Medicare's Drug Coverage Gap to Shrink Away Under Health Care Reform

FRIDAY, April 8 (HealthDay News) — Starting this year, Medicare Part D’s widely despised “donut hole” — the gap in drug cost coverage enrollees encounter when they reach a certain spending threshold — will start to disappear, one result of the health care reform package enacted last year, experts say.

In 2010, the donut hole kicked in after a beneficiary had incurred $2,530 in annual drug spending. They were then responsible for every dollar incurred up until $6,137 in spending, at which point “catastrophic” coverage kicked in.

However, experts say that under the new Affordable Care Act, this coverage gap will shrink considerably beginning this year, and completely disappear by the year 2020. But the process will be a step-wise transition — and that doesn’t include the possibility of Republican efforts to curtail or even dismantle the new legislation.

The Part D drug plan “is basically the tiered system Medicare has had for covering medications. They’re gradually filling it,” explained Dr. David Spahlinger, president of the Association of American Medical Colleges Advisory Panel on Healthcare and senior associate dean for clinical affairs at the University of Michigan Medical School, Ann Arbor.

Although there are a number of plans within the program, right now the “average” Part D beneficiary has to pay an initial deductible of $310 for prescription medications. After that, they have to pay 25 percent of their drug costs, with Medicare taking care of the rest, said Hilary Sohmer Dalin, interim director of the National Center for Benefits Outreach and Enrollment at the National Council on Aging.

The easiest way to explain what’s going to happen is to look at a “standard plan,” even though, admittedly, there are few such plans.

In 2010, that 75 percent/25 percent payment ratio stayed in place until seniors spent an additional $2,530 on medications. Under that system, the senior pays $632.50 and the drug plan $1,897.50.

So, “the coverage gap starts after a total expenditure of $2,530,” explained Dalin.

Then seniors had to pay all of their prescription drug costs until they have racked up another $3,607.50 in costs (to $6,137.50).

At that point, they reached “catastrophic coverage,” where they only had to pay 5 percent of drug costs with the government picking up the rest of the tab.

But this year, discounts will apply within the donut hole: 50 percent on brand-name drugs and 7 percent on generic drugs, explained Joe Baker, president of the Medicare Rights Center. Funds to cover the discount on generics will come from the federal government, while the pharmaceutical industry is funding the 50 percent discount on brand-name medications.

“This year, not everybody, but those with very high drug costs [i.e., those who reach the donut hole] will have a 50 percent discount on brand-name drugs in the donut hole. Before it was 0 percent,” added Dalin.

According to U.S. government figures, some 4 million Medicare beneficiaries are benefiting from the new rules with an average savings of $800 per person. Those with more severe medical problems can see savings of $1,775.

Of course, the 7 percent discount on generics will not help those who mainly rely on those types of drugs to “get through and out of the coverage gap as does the 50 percent discount on brand-name drugs,” Dalin noted.

As for more expensive brand-name medications, the Congressional Budget Office has raised the possibility that pharmaceutical companies may simply raise their prices to offset the discount — something which would affect all enrollees.

“There has been some concern that pharmaceutical companies might raise prices,” Dalin said. But that’s still an unknown.

Still, if prices remain stable, Baker said there will be incremental upticks in discounts until 2020, by which time the donut hole should have shrunk away entirely.

In its place, and after the initial deductible, seniors will continue with the same 75 percent/25 percent split until they reach catastrophic coverage, if they ever do, Dalin said.

The whole process, “starts this year but we don’t get there until year 2020,” Baker said.

More information

There’s more on the upcoming Part D changes at the National Council on Aging.