What is the Donut Hole?

By Jonathan Blum, Deputy Administrator and Director for the Center of Medicare at the Centers for Medicare and Medicaid Services

 

A number of visitors to www.HealthCare.gov have told us they’d like to know more about the Medicare “donut hole” in the Part D program.

If you aren’t familiar with Medicare, it is a health insurance program for people 65 or older, people under 65 with certain disabilities, and people with End-Stage Renal Disease (permanent kidney failure). People with Medicare have the option of paying a monthly premium for outpatient prescription drug coverage. This prescription drug coverage is called Medicare Part D.

In 2010, basic Medicare Part D coverage works like this:

  • You pay out-of-pocket for monthly Part D premiums all year.
  • You pay 100% of your drug costs until you reach the $310 deductible amount.
  • After reaching the deductible, you pay 25% of the cost of your drugs, while the Part D plan pays the rest, until the total you and your plan spend on your drugs reaches $2,800.
  • Once you reach this limit, you have hit the coverage gap referred to as the “donut hole,” and you are now responsible for the full cost of your drugs until the total you have spent for your drugs reaches the yearly out-of-pocket spending limit of $4,550.
  • After this yearly spending limit, you are only responsible for a small amount of the cost, usually 5% of the cost of your drugs.

You may have read in the 2010 Medicare & You Handbook that there are some Medicare Part D plans that offer coverage in the donut hole—but these plans may charge a higher monthly premium. (There are also some Part D plans that are “enhanced” and offer fixed co-pays (for example $5, $10, and $20) for prescription drugs instead of the deductible and 25% cost-sharing that was described above. These plans also may charge a higher monthly premium.)

For those that qualify, there is also a program called Medicare Extra Help that helps you pay your premiums and have reduced or no out-of-pocket costs for your drugs.

Needless to say, for most people with Medicare Part D, the donut hole presents serious financial challenges. Some people have had to choose between their rent or groceries and their prescription drugs.

But, the recent health reform law – the Affordable Care Act – has some important changes that will help to relieve this burden for the people with Medicare that hit the donut hole each year (and are not already on a program called Medicare Extra Help,):

  • This year, if you enter the Part D donut hole, you will receive a one-time, $250 rebate check. The mailing of these checks began in June. If you are eligible and do not receive your check, call your Part D plan first and then 1-800-Medicare.
  • Starting in 2011, you will receive a 50% discount on brand-name drugs in the donut hole, and you will start to pay less and less for your generic Part D drugs in the donut hole.
  • Starting in 2013, you will pay less and less for your brand-name Part D prescription drugs in the donut hole.
  • By 2020, the coverage gap will be closed, meaning there will be no more “donut hole,” and you will only pay 25% of the costs of your drugs until you reach the yearly out-of-pocket spending limit.

Throughout this time, you will get continuous Medicare Part D coverage for your prescription drugs as long as you are on a prescription drug plan.

If you would like more information on the one-time rebate check, feel free to check out this brochure or call 1-800-MEDICARE. (Please note that you do not need to do anything to receive this rebate check and should not provide any personal information such as Medicare, Social Security or bank account numbers to anyone calling about the rebate.)

 

Securing Medicare

Don Berwick, M.D., Administrator of the centers for Medicare and Medicaid Services

I am pleased today to bring good news to you about the health and future of Medicare.  As a result of the Patient Protection and Affordable Care Act, as amended, the financial outlook for Medicare is substantially improved compared to prior evaluations.  This improvement is not without some important qualifications, but it nonetheless represents a very positive change in the expected operations of the Medicare trust funds.

In 2009, Medicare provided health insurance coverage to 46.3 million people.  Total Medicare expenditures were $509 billion and income was $508 billion.  The average Medicare benefit per enrollee was $11,743.  These Medicare expenditures were slightly lower than estimated in last year’s Trustees Report.  Within the total, Part A and Part D spending were each slightly lower than estimated, while Part B outlays were slightly higher. Medicare expenditures in 2009 represented 3.5 percent of Gross Domestic Product.  Last year, these costs were projected to increase steadily (and rapidly) to over 11 percent of GDP by the end of the long-range, 75-year projection period.  In the new report, based on the cost-containment efforts of the Affordable Care Act, Medicare is projected to represent 6.4 percent of GDP in 2084.

