Ask Medicare beneficiaries what they hate most about Part D prescription drug coverage and a chorus goes up: “The doughnut hole!” Although most enrollees have saved money buying their drugs through Part D since the program began in 2006, the thing they fear most is falling into that gap in coverage—universally nicknamed the doughnut hole—where they must generally pay 100 percent of the cost of medicines out of their own pockets.
Now, with a mood in Washington to make health care more affordable for everyone, AARP and some other consumer groups are calling on Congress to eliminate the Part D gap, or at least narrow it.
“Medicare beneficiaries dread falling into the doughnut hole because it essentially leaves them uninsured for a major medical expense for part of the year,” says Cheryl Matheis, AARP’s director of health strategies. “To millions of people enrolled in Part D, making health care more affordable means closing the coverage gap.”
The Medicare drug benefit is unlike any other type of insurance. Health policy experts compare it to a roller coaster. In any given year, depending on the total cost of the drugs they consume and the design of their Part D drug plan, enrollees can move through a number of periods of coverage and noncoverage, as follows:
- Enrollee pays up to $295 out of pocket at the beginning of the year until coverage kicks in—though some drug plans charge no deductible
Coverage—Initial coverage phase
- Enrollee pays copayments or coinsurance required by plan until total drug costs (what both enrollee and plan have paid) reach $2,700 since the beginning of the year
Noncoverage—Doughnut hole phase
- Enrollee pays 100 percent of drug costs until $4,350 has been paid out of pocket on drugs (excluding premiums) since the beginning of the year
- Enrollee pays up to 5 percent of drug costs until the end of the year
Another Part D coverage analogy: It’s a bit like having auto insurance that stops after policyholders have traveled a certain number of miles in a year—but kicks in again if their mileage reaches a very high level before the end of the year.
For example, Latricia Solberg of Rialto, Calif., a kidney patient who has dialysis three times a week, needs to take 12 Renagel pills a day to keep her phosphorous levels in check. Under Part D, her copay was $90 for three months’ supply. Now, in the doughnut hole, it costs $2,019 for the same quantity.
No cheaper generic version of Renagel is available in the United States, and Solberg doesn’t expect to qualify for catastrophic coverage before November. The cost takes precious money she and her husband need for other things—“and with both of us on disability, that’s scary,” she says. “But if I stopped taking it, I’d get really sick.” She will face this dilemma each year.
About one in four Part D enrollees (26 percent) fell into the coverage gap in 2007, according to a study published by the Kaiser Family Foundation last year. Among those age 85 and older, this figure rose to one in three. Half of enrollees who got dunked in the doughnut hole reached it by August, and most stayed in it for the rest of the year. Only 4 percent of enrollees made it through the gap to reach the benevolent phase of catastrophic coverage, in which they pay no more than 5 percent of the cost of their drugs until the end of the year.
What happens when beneficiaries hit the gap? Some do what they did before Part D began—they ask doctors for free samples, apply to the drug manufacturers or low-cost community clinics for assistance, skip doses, or just fail to fill prescriptions. And some switch from expensive brand-name drugs to lower-cost generics—a strategy that an increasing number of beneficiaries use to postpone the gap or avoid it entirely. But this isn’t an option for people using the newest brand-name or biologic drugs that don’t have generic alternatives.
“We hear all the time from people about the hardship the doughnut hole causes, because very often they can’t afford their drugs,” says Paul Precht, director of policy and communications at the Medicare Rights Center, a consumer advocacy group based in New York. “So people with chronic conditions have trouble maintaining their drug regimens, which is serious because it can lead to complications and make them sicker and more expensive to take care of in the long run.”
On average, beneficiaries who fall into the gap cut back on their prescriptions by about 14 percent a month, according to a study by researchers from the University of Pittsburgh and Harvard University that was published in Health Affairs in February. “One can assume not only that the lack of coverage in the doughnut hole had adverse health consequences,” the authors noted, “but also that it could have increased costs for hospital and physician services.”
Many Medicare beneficiaries wonder why Congress invented the doughnut hole in the first place.
