2018 Hero DonutHole 121218 Healthcare Cost

The skinny on the donut hole

What is the Medicare Part D “donut hole”?

Medicare Part D is a prescription drug benefit that allows Medicare beneficiaries to purchase coverage and access medicines at affordable prices. The “donut hole” is a gap in coverage in which beneficiaries pay more for their medicines once they and their health insurer have spent a certain amount of money for covered prescription drugs, up to a certain out-of-pocket limit. Once the out-of-pocket limit is reached, catastrophic coverage kicks in, and the individual’s out-of-pocket spending requirement drops dramatically – to just 5 percent of a drug’s price. When Part D first was enacted, individuals paid 100 percent of the cost of their medications while in the “donut hole” before catastrophic coverage kicked in.

Who does the “donut hole” affect?

Medicare recipients with high annual prescription drug costs are most likely to reach the “donut hole.” Typically, those with multiple chronic conditions are impacted, including those with common illnesses such as diabetes and cardiovascular disease.

What does it mean to close the “donut hole”?

The Affordable Care Act (ACA) and other legislation phased in a closing of the “donut hole” in 2019. Instead of paying 100 percent of costs while they are in the “donut hole,” Part D beneficiaries will pay 25 percent for brand-name drugs in both the initial coverage period and the “donut hole,” and 37 percent for generics in the “donut hole”.

Should additional changes be made to the “donut hole”?

No. In addition to closing the “donut hole” in 2019, budget legislation passed earlier this year also increased the discounts provided by manufacturers that result in decreased costs to beneficiaries. Any delay or changes to these new discounts would place an unnecessary burden on Medicare beneficiaries that could limit their access to medications they need. According to a recent analysis by the actuarial firm Oliver Wyman, potential changes to this cost-sharing formula would raise costs for beneficiaries by $4 billion, and spike federal government spending for the Part D program by $4.45 billion.

Read more about the Donut Hole here. Also, to learn more about BCBSA’s recommendations to strengthen and protect Medicare Part D, read this insight from Justine Handelman, SVP, Office of Policy and Representation.

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