Donut Hole (Medicare)

The term Donut Hole (or Doughnut Hole) refers to a "coverage gap" within the defined standard benefit under the Medicare Part D prescription drug program. Under the defined standard benefit package there is a gap in coverage between the initial coverage limit and the catastrophic coverage threshold. Within this gap, the beneficiary pays 100% of the cost of prescription drugs before catastrophic coverage kicks in. The term "coverage gap" is preferred by Centers for Medicare and Medicaid Services (CMS) and Prescription Drug Plans, but Donut Hole has been more widely adopted in the popular media.Fact|date=February 2007

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 (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 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 2006.
*The Total Drug Spend represents the actual cost of the drugs purchased, factoring in any Medicare discounts.
*The TrOOP (True Out Of Pocket Costs) represents the amount of their own money that the patient has paid.
*The Donut Hole is shown below in grey.

"2006 Medicare Part D Payments"

Note: In 2007 the $2250 amount was changed to $2400 and the $3600 became $3850. 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.

Impact on beneficiaries

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.Jack Hoadley, Jennifer Thompson, Elizabeth Hargrave, Katie Merrell, Juliette Cubanski and Tricia Neuman [http://www.kff.org/medicare/upload/7707.pdf "MEDICARE PART D 2008 DATA SPOTLIGHT: The Coverage Gap,"] Kaiser Family Foundation, November 2007]

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. [Jack Hoadley, Elizabeth Hargrave, Juliette Cubanski and Tricia Neuman, [http://www.kff.org/medicare/upload/7811.pdf "The Medicare Part D Coverage G
] Kaiser Family Foundation, August 21, 2008]

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).

Criticisms

Since a large government program that forces all insureds to pay a sizable premium but would only provide annual benefits to a small fraction would be politically unpalatable,Fact|date=February 2007 the actual drug program was designed so that everyone who bought drugs would get some benefit. This is not technically insurance but an expense reimbursement feature similar to some "dental plans" that have very low total payment limits of $500 to $2000 per year and premiums that are a sizable fraction thereof.or|date=July 2008

Health economists rationalize this gap as a political compromise in which the optimal insurance policy for the non-poor is stop-loss in which benefit payments would only start after an insured suffers the stop-loss limit of $3000 to $5000, after which the insurance covers 100% of the cost.Fact|date=April 2007 This is seen to diminish the use of drugs when they are not necessary. For the needy who cannot absorb the total $3000 to $5000 stop-loss limit, supporters argue that plan should have a much lower (even zero dollar) limit.fact|date=July 2008 In those cases, the all needed drugs would be provided free. Medicare Part D is structured this way.

Critics charge that this approach does not discourage "wasteful" drug use, but instead forces a disproportionate burden onto patients with chronic illnesses.fact|date=July 2008

References