At the time the legislation was written in 2003, as part of the Medicare Modernization Act, lawmakers and health policy experts thought that it would be impossible to provide comprehensive drug coverage for everyone and stay within the required budget of $400 billion over 10 years. The gap was then considered the only solution for providing some coverage for all beneficiaries and more generous benefits for those with low incomes or very high drug costs.
Ironically, Part D has so far cost far less than the Congressional Budget Office, which “scores” or figures the cost of new legislation, estimated in 2003. “The Part D estimates for the period 2004 to 2014 are now $249 billion, or 39.3 percent, lower than the original [CBO] score,” a Medicare spokesman told AARP Bulletin Today yesterday.
In other words, with hindsight, perhaps these “savings” would have been enough to have filled in or narrowed the doughnut hole from the start.
Abolishing the gap entirely now, however, would still be costly. The Congressional Budget Office estimates the price tag as $134 billion over 10 years between 2010 and 2019. And spending that kind of money at a time when Washington is searching for billions of dollars to fund health care reform and cover the uninsured is probably not feasible, says Jack Hoadley, a research professor at Georgetown University’s Health Policy Institute and a coauthor of the Kaiser study. “I think it’s pretty much off the table, at least for this year,” he adds.
But a number of ideas have been discussed for narrowing the doughnut hole or removing its burden from more beneficiaries. Among them:
Eliminating the Extra Help asset test: Many beneficiaries with limited incomes who would otherwise qualify for low-cost coverage under Part D’s Extra Help program are excluded because their assets—mostly savings—are too high. Maximum assets are $12,510 for an individual and $25,010 for a couple in 2009. AARP estimates that eliminating the test would make 1.8 million more people eligible for Extra Help. “As Extra Help has no doughnut hole, this would give all-year coverage to many who need it,” says Matheis. Two bills to do away with the asset test, or raise its limits to more generous levels, are expected to be introduced in the House within a few weeks.
Shrinking the gap: Raising the dollar limit on initial coverage and reducing the amount of out-of-pocket expenses needed to trigger catastrophic coverage would mean the gap would have less of an impact, on fewer people. So would giving coverage in the doughnut hole for brand-name drugs that have no cheaper generic versions. So would waiving copays for drugs used for certain chronic conditions, such as diabetes, which have a big impact on patients’ personal health and Medicare costs if they go untreated. These options would be less expensive than eliminating the gap entirely.
Lowering drug prices: Medicaid, the health insurance program for low-income people, requires a 15 percent discount from the drug manufacturers. “Applying those same discounts to Part D would provide savings of something like $110 billion over 10 years, which would go a long way to closing the doughnut hole,” says Precht of the Medicare Rights Center.
Raising beneficiaries’ share of the cost: At present Part D enrollees pay an average 25 percent of their costs during the initial coverage phase. Increasing that to maybe 30 or 35 percent for everyone could eliminate the doughnut hole without costing the government anything, says Georgetown’s Hoadley. “Everybody would pay a little more, but you’d get rid of the roller coaster effect, which is hardest on people who suddenly go from paying, say, $75 a month when they’re covered to $500 a month or worse in the gap.”
Suspending premiums in the gap: At present Part D enrollees must pay monthly premiums (which range from about $15 to over $100, depending on the drug plan they’re in) throughout the time they spend in the gap. Not having to pay premiums during that period would mollify those who resent paying them while receiving no coverage, but in many cases would save only a fraction of the full cost they pay for their drugs in the gap.
Requiring some plans to offer gap coverage: Some Part D insurers offer enhanced plans that provide extra benefits for higher premiums, but almost none cover brand-name drugs in the gap. “Medicare could require any insurer that wants to offer an enhanced package to provide full coverage in the gap,” for brand-name drugs as well as generics, Hoadley says. That could spread the risk of attracting the sickest (and therefore most expensive) beneficiaries among a number of plans—or it could mean that insurers might stop offering enhanced plans altogether.
Patricia Barry is a senior editor at AARP Bulletin Today.