Generic drugs may be cheaper than brand-name drugs, but according to a new study published in Health Affairs, many Medicare Part D enrollees are actually paying more out of pocket when they buy generic.
Medicare Part D has four coverage periods. You will move in and out of each of these periods depending on your out-of-pocket spending. The third period is called the coverage gap, or Medicare donut hole.
The coverage gap was previously a period of drug coverage in which patients were responsible for the full cost of their prescription drugs. However, the Bipartisan Budget Act of 2018 (BBA) has somewhat closed the donut hole. Now, patients pay no more than 25 percent coinsurance for their brand-name drugs and 37 percent for generic drugs.
How enrollees spend more on generic drugs
Because most brand-name drugs are more expensive, drug manufacturers often provide discounts to help offset the cost for these drugs. This is where the BBA has unfortunately hurt enrollees. Because drug manufacturer discounts count toward an enrollee’s total out-of-pocket spending, those buying expensive brand-name drugs reach catastrophic coverage ($5,100 spent out of pocket) faster. This is significant because coinsurance drops to 5 percent during the catastrophic coverage period.
For example, if a brand-name drug costs a patient $100 during the coverage gap and the manufacturer provides a discount of $70, the patient will spend $30, but the discount will also count toward their out-of-pocket spending.
On the other hand, if they are prescribed a generic drug costing $30, that is the only amount that will count toward their out-of-pocket spending. This means it will take them much longer to reach catastrophic coverage, and they end up paying more per year as a result.
Why this is a problem
According to the study authors, the biggest problem this blind spot creates is that it decreases the incentive to create generic drugs. It also decreases competition for drugs for rare diseases that are often very expensive, which keeps the brand-name prices high.
The authors also recommend supporting the White House’s healthcare blueprint, which calls for a cap on out-of-pocket spending, and applying manufacturer discounts to generic drugs as well as brand-name drugs.