalregister.gov/documents/2019/05/23/
2019-10521/modernizing-part-d-and-medicare-advantage-to-lower-drug-prices-and-reduce-out-of-pocket-expenses.
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cover immunizations for patients exposed to an injury or disease, such as tetanus shots.114 Part B
also covers COVID-19 vaccines.115
Medicare Part D covers all commercially available vaccines, except for vaccines covered under
Part B, or in cases where a vaccine manufacturer has chosen not to participate in the Part D
manufacturer discount program. The shingles vaccine (protecting against herpes zoster), which
the ACIP recommends for adults aged 50 and older, is an example of a Part D vaccine.
Starting in 2023, under the IRA, Part D plans may no longer apply a deductible, coinsurance, or
other cost-sharing requirement for adult vaccines covered by Part D that are recommended by
ACIP.116 An enrollee may have to pay a vaccine administration fee for an ACIP-recommended
vaccine at the point of service, but can receive full reimbursement from their Part D plan. Part D
plans may apply cost sharing to other, non-ACIP recommended vaccines.
Plan-Year Formulary Changes
Part D plans may alter their formularies from year to year and are allowed to make limited
changes to their formularies within a plan year.117 Plans generally may not change therapeutic
categories and classes of drugs within a plan year, except to account for new therapeutic uses or
add newly approved Part D drugs. If Part D plans remove drugs from their formularies during a
plan year (or change cost-sharing or access requirements), they must provide timely notice to
CMS, affected enrollees, physicians, pharmacies, and pharmacists.
Part D sponsors may immediately remove brand-name drugs from a formulary (or change the
cost-sharing tier) during a plan year if they replace the brand-name product with a therapeutically
equivalent generic that is placed on the same or lower cost-sharing tier and is subject to the same
or less restrictive utilization criteria than the brand-name drug. To qualify for substitution, the
new generic must have been released to the market after the initial formulary was submitted.118
Other formulary changes may be made in the following circumstances:
•
Plans may immediately remove drugs that are deemed unsafe by the FDA or are
pulled from the market by their manufacturers. Plans do not have to provide prior
notice of such actions, but must provide retrospective notice to CMS and other
affected parties.
114 CMS, Medicare Learning Network, “Medicare Part D Vaccines,” June 2023, at https://www.cms.gov/Outreach-and-
Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/Vaccines-Part-D-Factsheet-ICN908764.pdf.
115 CRS Report R46334, Selected Health Provisions in Title III of the CARES Act (P.L. 116-136).
116 CMS, “Contract Year 2023 Program Guidance Related to Inflation Reduction Act Changes to Part D Coverage of
Vaccines and Insulin,” September 26, 2022, https://www.cms.gov/files/document/irainsulinvaccinesmemo
09262022.pdf According to CMS, the ACIP Vaccine Recommendations and Guidelines also provide recommendations
for use in limited populations and circumstances for certain other vaccines that are not on the CDC/ACIP Adult
Immunization Schedule for routine immunization. CMS interprets the requirements of P.L. 117-169 as also applying to
vaccines provided in such limited populations and circumstances, when used for adults in accordance with ACIP
recommendations.
117 CMS, Medicare Prescription Drug Benefit Manual, Chapter 6, “Part D Drugs and Formulary Requirements,”
Section 30.3, Rev. January 15, 2016, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrug
CovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf.
118 CMS, “Medicare Program: Contract Year 2019 Policy and Technical Changes to Medicare Advantage, Medicare
Cost Plan, Medicare Fee-for-Service, Medicare Prescription Drug Benefit Programs, and PACE Program,” 83 Federal
Register, April 16, 2018, p. 16604, at https://www.gpo.gov/fdsys/pkg/FR-2018-04-16/pdf/2018-07179.pdf.
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•
•
After March 1 each year, Part D sponsors may make maintenance changes to
their formularies, such as replacing brand name with new generic drugs or
modifying formularies due to new information on drug safety or effectiveness.
Plans, with CMS approval, may remove drugs from a formulary, move covered
drugs to a less-preferred tier status, or add utilization management requirements
in accordance with approved procedures after 30 days’ advance notice.119
Transition Policies
CMS established Part D formulary transition policies to ensure that enrollees who move to a new
plan do not abruptly lose coverage for drugs used in ongoing therapy—for example, in a case
where a new plan does not cover a drug a beneficiary has been using. Transition policies also
cover cases where enrollees are affected by formulary changes in their current plan from one year
to the next.120 In such cases, a beneficiary may request that their physician check to see if a
prescription can be switched to a similar drug on the new formulary. If the physician determines
that a specific drug is medically necessary, the doctor may request a plan exception.
