Medicare Part D coverage gap

The neutrality of this article is disputed. Please see the discussion on the talk page. Please do not remove this message until the dispute is resolved. (December 2007)

This article's Criticism or Controversy section(s) may mean the article does not present a neutral point of view of the subject. It may be better to integrate the material in such sections into the article as a whole. (September 2009)

The Medicare Part D coverage gap (also known as the Medicare donut hole or Medicare doughnut hole) is the difference of the initial coverage limit and the catastrophic coverage threshold, as described in the Medicare Part D prescription drug program of the United States. After a Medicare beneficiary surpasses the prescription drug coverage limit, the Medicare beneficiary is financially responsible for the entire cost of prescription drugs until the expense reaches the catastrophic coverage threshold.

Details

In 2006, the first year of operation for Medicare Part D, the donut hole in the defined standard benefit covered a range in true out-of-pocket expenses (TrOOP) costs from $750 to $3600. (The first $750 of TrOOP comes from a $250 deductible phase, and $500 in the initial coverage limit, in which CMS covers 25% of the next $2000.)

The dollar limits increase yearly.

The following table shows the Medicare benefit breakdown (including the donut hole) for 2009.

• "Total drug spend" represents the actual cost of the drugs purchased, factoring in any Medicare discounts.
• "TrOOP" (true out-of-pocket expenses) represents the amount of their own money that the patient has paid.
• The donut hole is shown below in grey.

2009 Medicare Part D payments^[1]

The structure defined above is the benefit structure defined by Medicare, and from a health-plan perspective defines the amount of money that CMS will reimburse to health plans for covering prescription drugs. Individual health plans may choose to offer alternative benefit structures, generally with higher premiums, that either reduce or eliminate the donut hole.

Individuals identified as "dual eligible" by CMS are not subject to the donut hole, as their prescription coverage is fully subsidized.

Impact on beneficiaries

Every Part D plan sponsor must offer at least one basic Part D plan. They may also offer enhanced plans that provide additional benefits. For 2008, the percentage of stand-alone Part D (PDP) plans offering some form of coverage within the doughnut hole rose to 29 percent, up from 15% in 2006. The percentage of Medicare Advantage/Part D plans (MA-PD) plans offering some form of coverage in the coverage gap is 51%, up from 28% in 2006. The most common forms of gap coverage cover generic drugs only.^[2]

Among Medicare Part D enrollees in 2007 who were not eligible for the low-income subsidies, 26% had spending high enough to reach the coverage gap. Fifteen percent of those reaching the coverage gap (4% overall) had spending high enough to reach the catastrophic coverage level. Enrollees reaching the coverage gap stayed in the gap for just over four months on average.^[3]

Premiums for plans offering gap coverage are roughly double those of defined standard plans. The average monthly premium for stand-alone Part D plans (PDPs) with basic benefits that do not offer gap coverage are $30.14. The average monthly premium for plans that do offer some gap coverage are average $63.29. In 2007, eight percent of beneficiaries enrolled in a PDP chose one with some gap coverage. Among beneficiaries in MA-PD plans, enrollment in plans offering gap coverage was 33% (up from 27% in 2006).^[2]

Criticisms

This section contains weasel words, vague phrasing that often accompanies biased or unverifiable information. Such statements should be clarified or removed. (September 2009)

Since a large government program that forces all insureds to pay a sizable premium but would only provide annual benefits to a small fraction would be politically unpalatable,^{[citation needed]} the actual drug program was designed so that everyone who bought drugs would get some benefit. This is not technically insurance but an expense reimbursement feature similar to some "dental plans" that have very low total payment limits of $500 to $2000 per year and premiums that are a sizable fraction thereof.^{[original research?]}

Health economists rationalize this gap as a political compromise in which the optimal insurance policy for the non-poor is stop-loss in which benefit payments would only start after an insured suffers the stop-loss limit of $3000 to $5000, after which the insurance covers 100% of the cost.^{[citation needed]} This is seen to diminish the use of drugs when they are not necessary. For the needy who cannot absorb the total $3000 to $5000 stop-loss limit, supporters argue that plan should have a much lower (even zero-dollar) limit.^{[citation needed]} In those cases, the all needed drugs would be provided free. Medicare Part D is structured this way.

Critics charge that this approach does not discourage "wasteful" drug use, but instead forces a disproportionate burden onto patients with chronic illnesses.^{[citation needed]}

US house bill HR 3200 under discussion proposes a phased-in elimination of the Medicare Part D coverage gap and would require drug manufactures to discount and/or rebate additional qualifying drugs originally excluded from the plan.^[4]

CMS rule to reduce drug costs for beneficiaries

The Centers for Medicare & Medicaid Services (CMS) issued a final rule that will result in lower drug costs for beneficiaries under Medicare's Part D program. The rule, which takes effect January 1, 2010, requires drug plan sponsors under Part D to use the amount paid to a pharmacy as the basis for determining cost-sharing for beneficiaries and for reporting a plan's drug costs to the agency. Under the current system, beneficiaries often pay higher prices that include sponsors' administrative costs. The CMS said the change would help slow beneficiaries' movement toward the initial coverage limit, or the "donut hole".

References