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Millions Fall Through 'Doughnut Hole'

IN SEPTEMBER, the Medicare Part D drug program passed another milestone in its problem-ridden history: Doughnut Hole Day. By that day, Sept. 22, the average Part D participant with high drug costs had fallen through the infamous “doughnut hole” and was back to paying the full cost for prescription drugs.

Here’s how it works. For seniors participating in Medicare Part D plans, the senior pays a monthly premium averaging around $30 and the plan covers most of the cost of prescription drugs up to $2,250 this year. Some plans also have deductibles the senior must pay before coverage begins and most plans have senior citizen co-pays that average 25 percent of the cost of each drug.

BIG COVERAGE GAP. Once seniors reach $2,250 in drug costs for the year, they continue to pay monthly premiums, but get no coverage in return. That’s the doughnut hole — the BIG gap in Part D coverage. While in the hole, seniors pays 100 percent of all drug costs until costs total $5,100. At that point, Part D resumes coverage until the end of the year, paying 95 percent of all additional charges.

Estimates show that between 3.4 and 7 million Part D participants will spend enough on drugs in 2006 to fall through the coverage hole. You probably want to know why Part D has such a big gap in coverage. The reason goes back to how Congress structured the Part D benefit and how it allocated the money set aside for it.

• Private plans instead of Medicare: By providing the Part D benefit through hundreds of private insurance plans, Congress divided the market and prevented Medicare from using its enormous buying power (over 42 million beneficiaries!) to negotiate lower prices with the drug companies. A study by the Center for Economic and Policy Research (CEPR) says using private plans for Part D instead of letting Medicare itself provide the coverage is costing the program more than $5 billion a year in higher drug costs. That money goes directly to insurance and drug companies rather than helping seniors pay for the drugs they need. The amount would be enough to close up 22 percent of the doughnut hole.

• Excess profits for drug companies: CEPR and another organization, Families USA, studied how much the drug companies are making on Part D and how their profits affect Part D coverage by comparing the prices paid by the Department of Veterans Affairs (the VA negotiates drug prices on behalf of millions of veterans) with the prices paid by private Part D plans. For example, the price Part D plans pay for Lipitor — the popular cholesterol lowering medicine — is $1.2 billion more than the VA pays. The excess profit on Lipitor alone would close up 6 percent of the doughnut hole.

FIX PART D. The leaders of the newly elected Congress have put fixing Part D at the top of their agenda. In fact, the new House Speaker, Rep. Nancy Pelosi (D-CA), has said that Democrats will push for negotiated prices in the first hundred hours of the new Congress. AFSCME wants the resulting savings to be used to close the doughnut hole. We also urge Congress to allow Medicare itself to be a Part D plan choice and to eliminate the Part D penalty (1 percent in additional premiums for each month a senior delays the decision to sign up) until the program is fixed (most retirees with union or employee coverage are exempt from the penalty).

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