Part D Drug Plan Benefit Types Basics
- Defined Standard (DS) is standard benefits (see below).
- Actuarially Equivalent (AE) and Basic Alternative (BA) are variations of standard benefits that are equivalent in terms of value (“actuarially equivalent”).
- Enhanced Alternative (EA) is a variation that provides more value (typically in return for a higher premium).
These four types can be broken down into two general categories, Basic (DS, AE, and BA) and Enhanced (EA).
Each Part D benefit type offers a trade-off in terms of how and when costs are incurred.
In general, Enhanced Alertantive benefits are about getting a robust drug plan for a premium, while the other three offer a choice as to how and when you will incur costs.
Which benefit type will provide the most value depends on your drug needs and where you typically spend the most on drugs. For example, if you know you’ll hit a standard plan’s catastrophic limit, then Enhanced Alternative’s more generous cost-sharing could make sense. Meanwhile, if you won’t spend much in a year, but will quickly hit the standard Part D deductible, then you may want Basic Alternative as some of these plans offer no deductible.
Medicare Part D Benefit Types Definitions
To better understand which Part D benefit type will provide the most value to you, it’ll help to have more substantial definitions.
Defined Standard (DS) benefits are the standard required benefits of a drug plan. That means there is an annual deductible, 25% coverage in the initial coverage phase (in 2021), and the plan offers no additional gap coverage. The defined standard benefits are subject to change each year, see the current defined standard benefits below.
Actuarially Equivalent (AE) standard benefits are a variation of standard benefits. Actuarially Equivalent benefits provide the same deductible as Defined Standard benefits, but different cost-sharing. Actuarially equivalent benefits differ from defined standard benefits in being able to substitute some cost-sharing requirements, for example, tiered cost-sharing for drugs and networks instead of the flat 25% (in 2021) for the initial coverage phase.
Basic Alternative (BA) benefits are an alternative version of the standard benefits. Basic Alternative benefits may have a smaller annual deductible (or no deductible at all), and may have different cost-sharing such as tiered cost-sharing for drugs and changes to the initial coverage limit.
Enhanced Alternative (EA) benefits means the plan provides cost-sharing on drugs beyond what is required by standard coverage. These plans may include lower deductibles, a reduction of cost-sharing during the initial coverage phase, an increased coverage limit, additional gap coverage, and more.
Defined Standard Benefits for Part D
Each year there is a minimum “Defined Standard” benefit structure in terms of cost-sharing, not drugs covered, that plans must meet by law.
Here are the Defined Standard prescription drug benefits for Part D in 2021 as an example [see CMS.Gov Medicare Part D announcement PDF]:
- Deductible: Up to $445.
- Initial coverage limit: $4,130.
- Out-of-pocket threshold: $6,550.
- Drug Costs During Initial Coverage Period: 25% (or up to $1,032.50 if in a plan with no deductible)
- Total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $9,313.75.
- Estimated total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are eligible for the coverage gap discount program: $10,048.39.
- Minimum cost-sharing under the catastrophic coverage portion of the benefit: $3.70 for generic/preferred multi-source drugs, and $9.20 for all other drugs.
- CMS Issues 2021 Medicare Part D Benefit Parameters Used for Creditable Coverage Disclosures. Tax.ThomsonReuters.com.
- Medicare Part D Cost-Sharing Chart. Tax.ThomsonReuters.com.