Other good news?  The Hospital Insurance (Part A) trust fund is projected to be able to pay all benefits on time until 2029—12 years longer than last year’s estimate of 2017.  And the long-range actuarial deficit for HI is only one-sixth of its prior level—specifically, 0.66 percent of taxable payroll versus 3.88 percent.

These favorable changes depend critically on a specific ACA provision, which will slow the rate of growth in Medicare payments to most categories of providers by about 1.1 percent annually in anticipation of improvement in productivity.  It is important to note that the effect of these adjustments will reduce payment rates over time, and it is possible that providers would not be able to slow their cost growth correspondingly.

However, as someone who has spent my career improving care for patients, I have seen firsthand the substantial improvements in quality and cost-effectiveness that can be achieved by health care providers.  As a result of this provision, providers will have strong financial incentives and many other supports to find more efficient ways to care for patients that not only reduce costs but more importantly improve quality.

Our agency intends to work with providers to support these improvements and carefully monitor the impact of this provision on access to high quality care for all beneficiaries. Despite the uncertanties, the picture is far more positive than last year – with the Affordable Care Act, we can make the future of Medicare secure.

Strengthening Medicare

Cross-posed from healthcare.gov:

Don Berwick, M.D., Administrator of the Centers for Medicare and Medicaid Services

Millions of Americans rely on Medicare for their health care security. But for years, skyrocketing health care costs have threatened the long-term financial health of the program. Many people with Medicare have worried about the long-term solvency of Medicare and whether or not there would be enough funds in the program in the future to pay for care for them and their children.

Thanks to some important new features of the Affordable Care Act, Americans can rest assured that Medicare will continue to be there – better than ever – for our seniors and individuals with disabilities.

Today, my agency, the Centers for Medicare & Medicaid Services, released a new report, Affordable Care Act Update: Implementing Medicare Costs Savings, demonstrating just how much – and how fast – important provisions of the Affordable Care Act will improve the financial health of Medicare. In 2010 and 2011 alone, these provisions will save Medicare an estimated $8 billion and almost $418 billion by 2019. These savings will protect the solvency of the Medicare Trust Fund through 2027, extending its life by 12 years.

These new savings will come largely as a result of reducing excessive payments to private health insurance companies, promoting better quality of care, and cutting Medicare waste and fraud through powerful new tools. These tools keep bad actors out of the Medicare program in order to prevent fraud in the first place and enhanced technologies to help law enforcement stop fraud quickly when it does occur.

And there are many important investments in support of innovation for clinicians and health care organizations who are trying every day, as the Centers for Medicare & Medicaid Services is, to make health care better for patients and more affordable at the same time.

There are other actions in the new law that strengthen Medicare by improving the health of those who receive benefits. These include improving outreach and coordination efforts after a patient is discharged from the hospital to prevent unnecessary hospital readmissions and reducing preventable surgical errors.

Many of the programs in the Affordable Care Act are designed to ensure that people with Medicare continue to have access to quality, affordable care. This year, many people with Medicare who have fallen into the Medicare donut hole are receiving a one-time $250 rebate check to help with their drug costs, making sure that financial concerns do not interrupt needed treatment agreed on by a patient and a doctor.

And next year, all people with Medicare will have access to annual wellness visits and other preventive services with no cost-sharing, giving millions of Americans an opportunity to get potentially life-saving screenings. Over time, new reforms will also encourage better coordinated care.

Together, this adds up to a good deal for people with Medicare and taxpayers. If you or someone you love is on Medicare, make sure to check out sections like here and here on www.healthcare.gov that talk more about how the Affordable Care Act affects you.