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Closing of the Donut Hole

By July 16, 2012 No Comments

With Medicare’s enrollment period happening there has been many discussions on the “Donut Hole” and the effective closing of it over time due to the new “Patient Protection and Affordable Care Act (PPACA)”.

This one act has effectively closed the drug gap by the year 2020.

On the surface this looks to be fantastic news as one of the biggest issues with Medicare Part D, this Donut Hole, appears to be solved, but with every action there is always a reaction and let’s look at how all of this plays out.

First, let’s find out what the “Donut Hole” is:

As defined by www.medicare.gov it is “a temporary limit on what the drug plan will cover for drugs. Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs”.

How it works;

Part 1) $2,930. The first limit that triggers the “Donut Hole”. Includes the total amount spent by the beneficiary (total of premiums, co-pays & deductibles) and the Insurer (the cost of the drugs less the 25% co-pay). Once $2,930 is spent the beneficiary enters the “Donut Hole”

Part 2) $4,700. The actual “Donut Hole” and the amount that the beneficiary is 100% responsible for before entering “catastrophic coverage”. In the “Donut Hole” the beneficiary is completely on their own and has to pick up all costs of their medications with no support from the Insurer.

Part 3) $7,630. “Catastrophic Coverage”, the point where the Insurer re-enters the scenario and provides coverage. Here, the only cost to the beneficiary is 5% of the drugs costs (the co-pay) until the end of the contract or year.

Break down of expected costs;

Part 1 – Premiums, Co-pays (25%) & Deductible

Part 2 – $4,700

Part 3 – 5% Co-Pay for all drugs

Again, this looks like great news, over the next few years the Donut Hole will go away and beneficiaries will no longer have to worry about this gap in coverage. The new legislation on the books calls for a bigger discounts on drugs for those in this gap until there is no cost to the beneficiary and ultimately, the 3.4 million people who reach the Donut Hole each year will no longer have to worry about that large cost by 2020.

But, here comes some bad news

1)      In order to fund this closing of the Donut Hole co-pays for Tier 4 drugs will be increased from 25% to 35% (there is talk of a 5th Tier being created that will increase the co-pay to 44%).

2)      For the other 27.5 million that have some form of Medicare Prescription Drug insurance who never reach the “Donut Hole”, well, they will now be stuck paying 25% or more on all drugs starting in 2020.

3)     Those who historically do enter the Donut Hole due to chronic illnesses like Cancer, MS, Arthritis, HIV/AID that are prescribe biological drugs or “Tier 4 drugs” will see their co-pays increased from 25% to 35%.

So instead of paying a 25% Co-pay, then $4,700 and finally a 5% Co-pay they will have a 35% Co-pay for the year. For drugs like Gleevax & Enbrel it is cheaper to be in the “Donut Hole”.

Yes, by 2020 the Donut Hole will be closed and it will be replaced with a 25% increase in premiums for all, while also, charging the sickest beneficiaries even more than before through higher co-pays.

Dan McGrath

Dan McGrath

Mr. McGrath is a Co-Founder of Healthcare Retirement Planner as well as Jester Financial Technologies. He is a best selling author, "What you don't know about retirement will hurt you" and is a nationally recognized speaker on how health costs impact retirement.