Plans must continue a beneficiary’s previous prescription during the first 90 days of a calendar
year. Any refill must be for an approved month’s supply (unless the prescription is written for a
shorter period) for any drug not on the plan’s formulary.121 The requirement also applies to drugs
that are on a plan’s formulary, but which require prior authorization or step therapy. Transition
policies also cover situations where enrollees undergo changes in the level of care, such as
moving from a hospital to home care.
Drug Utilization Management Programs
CMS regulations require that each Part D plan have an appropriate drug utilization management
program that (1) includes incentives to reduce costs when medically appropriate, and (2)
maintains policies and systems to assist in preventing over-utilization and under-utilization of
prescribed medications.122 In general, over the years plans have imposed more stringent costsharing and utilization management. Congress and CMS have also imposed utilization
requirements on plans in an effort to identify possible program fraud and abuse involving certain
prescription drugs, particularly opioids. (See “Part D Opioid Overutilization Monitoring.”)
119 Ibid. In most cases, plans may not remove covered Part D drugs from their formularies, or make any change in
preferred or tiered cost-sharing status of a covered Part D drug, between the beginning of the annual coordinated
election period October 15, and 60 days after the beginning of the contract year.
120 For example, if a plan sponsor alters an announced formulary to account for a new drug or therapeutic use.
According to CMS, a minimum of a 108-day look-back (consistent with other reviews) is typically needed to document
ongoing drug therapy.
121 CMS, “Medicare Program: Contract Year 2019 Policy and Technical Changes to Medicare Advantage, Medicare
Cost Plan, Medicare Fee-for-Service, Medicare Prescription Drug Benefit Programs, and PACE Program,” 83 Federal
Register, April 16, 2018, p. 16604, at https://www.gpo.gov/fdsys/pkg/FR-2018-04-16/pdf/2018-07179.pdf. See also 42
C.F.R. §423.120. The rule changed the transition requirement to an approved month’s supply (from a 30-day supply) so
that it will be equivalent to the approved month’s supply measurement in the applicable plan’s annual bid to provide
Part D services. The rule also shortened the length of transition prescriptions that are provided to residents of long-term
care facilities to an approved month’s supply.
122 42 C.F.R. §423.153.
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Tiered Formularies
Plan D plan sponsors may assign formulary drugs to tiers that correspond to different levels of
cost sharing. In general, this structured pricing encourages use of generic medications by placing
these medicines on the plan tier with the lowest out-of-pocket costs, and discourages the use of
more expensive or less effective drugs by putting them on tiers that require higher out-of-pocket
spending. Plans have some flexibility in structuring the tiers, so long as the overall plan is at least
actuarially equivalent to a standard Part D plan. In 2023, a Part D formulary design could include
a mix of the following tiers: preferred generics, generics, preferred brands, non-preferred brands,
non-preferred drugs, and two specialty drug tiers.123 Specialty drug tier designation in Part D is
based on cost ($830 per month in 2023), not on special handling requirements.124 (For 2024, a
drug will qualify for specialty tier placement if it is at least $950 for a month.125)
Part D plans may institute two specialty tiers for expensive products (e.g., unique drugs or
biologics). Beneficiaries cannot appeal cost-sharing amounts for drugs placed on a specialty tier,
except to request that a specialty drug on a higher cost-sharing tier be placed on a lower costsharing specialty tier.126 Plans typically charge a percentage of the cost of a drug on the specialty
tier (coinsurance), rather than a flat co-payment. To ensure beneficiaries dependent on specialty
drugs are not unduly discouraged from enrolling in tiered plans, CMS sets the maximum
allowable cost sharing for a single specialty tier—or, in the case of a plan with two specialty tiers,
the higher cost-sharing specialty tier—at 25% coinsurance if the plan requires a standard
deductible and up to 33% cost sharing if no deductible is required, or some percentage in between
if a plan offers a reduced (but not zero) deductible. Therefore, according to CMS, for plans that
offer two specialty tiers, the cost sharing for the lower cost-sharing, preferred specialty tier must
be anything less than that of the higher cost-sharing specialty tier.127
The specialty tier is not necessarily the tier with the highest coinsurance. Part D plans may charge
coinsurance of up to 50% for drugs on a non-preferred brand name formulary tier. According to
CMS, best practices for developing formularies dictate that drugs are placed in a non-preferred
tier only when drugs that are therapeutically similar (i.e., drugs that provide similar treatment
outcomes) are in more preferable positions on the formulary.128 CMS reviews plan sponsors’ drug
tier placement to ensure their formulary does not substantially discourage enrollment of certain
beneficiaries, such as those with potentially high drug costs.
