Medicare Part D coverage gap

The Medicare Part D coverage gap — informally known as the Medicare donut hole — is the difference of the initial coverage limit and the catastrophic coverage threshold, as described in the Medicare Part D prescription drug program administered by the United States federal government. 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 the Centers for Medicare and Medicaid Services (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, for 2010 the total TrOOP has increased to $4,550 before catastrophic coverage begins.

• "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]

Total drug spend	TrOOP	Out-of-pocket cost	Portion covered by Medicare
$0–$295	$0–$295	Deductible is out-of-pocket	No Medicare coverage of costs
$295–$2,700	$295–$896.25	25% out-of-pocket	75% covered by Medicare
$2,700-$6,154	$896.25-$4,350.25	All costs are out-of-pocket	No Medicare coverage of costs
over $6,154	over $4,350.25	5% out-of-pocket	95% covered by Medicare

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.

With the passage of the Patient Protection and Affordable Care Act of 2010, people who fall within the donut hole will receive a $250 rebate within three months of reaching the coverage gap to help with payments. The US Department of Health and Human Services began mailing rebate checks in 2010.^[2] By the year 2020, the donut hole will be completely phased out.

Impact of the donut hole on Medicare beneficiaries

The U.S. Department of Health and Human Services estimates that more than a quarter of Part D participants stop following their prescribed regimen of drugs when they hit the donut hole.^[2]

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.^[3]

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.^[4]

According to a study done in 2007, 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).^[3]

The 2010 Health Reform bill (Patient Protection and Affordable Care Act) began to address the coverage gap by creating discounts on brand name and generic drugs purchased within the gap range. Between now and 2020, the gap will gradually be closed to a point where it is completely eliminated.^[5]

References

1. ^ Brian Joyce and Denys Lau, PhD, "Medicare Part D Prescription Drug Benefit: An Update", Buehler Center on Aging, Health & Society Newsletter, Volume 22, Number 2, Winter 2009
2. ^ ^{a b} http://www.fosters.com/apps/pbcs.dll/article?AID=/20100812/GJNEWS_01/708129744/0/FOSNEWS "Medicare 'donut hole' checks in the mail" Fosters Daily Democrat (August 14, 2010)
3. ^ ^{a b} Jack Hoadley, Jennifer Thompson, Elizabeth Hargrave, Katie Merrell, Juliette Cubanski and Tricia Neuman "MEDICARE PART D 2 008 DATA SPOTLIGHT: The Coverage Gap", Kaiser Family Foundation, November 2007
4. ^ Jack Hoadley, Elizabeth Hargrave, Juliette Cubanski and Tricia Neuman, "The Medicare Part D Coverage Gap: Costs and Consequences in 2007", Kaiser Family Foundation, August 21, 2008
5. ^ "Medicare: Big Changes for 2011". HealthHarbor. http://www.healthharbor.com/medicare/2011-medicare-changes. 

External links

• CMS official web site at cms.gov
  • Medicare at cms.gov
• Medicare.gov — the official website for people with Medicare
• TheMedicareForum.com - An online community Medicare Forum. For anyone who needs help understanding Medicare or has questions about Medicare.
• How Stuff Works - Medicare