On April 6, 2020, the Centers for Medicare and
Medicaid Services (CMS) released
the "2021 Announcement of Calendar Year (CY) 2021 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies" (Announcement) that included finalized defined
standard benefits for 2021 Medicare Part D prescription drug plan coverage and other proposed changes to the Medicare program.
Each year, CMS releases the Medicare Part D benefit parameters for the "Defined Standard Benefit" and Medicare Part D plans use this information to determine plan coverage for the up-coming plan year. You can use the CMS parameters as a preview of how your Medicare
Part D plan coverage may change in January, 2021 (for example, if you currently pay a $435 deductible, your deductible in 2021 may be $445).
Actual plan options
and benefit details will be available for your review beginning October
1, 2020 and you can make 2021 plan changes during the fall annual Open Enrollment Period (AEP) (October 15th through December 7th).
As an overview, the following graph shows the 2021 Medicare Part D plan parameters and how standard Medicare Part D plan coverage has changed since the 2006 beginning of the Medicare Part D program.
Based on the 2021 Announcement, here are the changes
to the standard Medicare Part D prescription drug coverage:
- The standard 2021 Initial Deductible will increase about 2.3%.
The 2021 standard Initial Deductible will increase $10 to $445 from the current 2020 standard Initial Deductible of $435.
As reference, the 2019 standard Initial Deductible
What this means to you: The Initial Deductible is the
amount that you must pay before your Medicare Part D plan begins to
share in the cost of coverage. If you enroll in
a Medicare Part D prescription drug plan with a standard Initial Deductible,
you will spend slightly more out-of-pocket in 2021 before your plan
As a note, the majority of 2020 Medicare Part D plans have an initial deductible - and we expect this trend to continue in 2021. But, as we see in
2020, many popular Medicare Part D plans exclude lower-costing Tier 1 and
Tier 2 drugs from the deductible, providing plan Members with immediate coverage for some
The Initial Deductible and the Donut Hole: The
Initial Deductible will not
affect when you enter the
Donut Hole or Coverage Gap, but will impact when you leave the Donut Hole and enter the Catastrophic Coverage
portion of your Medicare Part D plan coverage. In other words, what
you spend toward your Initial Deductible is counted toward your total
out-of-pocket spending threshold or TrOOP (see below for more about TrOOP).
Initial Coverage Limit will increase 2.7%.
The 2021 Initial
Coverage Limit (ICL) will increase $110 to $4,130 from the current 2020 ICL of $4,020 (as reference, the 2019 ICL was $3,820). The Initial Coverage Limit marks the point where you enter the Donut Hole or Coverage Gap. Medicare Part D beneficiaries enter the Donut
Hole when the total negotiated retail value of their
prescription drug purchases exceeds their plan’s Initial Coverage Limit.
What this means to you: You will be able
to buy slightly more medications before reaching the 2021 Donut Hole or
Coverage Gap (assuming that the retail price of your medications does not increase over time).
- Will you enter the 2021 Donut Hole?
If you purchase medications with an average retail value of over $345 per month (based on your current retail drug prices remaining stable), then you will enter the 2021 Donut Hole at some point during the year. For more information, please see our 2021 Donut Hole calculator to estimate when (or if) you will enter the Donut Hole: https://PDP-Planner.com/2021
- The 2021 Donut Hole discount for generic drugs remains at 75%.
If you reach the 2021 Donut
Hole or Coverage Gap phase of your Medicare Part D plan coverage, the
drug discount is 75%. So your generic formulary drug costs in the Donut Hole will be 25% of your plan's negotiated retail prices.
What this means to you: If you are in the 2021 Donut Hole and your generic
medication has a retail cost of $100, you will pay only $25 for a refill. And the $25 that you spend for a formulary drug will count
toward your 2021 out-of-pocket spending limit or TrOOP of $6,550.
Donut Hole discount for brand-name drugs remains at 75%.
The 2021 brand-name drug Donut Hole discount remains at 75% (you pay 25% of retail costs). The
pharmaceutical industry will be responsible for 70% of the cost of
medications in the Coverage Gap, therefore you will receive credit
for 95% of the retail drug cost toward meeting your 2021 total
out-of-pocket maximum or Donut Hole exit point (the 25% of retail
pay plus the 70% drug manufacturer discount).
