Healthcare Reform: How Will Closing The Medicare Part D Doughnut Hole Work?

Healthcare Reform: How Will Closing The Medicare Part D Doughnut Hole Work?

By Mary Johnson

Proponents of healthcare reform are confident that the public will warm to the new legislation, saying, “the more we learn about healthcare reform the more we will realize the benefits.”  But after slogging through pages of the bill, I’m not gushing with enthusiasm yet.  It’s becoming increasingly clear that the benefits may not materialize the way people are expecting.

Let’s take a closer look at one of the biggest new benefits that the legislation contains for seniors — closing the Part D “doughnut hole” by 2020.  The coverage gap grows bigger every year and by 2020 is projected to exceed $6,000.  But the way the legislation closes the doughnut hole is a lot like trying to fill a bathtub with the drain open.

Under the standard Part D benefit for 2010, beneficiaries pay a deductible of $310, and monthly premiums.  After paying the deductible, beneficiaries are responsible for co-pays that represent 25 percent of drug costs.  Drug plans, which receive subsidies from the government, pick up the rest.

Once total spending by beneficiaries and their drug plan exceeds $2,830 in 2010, they hit the doughnut hole, the point at which they must pay 100% of the cost of their prescriptions.  After spending another $3,610, coverage kicks back in and beneficiaries only pay 5% of drug costs.

Under healthcare reform starting this year, Medicare beneficiaries who hit the doughnut hole will get a $250 rebate.  In 2011, beneficiaries who fall into the hole will get a 50% discount on brand-name drugs and a 7% discount on generics.  Beginning in 2013, the federal government will gradually phase-in additional subsidies in the coverage gap to reduce beneficiary co-insurance rates to 25% by 2020 (meaning a 75% discount on both brand name and generic drugs).

At the same time, between 2014 and 2019, the law reduces the out-of-pocket required for beneficiaries to receive the catastrophic coverage, which would reduce costs even more, closing the hole — that is, if the formula provided by the legislation works as anticipated.  But here’s what nobody is mentioning:  the doughnut hole continues to grow at the same time the government is working to fill it.

And in 2020, the level of out-of-pocket spending required for catastrophic coverage reverts to its former level, i.e., what it would have been absent the reductions in the out-of-pocket required for catastrophic coverage.  Currently that cost is projected to exceed $6,000 in 2020.  Thus, seniors will gain new coverage for the drugs in the hole, reducing co-insurance costs to 25% instead of 100%.  That’s much better than we had before.  Yet the problem of costs continuing to rise is only slowed.

I’m still reviewing healthcare reform.  But so far I just can’t help having a sinking feeling.  From here, it looks suspiciously like the tip of a huge healthcare cost iceberg, and the name on the bow of our healthcare ship of state is the Titanic.

Sources: “Closing Medicare Drug Gap Helps Democrats Sell Reform,” Christopher Weaver, Kaiser Health News, March 29, 2010.  H.R. 4872 Health Care and Education Reconciliation Act,  Sec.1101 Closing the Medicare Prescription Drug Doughnut Hole, March 30, 2010.