Obama’s Solution to the Doughnut Hole (Medicare Part D)

In a surprise move that will please millions of Medicare beneficiaries, President Obama yesterday announced plans to cut in half the prescription drug expenses of those who fall into the Part D coverage gap, universally known as the doughnut hole. They would only pay 50 percent of the cost of brand-name medications in the gap instead of the 100 percent they must pay now.

The new benefit is expected to be part of health care reform legislation that Congress will consider later this fall. If passed, it will likely go into effect July 2010.

“For millions of beneficiaries, especially those with high drug costs, this could literally be a life saver,” says John Rother, AARP’s executive vice-president of strategy and policy. “It’ll certainly make a substantial financial difference to everybody who falls into the doughnut hole.”

This unexpected shrinking of the doughnut hole, which affects about 26 percent of Part D enrollees, is the result of a deal between the White House and the pharmaceutical industry. All drug manufacturers agreed to donate half the cost of their brand-name and biologic products (but not generic drugs) to people in the gap, at no cost to the government.

“As part of the health reform legislation that I expect Congress to enact this year, pharmaceutical companies will extend discounts on prescription drugs to millions of seniors who currently are subjected to crushing out-of-pocket expenses within the doughnut hole,” Obama said in a statement. “This gap in coverage has been a continuing injustice that has placed a great burden on many seniors.”

The discounts will cost the drug industry about $80 billion over 10 years, according to its trade group, the Pharmaceutical Research and Manufacturers of America (PhRMA).

Part D enrollees in the gap will be able to access the discounts directly at the pharmacy, White House officials say. The amount will be half of the price already negotiated by the Part D plan they’re enrolled in. They won’t have to apply for the discounts or fill out any paperwork.

Furthermore, the full cost of drugs bought in the gap will count toward the out-of-pocket limit ($4,350 in 2009) that triggers low-cost catastrophic coverage, even though enrollees will actually pay only half of this amount to get there. So the discount will not reduce their chances of qualifying for catastrophic coverage.

The discount program would be run by an independent third party, according to Senate Finance Chairman Max Baucus, D-Mont., a key player in brokering the deal. “The agreement includes a provision to discourage private employers from dropping prescription drug coverage currently provided to retirees,” he said in a statement. “It also establishes audits of drug company manufacturers to ensure the discounted prices are appropriately set.”

The discount will apply to the great majority of Part D enrollees, though not all. Those excluded are:

– People who pay the income-related Part B premium (in 2009, those with incomes over $85,000, or $170,000 for married couples).
– Low-income people who qualify for Part D’s Extra Help benefit, as they already receive full coverage throughout the year, with no gap.

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Source: Patricia Barry | Source: AARP Bulletin Today | June 21, 2009

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