What this means to you: If you reach the 2021 Donut Hole and purchase a
brand-name medication with a retail cost of $100, you will pay $25 for the
formulary medication, and receive $95 credit toward meeting your 2021 out-of-pocket
spending limit – or Donut Hole exit point.
- The amount you need to spend (TrOOP) to exit the 2021 Donut Hole will increase by 3.15%
Your 2021 Total
Out-of-Pocket Cost (TrOOP) threshold will increase by $200 to $6,550 from the current 2020 TrOOP limit of $6,350. TrOOP is the actual dollar figure you must spend (or someone else spends on your behalf) to
get out of the Donut Hole or Coverage Gap and into the Catastrophic
Coverage phase of your Medicare Part D plan and TrOOP does not include monthly premiums or non-formulary purchases. As reference, the 2019 TrOOP limit was $5,100.
What this means to you: If you reach the 2021 Donut Hole, you will need to spend slightly more money before exiting the Donut Hole and entering the 2021 Catastrophic Coverage portion of your Medicare Part D plan coverage.
The good news: As noted above, brand-name medication purchases in the 2021 Donut Hole are discounted by 75% (you pay 25%), but you will receive credit of 95% of the
retail drug price toward meeting the 2021 TrOOP threshold.
Tip: How will these changes in 2021 Medicare Part D plan coverage affect you?
If you are trying to get an idea of your 2021 prescription drug spending budget, you can use our 2021 Donut Hole calculator (found at PDP-Planner.com/2021) to estimate your actual out-of-pocket spending based on your estimated mix of generic and brand-name drugs purchased in the 2021 Coverage Gap.
What does it take to exit the 2021 Donut Hole?
Example #1 with drug mix of: 89.50% brands and 10.50% generics
Using Medicare's past drug usage estimate*, the average person will have purchases of 89.50% brand drugs and 10.50% generic drugs in the 2021 Donut Hole - and assuming your 2021 Part D plan has a $445 deductible and the retail cost of your drugs is about $838 per month, you can expect your actual annual out-of-pocket drug costs to be around $2,846 before meeting the $6,550 TrOOP and exiting the Donut Hole - your Medicare Part D plan would spend about $3,496 and the pharmaceutical manufacturers would spend about $3,706.
The total retail value of your drug purchases needed to exit the Donut Hole would be around $10,056 (not adjusting for dispensing and vaccine fees). We are also not including your monthly premium costs in this estimate.
Example #2: Exiting the Donut Hole when your Donut Hole drug mix is 100% generics
If you purchase only generic drugs (100% generic) in the Donut Hole - and again, we assume your Part D has a $445 deductible and the retail cost of your drugs is about $2,073 per month, you can expect your actual annual costs to be $6,550 (or the same as the 2021 TrOOP) before exiting the Donut Hole - your Medicare Part D plan would spend about $18,317 and the pharmaceutical manufacturers would spend $0.
The total retail value of your drug purchases needed to exit the Donut Hole would be $24,876.
Example #3: Exiting the Donut Hole when your Donut Hole drug mix is 100% brand
If you purchase only brand drugs (100% brands) - and assuming your Part D plan has a $445 deductible and the retail cost of your drugs is about $798 per month, you can expect your actual annual costs to be around $2,728 before meeting the $6,550 TrOOP and exiting the Donut Hole - your Medicare Part D plan would spend about $3,036 and the pharmaceutical manufacturers would spend about $3,812.
The total retail value of your drug purchases needed to exit the Donut Hole would be $9,576.
What this means to you: You will spend more out-of-pocket to exit the 2021
Donut Hole as compared to 2020 - and you would exit the Donut Hole and enter Catastrophic Coverage faster by using brand-name medications in the Donut Hole since the pharmaceutical industry brand-name discount will accelerate you toward meeting your TrOOP. In fact, the estimated retail value of drug purchases needed to exit the 2021 Donut Hole will increase 3.39%.
* CMS estimates that a person will use a mix of 89.50% brand drugs
and 10.50% generic drugs while in the 2021 Donut Hole (a decrease in
estimated brand-name drug use as compared to the 2020 estimated mix of
90.18% brand drugs and 9.82% generic drugs while in the Donut Hole).