123 CMS, “Contract Year (CY) 2023 Final Part D Bidding Instructions,” February 3, 2022, https://www.cms.gov/files/
document/2023partdbiddinginstructions.pdf.
124 Ibid. Under 42 C.F.R. §423.104(d)(2)(iv)(D), CMS sets the maximum allowable cost sharing for a single specialty
tier, or, in the case of a plan with two specialty tiers, the higher cost-sharing specialty tier, at 25% if the plan requires
the standard deductible, 33% cost sharing if no deductible is required, or some percentage in between dependent on a
decreased deductible. For plans that offer two specialty tiers, the cost sharing for the lower cost-sharing, preferred
specialty tier must be anything less than that of the higher cost-sharing specialty tier.
125 CMS, “Final Contract Year (CY) 2024 Part D Bidding Instructions,” April 4, 2023, https://www.cms.gov/files/
document/final-cy-2024-part-d-bidding-instructions.pdf.
126 CMS, Medicare and Medicaid Programs; Contract Year 2022 Policy and Technical Changes to the Medicare
Advantage Program, Medicare Prescription Drug Benefit Program, Medicaid Program, Medicare Cost Plan Program,
and Programs of All-Inclusive Care for the Elderly,” 86 Federal Register, p. 5931.
127 CMS, “Contract Year (CY) 2023 Final Part D Bidding Instructions,” February 3, 2022.
128 CMS, Medicare Prescription Drug Benefit Manual, Chapter 6, “Part D Drugs and Formulary Requirements,”
Section 30.2.7, Rev. January 15, 2016, at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/Prescription
DrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf.
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Other Drug Utilization Controls
Other utilization restrictions include (1) prior authorization, in which a beneficiary, with
assistance of a prescribing physician, must obtain a plan’s approval before it will cover a
particular drug; (2) step therapy, where a beneficiary must first try a generic or less expensive
drug, or a drug that a plan has deemed to be therapeutically equivalent to a prescribed drug, rather
than the drug that was originally prescribed; and (3) quantity limits, where the supply of drugs is
initially limited to reduce the likelihood of waste (e.g., if a drug was not effective for a
beneficiary or had intolerable side effects). A beneficiary who wants his or her plan to waive a
utilization control must provide a physician statement indicating that a prescribed drug and
dosage is medically necessary and providing a rationale as to why restrictions are not appropriate.
Part D Opioid Overutilization Monitoring
Since 2013, CMS has operated a system to combat inappropriate utilization of opioids in Part D.
First, CMS has encouraged Part D plans to enhance their formulary and drug utilization review
programs to provide opioid safety controls at the point of sale, retrospectively review drug claims
to identify beneficiaries at risk of overutilization, and perform case management for beneficiaries
deemed at risk of opioid abuse.129 Second, CMS developed a program-wide Overutilization
Monitoring System (OMS) to verify that Part D sponsors have established effective and
appropriate opioid management programs. Under the OMS, CMS performs retrospective reviews
of Part D prescription data to identify enrollees at risk of opioid overutilization. CMS defines atrisk beneficiaries as those using high dosages of opioids (over a specified period of time)
provided by multiple prescribers or pharmacies.130
The Comprehensive Addiction and Recovery Act of 2016 (CARA; P.L. 114-198) provided Part D
sponsors with authority to limit the number of pharmacies and prescribers that can be used by
enrollees identified as at risk of overutilization of frequently abused drugs, beginning in 2019.
This “lock-in” provision is designed to reduce fraud and abuse by making it easier to control
enrollee opioid use.131 Starting in 2022, the Substance Use-Disorder Prevention That Promotes
Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act; P.L. 115-271)
required Part D plan sponsors to implement lock-in programs.132
OMS and lock-in policies do not apply to Part D beneficiaries who are being treated for active
cancer-related pain, receiving palliative or end-of-life care, or are residents of certain long-term
care facilities, including those that dispense frequently abused drugs through a contract with a
single pharmacy.133
129 CMS, “Announcement of Calendar Year (CY) 2013 Medicare Advantage Capitation Rates and Medicare Advantage
and Part D Payment Policies and Final Call Letter,” April 2, 2012, p. 131, at https://www.cms.gov/Medicare/HealthPlans/HealthPlansGenInfo/Downloads/2013-Call-Letter.pdf.
130 For a description of the OMS, see “Announcement of Calendar Year (CY) 2018 Medicare Advantage Capitation
Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter, and see p. 234 of the CMS 2019
Final Call Letter, at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/
Announcement2019.pdf.
