With the new decade comes this long-awaited milestone: the Medicare Part D doughnut hole has closed. Two cheers.
More than 61 million Americans are Medicare beneficiaries, and about 46 million of those are enrolled in Part D. The doughnut hole, more formally called the coverage gap, has been one of Part D’s more detested features since the drug benefit took effect in 2006.
Retirement tax savings breaks
Part D initially suspended coverage at a certain dollar threshold, forcing beneficiaries to pay out of pocket for drugs until they hit a second threshold and coverage resumed.
In 2006, after meeting the deductible ($250 at the time), participants paid 25 percent of the negotiated cost of each prescription until the cost of their drugs totaled $2,250.
Then, they became responsible for all drug costs — 100 percent — until they’d spent $3,600, after which they qualified for catastrophic coverage and paid just 5 percent of the cost per drug.
By last year, those thresholds had risen to $3,820 to fall into the gap and $5,100 to climb out.
“It was designed that way because Congress had a self-imposed budget target,” said Tricia Neuman, who directs the Medicare policy program at the Kaiser Family Foundation.
In order to afford a low deductible, catastrophic coverage and protection for those with low incomes, lawmakers agreed to the doughnut hole. But what other kind of insurance works like that?
“You had coverage up until a certain dollar threshold, and then you didn’t,” said Jack Hoadley, a veteran drug policy researcher at Georgetown University. “People like to believe that once they have coverage, it continues.”
The Affordable Care Act began a decade-long effort to close that gap. In 2010, the Centers for Medicare and Medicaid Services estimated, 8 million Part D beneficiaries fell into the doughnut hole.
So in 2011, federal rules started lowering costs for beneficiaries and increasing discounts required from drug companies, gradually reducing what beneficiaries paid while in the hole.
The final reduction, for generic drugs, slid into place on Jan. 1. Now, supposedly, there is no coverage gap. Federal regulations require that your plan (most Medicare beneficiaries can choose from nearly 30) average 25 percent cost-sharing for any drug.
Part D premiums have remained stable (averaging about $30 a month) for years; the proportion of Medicare beneficiaries with Part D has risen to nearly 75 percent, and now the doughnut hole has closed. (Of course, if the Supreme Court ends up striking down the Affordable Care Act, the hole will return.)
Should we applaud?
“It’s great that the doughnut hole is closing,” Dr. Neuman said. “But people will continue to be exposed to very high drug costs without Congressional action.”
Why? Several reasons have to do with Part D itself.
- This year, after meeting the $435 deductible, you generally pay a flat price for each covered drug during the so-called initial coverage period. Different plans assign drugs to different tiers for which you pay specified amounts.
But once your total drug expenditures hit $4,020, you’re responsible for 25 percent of the plan’s negotiated cost per drug — not a gap, exactly, but a shift.
If you were paying $45 for a prescription that costs $200, your share is now $50 — not a major change. But for a $500 drug, you’ll owe $125 until you reach the catastrophic threshold.
“It can go from your flat co-payment to a much higher amount,” said Sue Greeno, who answers beneficiaries’ questions at the Center for Medicare Advocacy.
Soon, she predicts, “people will be calling us saying, ‘What? Why?’” In theory, 25 percent could come to less than your tiered price; often it goes the other way.
- It will now take longer to climb out of the not-exactly-a-hole.
Last year, you qualified for catastrophic coverage when your out-of-pocket expenditures reached $5,100.
This year, you don’t qualify until they hit $6,350, a big jump. The Affordable Care Act had maintained a lower threshold; this year, that provision ended.
Once there, your co-payment is a flat $3.60 to $8.95, or 5 percent of the drug’s cost, whichever is higher. (Not lower.)
- Part D has never capped out-of-pocket costs, even when you reach the supposedly safe shore of catastrophic coverage. Your 5 percent co-payment lasts the rest of the year.
“Think about expensive cancer drugs,” Dr. Neuman said. “It can still be a big number.”
All of this takes place against the backdrop of rising drug prices generally. From 2015 to 2017, more than a million Medicare beneficiaries each year passed the threshold for catastrophic coverage — more than twice the number when Part D began, according to a Kaiser Family Foundation analysis.
(State health insurance assistance programs can help beneficiaries find the most advantageous plans and also steer low-income individuals to subsidized assistance programs.)
New hepatitis C, emphysema and leukemia drugs — which may have no generic alternatives — can cost beneficiaries more than $5,000 a year.
Deciding on a Part D plan remains dauntingly complex. Though advocates say most participants could save by comparing plans annually and switching to lower-cost options, only a small fraction do.
Some have gone through considerable contortions to avoid rising costs.
Joel Lieberman, 76, a retired judge in Wellington, Fla., spends about $1,000 a year on seven drugs, mostly generic, for cardiac and thyroid conditions.
But he also takes Xarelto, a pricey brand-name blood-thinner. At roughly $1,400 for a three-month supply at his local pharmacy, in past years the cost would have dropped him into the doughnut hole.
“I have found a way around it,” he said. For several years, he bought the drug from Canada at significant savings. Once he could no longer arrange that, he began ordering Xarelto from Israel, where a company charges him $698 for a year’s supply, including shipping.
He feels lucky to be able to pay that sum. “What about those people out there who end up taking their pills three times a week instead of every day because they can’t afford them?” he asked.
It’s hardly a hypothetical question. Last year, Kaiser surveys showed that nearly a quarter of people over 65 struggled to pay for medications. Because of costs, 29 percent didn’t take drugs as directed, either not filling prescriptions, skipping or reducing doses, or substituting over the counter products.
Those polls also show broad public support for Congressional action to reduce prescription drug costs. At minimum, a bill passed by the House in December and one reported out of the Senate Finance Committee in July, plus the Trump administration’s proposed 2020 budget, would all cap out-of-pocket spending for Part D.
The House bill also authorizes the Department of Health and Human Services to negotiate prices with drug makers (as the Department of Veterans Affairs does) for both Medicare and private insurers. The original Part D legislation specifically prohibited that.
Unsurprisingly, “there’s strong industry opposition to the House bill,” Dr. Neuman said. “That makes it harder to see what could get through the Senate and be signed by the President.”
But it’s also hard to see how Part D’s remaining conundrums, with their real-world effects on people’s health, get resolved without federal action.
“The doughnut hole did close,” Dr. Hoadley said. “But there are things that still need to be done to make this a more affordable program.”
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