As reference, in 2019, CMS estimated a mix of 89.31% brand drugs
and 10.69% generic drugs and the estimated retail cost to meet 2019
TrOOP and exit the 2019 Donut Hole is $8,139.54; in 2018, the CMS retail
drug-cost estimate was calculated using a mix of 87.9% brand drugs and
12.1% generic drugs and the estimated retail cost to meet 2018 TrOOP and
exit the 2018 Donut Hole is $8,417.60.
As a result, CMS calculates that a person will be able to purchase drugs with an approximate retail value of $10,048.39 before meeting the $6,550 out-of-pocket threshold (TrOOP) and exiting the 2021 Donut Hole.
Our Donut Hole calculations vs. the CMS cost estimate:
Please note, as shown in the examples above, our estimated cost
using our Donut Hole Calculator is $10,056 which is a slightly higher
than the CMS total retail drug cost estimate. The variation between our calculations and CMS is because of rounding differences
and the consideration of small "dispensing" and "vaccine
administration fees" that are being used in the CMS calculation.
Still not sure how the 2021 Donut Hole
or Coverage Gap functions?
To help you visualize how your current drug spending relates to your Medicare
Part D plan coverage, we have our updated 2021 Donut Hole calculator online at: PDP-Planner.com/2021. As noted, our Donut Hole calculator helps you estimate
what you can expect to pay throughout the different phases of your 2021
Medicare Part D plan coverage. We have several options for you to choose the percentage of generic and brand drugs you use and you can even change your
mix of prescriptions to be 100% generic or 100% brand.
To get you started, you can click
here to see an example of the 2021 Medicare prescription drug plan
phases for someone with $800 per month brand drug retail cost.
(Spoiler alert: If the retail cost of your formulary medications is $800 per month, you can expect to spend about $2,731.07 out-of-pocket in 2021 - assuming a $445 deductible and an average cost-sharing of 25% of retail - and not including monthly premiums).
- Will you exit the Donut Hole and enter the 2021 Catastrophic Coverage phase?
Based on CMS
drug purchase estimates, if your monthly retail formulary drug costs are more than $838 per month, you will exit
the 2021 Donut Hole and enter Catastrophic Coverage portion of your
Medicare Part D plan.
- 2021 fixed Catastrophic Coverage
costs increase slightly.
The Catastrophic Coverage portion of your
Medicare Part D plan begins when you leave the Coverage Gap or Donut
Hole. In the 2021 Catastrophic
Coverage phase, you pay a minimum of $9.20 for brand drugs or $3.70 for
generics (or 5% of retail costs, whichever is higher). As reference, in the 2019 Catastrophic
Coverage phase, you paid a minimum of $8.50 for brand drugs or $3.40 for
generics (or 5%, whichever is higher).
What this means to you: If you purchase a brand name medication with a retail price of over $184 or a generic medication with a retail price of over $74, you will pay 5% of retail or more than the minimum $9.20 for brand drugs or $3.70 for generics - so if your medication has a retail cost over $184, you will pay 5% of retail, the same as you would have paid in past years.
For example, if you are using the expensive medication IMBRUVICA 140 MG CAPSULE (90 EA) (NDC: 57962014009), your monthly retail drug costs may be over $4,500, so your catastrophic coverage cost would be approximately $225 per month since this 5% of retail cost is more than the minimum $9.20 brand-name catastrophic coverage cost (based on 2020 retail drug costs).
https://www.cms.gov/newsroom/fact-sheets/ 2021-medicare-advantage-and -part-d-advance-notice-part-ii-fact-sheet-0
https://www.cms.gov/newsroom/fact-sheets/ contract-year-2021-and-2022-medicare-advantage -and-part-d-proposed-rule-cms-4190-p-1
2021 Announcement in Proposed Regulations: Medicare and Medicaid Programs: Contract Year 2021 and 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), https://www.federalregister.gov/documents/2020/ 02/18/2020-02085/ medicare-and-medicaid-programs-contract-year-2021-and-2022-policy- and-technical-changes-to-the (https://s3.amazonaws.com/public-inspection.federalregister.gov/ 2020-02085.pdf)