131 CMS, “Medicare Program; Contract Year 2019 Policy and Technical Changes to the Medicare Advantage, Medicare
Cost Plan, Medicare Fee-for-Service, the Medicare Prescription Drug Benefit Programs, and the PACE Program,” 83
Federal Register, April 16, 2018, pp. 16442-16480.
132 For the latest information, see CMS, “Part D Drug Management Programs,” Rev. 5, April 20, 2023. Available at
https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/rxutilization.
133 CMS, “Part D Drug Management Program Policy Guidance,” November 20, 2018. Available at
https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxUtilization.
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Medication Therapy Management
Part D plans (with some exceptions) must include a Medication Therapy Management (MTM)
program, which is a system of coordinated pharmacy care for patients with multiple medical
conditions who may be seeing a series of practitioners. A MTM program includes medication
reviews, patient consultation and education and other services. Each plan’s program must be
reviewed and approved annually by CMS, and is one of several, required elements considered
when CMS evaluates a sponsor’s bid to participate in the Part D program.
Part D sponsors must automatically enroll beneficiaries in a MTM program if they meet the
following criteria: (1) they have multiple chronic diseases, with three being the maximum that
can be required; (2) they are taking at least two to eight Part D drugs; and (3) they are likely to
have annual covered drug costs that exceed $4,935 in 2023.134 (The 2024 MTM program annual
cost threshold is $5,330.135)
In addition, the SUPPORT Act added Part D enrollees identified as at risk for prescription drug
abuse to the list of targeted MTM program enrollees. The provision took effect in 2022.136
Part D Plans: Payment and Participation
Medicare Part D enrollees must obtain coverage through a private insurer, or other entity, that
contracts with Medicare (a plan sponsor). As previously described, beneficiaries may select either
a stand-alone PDP or a MA plan that includes prescription drug coverage.137
PDPs are required to be available region-wide within each of the 34 designated PDP regions.
MA-PD plans are generally local, operating on a countywide basis; however, region-wide MAPD plans are available in many of the 26 MA regions in the United States. A PDP sponsor may
offer a PDP in more than one region, including all PDP regions; however, the sponsor must
submit separate coverage bids for each region it serves.138 Medicare payments to plans are
determined through a competitive bidding process, and enrollee premiums are tied to plan bids.
(See “Approval of PDP Plans.”)
Approval of PDP Plans
Each year, CMS issues guidance through an annual call letter, and publishes updated program
regulations and bidding instructions to sponsors planning to offer PDP and/or MA plans in the
following year. Potential PDP and MA sponsors must submit bids by the first Monday in June of
the year prior to the plan benefit year. The following information must be included in the bid:
(1) coverage to be provided; (2) actuarial value of qualified prescription drug coverage in the
134 CMS, “2023 Medication Therapy Management Program Information and Submission Instructions,” April 15, 2022,
available at https://www.cms.gov/files/document/memo-contract-year-2021-medication-therapy-management-mtmprogram-submission-v-052220.pdf.
135 42 CFR 423.153(d)(2) and CMS, “2024 Medication Therapy Management Program Information and Submission
Instructions,” April 23, 2023, available at https://www.cms.gov/files/document/memo-contract-year-2021-medicationtherapy-management-mtm-program-submission-v-052220.pdf.
136 §6064 of the SUPPORT Act. CRS Report R45449, The SUPPORT for Patients and Communities Act (P.L.115271): Medicare Provisions.
137 The Part D sponsors are private entities licensed to offer health insurance under state law. Alternatively, they could
meet solvency standards established by CMS for entities not licensed by the state.
138 If two or more plans are not available in a region (one of which is a PDP), Medicare is required to contract with a
“fallback” plan to serve beneficiaries in that area. Because of the large number of Part D plans participating in the
program, CMS has not needed to solicit bids from fallback contractors.
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region of a beneficiary with a national average risk profile; (3) information on the bid, including
the basis for the actuarial value, the portion of the bid attributable to basic coverage and, if
applicable, the portion attributable to enhanced coverage, and assumptions regarding the
reinsurance subsidy; and (4) service area. The bid also includes costs (including administrative
costs and return on investment/profit) for which the plan is responsible. The bid must exclude
costs paid by enrollees, payments expected to be made by CMS for reinsurance (although plans
provide a separate estimate of reinsurance costs), and any other costs for which the sponsor is not
responsible.139
CMS may approve a drug plan only if certain requirements are met. For example, the plan must
meet requirements relating to actuarial determinations and beneficiary protections. The plan
cannot be designed in a way (including any formulary or tiered formulary structure) that would
likely discourage enrollment by certain benefici
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