How the Medicare Coverage Gap Discount Program Works

  • Originally published October 20, 2011 , last updated January 12, 2016
  • Medicare
How the Medicare Coverage Gap Discount Program Works

The Medicare Coverage Gap Discount Program provides manufacturer discounts on brand name drugs to Part D enrollees who have reached the coverage gap and are not already receiving “Extra Help.” A 50% discount on the negotiated price (excluding the dispensing fee and vaccine administration fee, if any) is available for those brand name drugs from manufacturers that have agreed to pay the discount.

Should an individual reach the coverage gap, the carrier will automatically apply the discount when the pharmacy bills them for their prescription and their Explanation of Benefits (EOB) will show any discount provided. Both the amount the individual pays and the amount discounted by the manufacturer count toward their out-of-pocket costs as if they had paid them and moves them through the coverage gap.

Individuals will also receive some coverage for generic drugs. If they reach the coverage gap, the plan pays 14% of the price for generic drugs and they pay the remaining 86% of the price. The coverage for generic drugs works differently than the 50% discount for brand name drugs. For generic drugs, the amount paid by the plan (14%) does not count toward their out-of pocket costs. Only the amount an individual pays counts and will move them through the coverage gap. Also, the dispensing fee is included as part of the cost of the drug.

The program is not applicable to those individuals who are Low Income Subsidy since they already have coverage through the gap.

Brand Name Drug Example

  • Assume the claim is wholly in the coverage gap (after total drug costs reach $2,930 for 2012)
  • Assume total discounted drug for a brand name drug is: $100, including $2 dispensing fee
  • Manufacturer will pay 50% of the cost of the drug minus the dispensing fee: $49
  • The individual will pay the remaining 50%, $49 plus the dispensing fee, $2 for a total of $51
  • Both the amount the individual pays ($51) plus what the manufacturer pays ($49) for a total of $100, will be applied to the True Out-of-Pocket (TrOOP) costs
  • So, this moves the member more quickly to catastrophic coverage (once TrOOP is met; $4,700 for 2012) where the individual will pay reduced cost-share (the higher of 5% or $2.60 or $6.50 depending upon the type of drug)

Generic Drug Example

  • Assume the claim is wholly in the coverage gap (after total drug costs reach $2,930 for 2012)
  • Assume total discounted drug for a brand name drug is: $100, including $2 dispensing fee
  • For the generic program, there is no involvement with the manufacturer; the individual simply is responsible for 86% coinsurance; in this case the individual would pay $86 ($100*86%) and the plan will pay the remaining $14
  • Only the amount the individual pays will be applied to the True Out-of-Pocket (TrOOP) costs.

Catastrophic Coverage

Once total out of pocket costs reach $4,700 (for 2012), the member share will be as follows:

  • The higher of coinsurance of 5% cost of the drug or $2.60 copayment for a generic drug or a drug that is treated like a generic. Or a $6.50 copayment for all other drugs. During this stage, the plan will pay most of the cost of the drugs for the rest of the calendar year (through December 31, 2012).