High-Price Drugs Are Increasing Federal Payments for Medicare Part D Catastrophic Coverage

Members of Congress and others have raised concerns about the high prices of certain drugs and the impact these high prices have on Medicare beneficiaries and the health care system. An important part of the Medicare Part D benefit is catastrophic coverage, which beneficiaries enter when their out-of-pocket costs exceed a certain threshold. In catastrophic coverage, most beneficiaries pay a 5-percent coinsurance for drugs, while the Federal Government pays the vast majority of the remaining costs. Understanding the effect that high drug prices have on spending in catastrophic coverage is crucial. In catastrophic coverage, beneficiaries' out-of-pocket costs are not capped, and the Federal Government's share of drug spending is the highest.