Bye-Bye Donut Hole!
Ever since Medicare Part D rolled out in 2006, beneficiaries with high drug expenses have dreaded the donut hole. While we have certainly been grateful to even have drug coverage (since people on Medicare prior to 2006 did not), we still dread that part of the year when our medications become more expensive because we have hit the gap.
When Part D was created, beneficiaries originally paid 100% of the cost of their brand-name drugs when they hit the coverage gap.
Under the Affordable Care Act, the donut hole has slowly been closing each year up until 2020. However, under the new Bipartisan Budget Act of 2018, the donut hole which has made brand-name drugs so expensive for seniors will close sooner rather than later. It will close at the end of this year.
This is welcome news to Medicare beneficiaries who routinely experience high brand-name prescription medication costs each year.
Why the Donut Hole is Closing
The Donut Hole was originally created to get seniors’ participation in keeping drug costs low. Having a coverage gap encourages individuals to ask for generic drugs whenever possible. This keeps costs down for both Medicare beneficiaries and the federal government.
However, for those people with illnesses requiring brand-name medications, the donut hole has often been a hardship. There are many new medications on the market that are years away from their patent expiring. Some of these medications work so well that there aren’t very good alternatives.
This has resulted in Medicare beneficiaries having to choose between medications that work but cost a fortune and less expensive medications that maybe don’t work quite as well. If people choose not to take their medications during the gap because they can’t afford them, this could potentially result in higher costs to Medicare down the road when subsequent further illness occurs.
Having helped Medicare beneficiaries with Part D drug plans since the program’s inception in 2006, I have seen many people make these difficult choices. Often we help them check into manufacturers discounts to try to find some financial relief.
The gap has certainly been effective in helping people see the value of generic drugs. However, there has always been a certain percentage of the Medicare beneficiary population who really have no choice because the alternative medications just don’t work as well.
That’s where the Bipartisan Budget Act of 2018 should help.
Shifting the Cost to the Drug Companies
Right now in 2018, Medicare beneficiaries hit the coverage gap when their total drug spending for the year reaches $3750. They then enter the gap and pay a higher percentage of the cost of their medication until they reach catastrophic coverage when their spending for the year reaches $5000. Afterward, the insurance company must cover 95% of the cost of their covered medications for the rest of the year.
Receiving catastrophic coverage is great, but getting there is tough on your wallet.
Under the current Part D structure, Part D plans have an annual deductible and then the plan pays 75% of the cost of your medications until you hit the coverage gap. Once in the gap, you pay 35% of the cost of brand-name drugs and 44% of generics. Catastrophic coverage kicks in when you have spent $5000 out of pocket. Thereafter you pay only 5% of the cost of your medications.
Under the new budget deal, the plans will continue to pay 75% of the brand-name drug expenses until a beneficiary reaches the catastrophic limit. The legislation thus figuratively “closes” the donut hole by requiring some drug manufacturers to bear more of the costs for Part D enrollees when they reach the gap. Enrollees will only pay 25% of the cost of their brand name prescriptions. (Generics will be 37%, but traditionally generic drugs, which already have lower costs, have not been the hardship for people in the gap.)
In 2018, these manufacturers pay 50% of the cost of these brand-name medications in the gap. Beginning in 2019 under the new legislation, these companies will now take on 70%, so some of the costs of those drugs have been shifted back to the manufacturer.
It remains to be seen how this change might affect 1) the cost of the medication themselves and 2) the cost of the Part D drug plans in 2019. We are hopeful that this change will be a positive one. We have many clients who will be happy the donut hole is going away.
The bill also repeals caps on rehabilitative services and expands Medicare’s ability to offer tele-medicine services. It also does away with the Independent Payment Advisory Board – the so-called “death panel” created by the Affordable Care Act. Medicare Advantage plans got welcome news too. They will now offer a wider choice of supplemental care management options for chronically ill individuals
To help fund the budget deal, high-income Medicare beneficiaries earning more than $500K individually or $750K as a married couple will pay more for Parts B and D than they do now.