This provision is aimed at the doughnut hole" a coverage gap that forces Part D enrollees to bear high out-of-pocket medical costs once their prescription costs hit a spending limit. The hole was already scheduled to be eliminated by 2020 but the budget deal speeds up the timeline closing it next year.
On the surface this is a huge win for patients. But the way that the deal closes the coverage gap is problematic.
Part D is a rare public-policy success story celebrated by Republicans and Democrats alike. It has a unique structure in which the government instead of providing health coverage directly manages a market of private options.
Patients have the freedom to choose among dozens of competing plans. Medicare Part D has been a success story so far but this new provision could derail that achievement.
This market structure has worked precisely as intended. Insurers have to compete for enrollee dollars steadily reducing their prices and improving benefits. Today overall Part D costs are $350 billion less than estimated when the program was created in 2003. And its wildly popular among enrollees: Nine out of ten report being satisfied or more than satisfied with their coverage.With the standard benefit Part D enrollees have to pay the first $405 in drug costs out of pocket. Then proper coverage kicks in covering about 75 of their expenses. However once enrollees spend $3750 on medicines that normal coverage falls away and their out-of-pocket costs spike significantly.
Suddenly theyre responsible for 35 of brand-name-drug costs and 44 of generic ones.
Part D patients keep facing those higher expenses until their annual drug spending hits $5000 at which point the programs catastrophic coverage kicks in and their portion drops way down to just 5.
This is the doughnut hole a strange quirk in Part Ds structure.
It chiefly affects those who rely on several prescription drugs such as seniors battling multiple chronic diseases. The high out-of-pocket costs seniors in the gap experience force many to forgo needed drugs because they cant afford them.
The Affordable Care Act (ACA) President Barack Obamas 2010 health-care law actually fixed the problem. It bulked up doughnut-hole coverage by immediately requiring drug companies to cover 50 of the costs of brand-name drugs purchased by patients stuck in the gap with the rest of the costs borne by patients and their insurers.
The ACA has the federal government gradually cover a bigger and bigger share of the cost of doughnut-hole drugs until starting in 2020 the gap is completely filled in. At that point Part D patients will have to pay only their normal 25 share until catastrophic coverage kicks in.
The new budget deal expedites that timeline by simply ordering drug companies to pick up 70 of the cost of doughnut-hole drugs next year. The doughnut-hole cost-sharing for insurers drops dramatically down to 5.
Previously insurers had some incentive to drive drug costs down and keep patients out of the doughnut hole: The insurer still had to pick up a big chunk of the drug costs once the patient fell into the gap.
Thats a big reason why Part D insurers have aggressively encouraged the use of generic drugs which typically cost a small fraction of the brand names on which theyre based. They want to keep patient costs down.
Thats why under the current incentive structure only one in four Part D patients hits the doughnut hole.
The sooner patients hit that catastrophic-care threshold the sooner the government steps in and takes over virtually the entire bill.
More than 40 million seniors depend on Part D. Congress shouldnt mess with what has so far been a big achievement. This budget deal could undermine a rare success story.
KENNETH E. THORPE is a professor of health policy at Emory University and is chairman of the Partnership to Fight Chronic Disease.
