The Medicare Donut Hole
Medicare prescription drug coverage (Part D) is currently available through private insurers to anyone with Medicare Parts A & B for an extra monthly premium. Almost all of these prescription drug plans (PDPs) and most Medicare Advantage Plans featuring drug coverage have a coverage gap, also known as "the donut hole." In practice, this means that after an individual and their drug plan have spent a certain amount of money ($2,830 in total drug costs, $940 out of pocket in 2010) for covered drugs, the enrollee must pay all subsequent drug costs at retail rate out-of-pocket up to a yearly limit. The yearly limit in 2010 is $6,440 in total drug costs with $4,550 out of pocket. A person's yearly deductible ($310 in 2010), coinsurance/copayments, and what a person pays while in the coverage gap all count toward this out-of-pocket yearly limit. The limit doesn't include premiums paid monthly or what a person pays for drugs that aren't covered by the drug plan.
This means that while enrollees are in the doughnut hole in 2010, the coverage gap amounts to $3,610. In other words, while in the doughnut hole enrollees must pay 100% of the retail cost of their drugs until they have spent $3,610. Some PDPs offer minimal coverage on things like generic drugs while enrollees are in the doughnut hole, though these types of plans will usually charge a higher monthly premium. Once an enrollee reaches the $4,550 total out-of-pocket limit during the coverage gap, they are bumped into "catastrophic coverage." Catastrophic coverage guarantees that once an enrollee has spent up to his or her plan's out-of-pocket limit for covered prescriptions the person will only pay a nominal coinsurance fee or copayment for their drugs for the rest of the year. This works out to the enrollee paying about 5% of subsequent drug costs after the doughnut hole, their plan paying about 15%, and Medicare covering about 80%.
As a result of the Protection and Affordability Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010, the doughnut hole will close by 2020. This reform was deemed necessary given the fact that in 2007 an estimated 3.4 million Part D enrollees fell into the doughnut hole and the coverage gap – now at $3,610 – was projected to exceed $6000 by 2020. This year, Medicare Part D enrollees who get into the doughnut hole will be credited a one-time rebate of $250, except those who receive the low-income subsidy. After that starting in 2011, the doughnut hole will shrink through Part D enrollee, Medicare, and drug manufacturer contributions so that by 2020 enrollees will be responsible for only 25% of their drug costs in the coverage gap. Also in 2011 brand-name drug companies will be forced to provide a 50% discount on these prescriptions to enrollees in the doughnut hole and beginning in 2013 Medicare will start providing an additional discount on brand-name drugs up to 25% in 2020. As a result, by 2020 the combination of 25% enrollee, 25% Medicare, and 50% drug manufacturer contribution will effectively close the doughnut hole. With regard to generic drugs, in 2011 Medicare will begin providing discounts on generic drugs increasing annually to 75% by 2020.
