The healthcare system in the United States has changed over the past five years thanks primarily to the Affordable Care Act. Under the ACA, consumers have more rights and protections, and programs like Medicare are being monitored more closely to ensure maximum efficiency. As a result, most Medicare beneficiaries will continue to see increased costs along with increased benefits. If you or your loved ones take part in this government program, then you’ll want to know about some of the rate changes coming up in 2016.
Each year, the Centers for Medicare & Medicaid Services or CMS releases a report outlining proposed changes to plan benefits, particularly those related to Part D and Medicare Advantage plans. Once stakeholders have weighed in on the proposed changes, Medicare revises its plan and submits the final numbers to the public.
For 2016, consumers should see some significant changes in Medicare Advantage plans as well as Part D prescription drug coverage. However, “significant” does not necessarily mean costly. According to the press release issued by the CMS, Medicare Advantage “premiums have fallen by nearly 6 percent from 2010 to 2015.” The administration also points out that more than 90 percent of those who enroll in Medicare can sign up for a Medicare Advantage plan with a zero-dollar premium. Advantage plans offer greater coverage options for some seniors, and increased benefits have made these plans more attractive to beneficiaries throughout Medicare.
Enrollment in Medicare Advantage plans has increased substantially since 2010 according to the fact sheet released by the CMS. As of this year, more than 16 million Medicare beneficiaries participate in an Advantage plan, which represents an increase of 42 percent since the ACA became law. About 30 percent of all Medicare beneficiaries sign up for Medicare Advantage policies thanks to new benefits and protections under the ACA. Despite the increase in enrollment, premium rates have actually declined by about 6 percent since 2010. In other words, people are paying less overall than they would have before 2010, and they’re receiving better benefits.
Part D Rates
Medicare Part D, which covers prescription drug costs, gets revised on a routine basis to reflect market costs and to represent the changes in overall benefits within the Medicare system. If you participate in Part D, then you know that keeping up with the rate changes can be difficult from year to year. This portion of Medicare accounts for nearly 14 percent of the government’s total federal budget. In 2013, the program spent about $103 billion on prescription drugs.
Due to the high price tag of Medicare’s prescription payouts, the government has been working vigorously on ways to streamline these costs. Part of the solution is to increase beneficiary costs such as deductibles and co-pays. On the other hand, the ACA also makes it possible for those in the “donut hole” to afford their prescriptions. We’ll discuss rate changes and other adjustments in the sections that follow.
Seniors who participate in Medicare Part D and who don’t qualify for cost assistance or a discounted rate due to income will see increases in the amount that they pay for their coverage next year. For Standard Benefit Plans in 2016, beneficiaries can expect to pay the following for prescription drugs and related costs:
- Initial deductible: $360
- Initial coverage limit: $3,310
- Out-of-pocket threshold: $4,850
The initial coverage limit is also when the “donut hole” begins. During this period, you’ll pay for the full cost of your prescription drugs until you hit the out-of-pocket threshold. The OOP threshold includes the cost of the drugs that you get while you’re in the gap. Once you reach the threshold, Medicare will continue to pay for your prescriptions. Note that because of the Affordable Care Act, Medicare beneficiaries now have increased assistance for getting prescriptions while they’re stuck in the gap. The ACA seeks to close the coverage gap by 2020. In an effort to achieve this goal, the new law provides for percentage discounts that increase each year:
- In 2016, you’ll pay 45 percent of the cost of brand-name drugs while you’re in the coverage gap.
- For generics in 2016, you’ll pay 58 percent of the cost while you’re in the donut hole.
The amount that you pay will decrease each year until 2020. At that point, the gap will be closed for all intents and purposes, and beneficiaries won’t have to worry about increased drug costs once they reach their initial coverage limits. Note that not every plan has a coverage gap. Check with your insurance or Medicare representative to see if you’re at risk for the gap.
How the Rates Compare
How do the rates compare with those of 2015? In general, costs have increased since last year. The deductible for a standard plan in 2015 was $320. You’ll pay $40 more this year to meet the deductible. The initial coverage limit increased by $50, and your out-of-pocket threshold increased by $150. As you can see, you’re paying more for benefits this year, and this is normal. One of the biggest changes to Medicare is the closing of the coverage gap, which will take some time to complete. In the interim, the government is offering assistance to mitigate your out-of-pocket spending.
Part D Costs for LIS Beneficiaries
The rates outlined above apply to those who don’t receive any type of cost assistance to participate in Medicare Part D. Some seniors, however, qualify for assistance based on income levels. They can apply for the Low Income Subsidy program, which is also called the LIS or “Extra Help” program. This program covers between 85 and 100 percent of the cost of deductibles and co-pays. To qualify, you have to meet the federal poverty limits that are established by the government each year. In 2016, the qualifying income threshold for the LIS program is $11,770 per individual. Add $4,160 per person for each extra person in your family. If you live in Alaska or Hawaii, then your limits will be higher.
Under the LIS program, Medicare beneficiaries do not have to pay certain co-pays that are required of standard plan members. They also receive greater cost assistance to avoid the coverage gap scenario. In 2016, you’ll pay the following for certain benefits within the Extra Help program depending on your income level:
- Deductible: $0
- Co-payments for generics: $1.20 to $2.95
- Other drugs: $3.60 to $7.40
Because LIS beneficiaries receive discounted rates and other cost assistance, they don’t qualify for the coverage gap discounts offered under the ACA. Rates can vary significantly depending on your income. For example, those who meet or fall below the federal poverty limit will not have to pay a deductible for their prescriptions. Those who earn 150 percent of the poverty line will pay a deductible of $74 in 2016. The CMS offers help with qualifying for the LIS program, and you’re likely to find exact rates by speaking with a representative.
Changes on the Horizon
As with all types of insurance, Medicare rates will continue to increase over time as more beneficiaries enter the system and an aging population takes advantage of new healthcare options under the ACA. However, rates are not increasingly drastically as has been predicted by some. The new healthcare law has already improved not only access to insurance but the quality of insurance as well, and the CMS reports that Medicare Advantage beneficiaries now have greater access to 4- and 5-star plans as a result of recent changes. Continued improvements may drive up initial costs, but Medicare recipients should enjoy better healthcare in the long run.