Last month, I published a blog post titled Death of the Donut Hole – Good News for Some, Higher Costs for Many. As the final phase of this law unfolds, it appears to be another overhyped government solution lacking substance.
The government claims many will save $6,000 annually on prescription costs. It also promotes that people can budget for their medication expenses using a payment option with interest-free financing from insurance companies. Perhaps if you budget like the government, but in reality, no one is going to have levelized payments, and insurance companies won’t absorb the cost of financing these payments, so we’ll all share in the cost of financing those who choose the payment plan.
Let's break these things down.
Example #1 - Take Eliquis, for example—a drug that retails for around $600 per month. In 2024, most insurers place it in Tier 3. Assuming this person also uses some maintenance drugs, they'll hit the donut hole in September. Before then, they'll pay about $600 in copays over eight months. For the remaining four months, they'll face coinsurance, paying around $600 to $700 more, for a yearly total of $1,200 to $1,300.
Example #2 - Now, consider a person taking both Eliquis and Januvia—another expensive Tier 3 drug. In 2024, they would have reached the donut hole by May, paying around $1,200 in copays by then and another $1,500 in coinsurance for rest of the year, totaling $2,700 for the year.
While the government claims that some people’s costs will drop from $8,000 to $2,000, this is not true. The maximum True Out Of Pocket (TrOOP) cost $8,000 for a few who exit the donut hole, but no one pays the full amount of TrOOP. At most, they pay around 40-45% of that.
Looking ahead to 2025, some drugs may be put in higher tiers, but we won't know the details until October 1. Rumors suggest that some current copay-free drugs will start requiring small copays, and flat-dollar copays for higher-tier drugs could be replaced with coinsurance (percentage-based costs).
In Example 1 (from above), if we assume a 25% coinsurance in 2025 on Tier 3 drugs, and the maintenance drug copays remain at zero, this same person would pay $150 per month from the start. This person would not benefit from the $2,000 cap but would pay about 50% more in pharmacy costs compared to 2024—not to mention likely higher premiums for Part D or reduced benefits under Medicare Advantage plans.
In Example 2, in 2025 compared to 2024, the person might save around $700 on their two expensive prescriptions. However, this savings would likely be offset by higher premiums, so their cost reduction will be nowhere near the $6,000 figure Washington claims due to the way TrOOP is calculated. For the small percentage of the people reaching the maximum realized costs, their current out-of-pocket costs range from $3,300 to $3,800, so any savings would be much lower than $6000 and likely reduced by premium hikes.
Another supposed benefit is spreading drug costs evenly over 12 months to help with budgeting. This proves the government doesn’t understand budgeting. Level monthly payments only apply if you purchase all your annual prescriptions in January—something no one does. Instead, the way the regulations cause increasing costs as the year passes.
In Example 1, for instance, monthly payments would start at $37.50 in the first quarter but rise to $312.50/month by the fourth. If they opt out of the payment plan, they'd pay $450/quarterly if they purchase 3 months at a time, or $150 if they buy their prescriptions monthly.
If your goal is to defer some early-year costs by using an interest-free loan from your insurer, then choose the payment plan. But if you prefer stable monthly costs, pay as you go.
Ultimately, if the goal of this law is to assist seniors on expensive medications—whether due to genetics, external factors, or an unhealthy lifestyle—then the government should be transparent. But as usual, they exaggerate the positives and ignore the negatives.
Although not all the details are out, it seems to me that most seniors will face higher prescription costs under this new law. Stay tune, we'll know for sure real soon!