There are four Medicare Part D plan benefit types: Defined Standard (DS), Actuarially Equivalent (AE), Basic Alternative (BA), and Enhanced Alternative (EA).
- Defined Standard (DS) is standard benefits.
- 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).
Each tier includes trade-offs of at which point costs are incurred. Enhanced Alternative includes more costs upfront, while the other three shift cost sharing around using networks, drug tiers, and changes to the other Part D phases like the initial coverage limit. Which type will provide the most value depends on the beneficiary’s drug needs.
Medicare Part D Benefit Types 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, and the plan offers no additional gap coverage.
Actuarially equivalent (AE) standard benefits are a variation of standard benefits. Like with defined standard there is an annual deductible. Actuarially equivalent benefits differs from defined standard benefits in being able to substitute some cost sharing requirements, for example tiered cost sharing for drugs and networks.
Basic alternative (BA) benefits are an alternative version of the standard benefits. This type of benefits may have no annual deductible, 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
To help offer more clarity, here are the Defined Standard benefits for Part D in 2020 as an example [see CMS.Gov Medicare Part D announcement PDF]:
- Deductible: $435.
- Initial coverage limit: $4,020.
- Out-of-pocket threshold: $6,350.
- Total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $9,038.75.
- Estimated total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are eligible for the coverage gap discount program: $9,719.38.
- Minimum cost-sharing under the catastrophic coverage portion of the benefit: $3.60 for generic/preferred multi-source drugs, and $8.95 for all other drugs.
- CMS Issues 2020 Medicare Part D Benefit Parameters Used for Creditable Coverage Disclosures. Tax.ThomsonReuters.com.