Medicare beneficiaries with high prescription drug costs are now facing the costs and intricacies of the doughnut hole, the gap in coverage built into Medicare prescription drug plans.
No other insurance policy is like this. One day you have coverage, and then it suddenly stops, and you are solely responsible for drug costs up to a certain level. At that point, insurance coverage resumes at a higher level.
The doughnut hole works this way. Beneficiaries pay for the first $250 worth of drugs — this is the deductible. For the next $2,000 in drug spending, beneficiaries pay 25% of drug costs ($500), and Medicare pays for the other 75% ($1,500). Total drug sending has now hit $2,250, and the gap in coverage begins.
Beneficiaries pay for the next $2,850 worth of drugs out of pocket, and Medicare pays nothing. Medicare coverage resumes when beneficiaries have reached a total of $3,600 in out-of-pocket spending — the $250 deductible, plus $500 as a share of spending for the first $2,000 in prescriptions, plus $2,850 in drug costs within the doughnut hole. For any additional spending, you pay only 5%, and Medicare pays 95%.
But there is another complication. Spending in the doughnut hole for the $2,850 is counted only for drugs covered by beneficiaries’ prescription drug plan and for drugs purchased at a pharmacy in their drug plan’s network of approved stores.
Here is where beneficiaries have to be careful calculators of costs. If it is late in the year, and a beneficiary probably won’t reach the total of $2,850 that will get them through the doughnut hole, it might be advantageous to look for a cheaper source of drugs than the Medicare drug plan.
For example, Costco might not be on the list of approved pharmacies but it may be cheaper than a prescription drug plan. It might be a better idea to save money by going to Costco because the beneficiary’s out-of-pocket spending won’t reach $2,850.
However, for beneficiaries who have high medication costs and there are many months to go in the year, it might be better to get the drugs within their prescription drug plan. That way, the beneficiary will reach the $2,850 spending level and qualify for catastrophic coverage with only a 5% copayment for medication.
The federal government suggests using generic drugs to help control spending in the doughnut hole. People enrolled in Medicare “should ask their doctor if a generic drug or lower-cost brand name drug would work just as well as the one they take now,” according to a CMS tip sheet. Estimates indicate that “more than 90% of people with Medicare either won’t reach the coverage gap or will have at least some coverage available to them during the gap,” CMS said.
Two studies indicate that the use of generic medications can produce substantial savings.
Consumer Reports Best Buy Drugs — a Web site and study system, operated by Consumers Union — reviewed prices for drugs used in treating high blood pressure, high cholesterol, arthritis pain, depression, and in providing care after a heart attack. The study looks at prices in Medicare drug plans in California, Maryland Minnesota, Georgia, and Pennsylvania and finds that beneficiaries who switched just one of their brand-name medicines to a less expensive drug could save between $350 and $800 a year.
A study by CMS says people who are in the least expensive Part D plans could reduce drug costs by as much as 83% by switching to generic medications.
The use of generics may be helpful for people with chronic conditions, who are more likely than others to reach the coverage gap because of their persistent needs for medication.
“We are hearing sad stories every day about people in the doughnut hole” said Margaret Reilly, program manager of the Health Insurance Counseling and Advocacy Program in West Sacramento. HICAP, a not-for-profit program receiving state and federal funding, provides advice to people on Medicare. “There are many chronic ailments that are driving people into the hole,” she said.
Many drug manufacturers for years have offered discounted or free medications to low-income people, including those enrolled in Medicare. When the new Medicare drug benefit was created, many firms dropped these programs for people enrolled in Medicare. They said the help would no longer be needed since Medicare was now covering drugs.
After a bipartisan appeal from senators, a number of companies said they would restore the financial aid programs for some low-income individuals. Senators and members of the advocacy community hoped this would help people in the doughnut hole.
But the situation has proven uncertain and confusing, according to advocates. It is often difficult for people to get information from the drug companies about whether they are eligible and how to apply for the help, advocates say.
The majority of people protected from the doughnut hole were those who already had drug coverage before the new law took effect this year. People with retiree coverage through a former employer, and many enrolled in HMOs had coverage without the interruption. There are approximately 43 million Medicare beneficiaries, and about 60% of them had some sort of prescription drug coverage before the new Medicare drug benefit took effect. About half of this group — about 30% of all beneficiaries — had coverage through former employers or through union plans.
The 2003 Medicare law provided for subsidies to encourage businesses to keep providing coverage for their retirees. Most employers took advantage of that subsidy, noted Tom Morrison, senior vice president of the Segal Co., an employee benefits consulting firm. For example, public sector retirees in California do not face the doughnut hole problem, according to Morrison. He said the state, county and city government agencies went after the subsidies, “left their plans alone, and told their retirees they were covered without any change.”
Another group of beneficiaries safe from the doughnut hole are people receiving financial subsidies under the law because they have low incomes and limited assets. Depending on their income, they will have only modest copays for each prescription, but their coverage will not be interrupted by the doughnut hole. There might be 10 million or more people in this group.
There are 43 million people enrolled in Medicare. Even if CMS is correct in its estimate that most will be safe from the doughnut hole, the situation still leaves millions with the potential to face considerable financial risk.