Senate Democrats

Health Care Reform Law Effect on Medicare Part D Donut Hole

MEMORANDUM

To:       Interested Parties
From:   SDCC
Date:    March 24, 2010
Re:       Health Care Reform Law Effect on Medicare Part D Donut Hole

OVERVIEW
The much discussed ‘donut hole’ in the Medicare prescription drug program causes a significant amount of confusion and distress for seniors. When the Medicare prescription drug program (‘Part D’) was created in 2003, Congressional Republicans made a key decision to reduce the cost of the bill. Seniors are required to pay 100 percent of the cost of their prescription drugs, once they reach the initial coverage limit, and until they reach the point at which their spending hits what is known as the ‘catastrophic amount.’ This gap is referred to as the donut hole.  The effect of this gap in coverage has been catastrophic for many seniors. According to one estimate, once seniors enter the donut hole, 15 percent stop taking their medication, and 57 percent of them remained off their medication. The health care reform law fixes this problem, providing seniors a $250 rebate check when they hit the donut hole this year, and starting in 2011, providing a 50 percent discount on brand-name drugs purchased while seniors are in the donut hole in that year, phasing to close the donut hole completely by 2020.

WHAT IS THE ‘DONUT HOLE’?

  • Seniors are required to pay 100 percent of the cost of their prescription drugs once they reach the initial coverage limit, and until they reach the point at which their spending hits the catastrophic limit.[1]
  • For 2010 the Part D benefit coverage limit is $2,830. After which beneficiaries are expected to pay 100 percent of their drug costs until their spending hits $6,440, a coverage gap of $3,610.[2]
  • Without health reform, the coverage gap could have exceeded $6,000 by 2019.[3]
  • Over 31 percent of beneficiaries hit the initial coverage limit of their drug plans in 2007, only one year after the program started.[4]

CONSEQUENCES, PRICE INCREASES AND PROFITS

  • 15 percent of seniors entering the donut hole stop taking their medications. Five percent switch to an alternative drug in the same class.[5]
  • 57 percent of beneficiaries that stopped taking their medications in the donut hole did not resume taking their prescriptions once exiting. Only 36 percent resumed taking their medications.[6]
  • Overall drug prices increased by over 8 percent between 2007 and 2008. Prices rose by over 10 percent between 2008 and 2009. According to Express Scripts Inc., one of the country’s largest pharmacy-benefits managers, drug prices rose by more than 10 to 15 percent between the first quarter of 2008 and first quarter of 2009.[7]
  • Pharmaceuticals are the third-most profitable industry in the United States, with profits at 19 percent of revenues.[8]
  • The 2008 gains of the top 21 drugmakers amounted to $51.5 billion.[9]

IMPORTANCE OF HEALTH CARE REFORM

  • In 2020 the Health Reform law completely closes the donut hole.[10]
  • The Health Reform law provides a $250 rebate check for Medicare beneficiaries who hit the donut hole in 2010.[11]
  • Beginning in 2011, the law institutes a 50 percent discount on brand-name drugs in the donut hole.[12]
  • Over 70 percent of respondents to a recent survey said it was either extremely important or very important for a health care reform law to close the donut hole.[13]

NUMBER OF PART D BENEFICIARIES HEALTH REFORM PROTECTS FROM THE DONUT HOLE

STATE NUMBER OF BENEFICIARIES[14]
Alabama

143,000

Alaska

10,600

Arizona

151,000

Arkansas

89,800

California

794,000

Colorado

102,000

Connecticut

97,100

Delaware

24,800

District of Columbia

13,300

Florida

565,000

Georgia

203,000

Hawaii

34,300

Idaho

37,700

Illinois

314,000

Indiana

170,000

Iowa

89,700

Kansas

73,900

Kentucky

129,000

Louisiana

116,000

Maine

44,800

Maryland

132,000

Massachusetts

180,000

Michigan

279,000

Minnesota

133,000

Mississippi

84,600

Missouri

171,000

Montana

28,400

Nebraska

48,000

Nevada

58,200

New Hampshire

36,200

New Jersey

227,000

New Mexico

51,900

New York

511,000

North Carolina

247,000

North Dakota

18,800

Ohio

325,000

Oklahoma

102,000

Oregon

103,000

Pennsylvania

393,000

Rhode Island

31,500

South Carolina

127,000

South Dakota

23,300

Tennessee

177,000

Texas

493,000

Utah

46,500

Vermont

18,600

Virginia

190,000

Washington

159,000

West Virginia

66,000

Wisconsin

155,000

Wyoming

13,500

[1] Kaiser Family Foundation, 2010 Primer
[2] Kaiser Family Foundation, 2010 Primer
[3] Kaiser Family Foundation, 11/2009
[4] CMS: Medicare Releases Part D Data For 2006 And 2007 At Medicare Prescription Drug Benefit Symposium
[5] Kaiser Family Foundation, 8/2008
[6] Kaiser Family Foundation, 8/2008
[7] Testimony by Gerard Anderson before Senate Special Aging Committee, 3/17/10; Wall Street Journal, 4/15/09
[8] Boston Globe, 11/21/09
[9] Boston Globe, 11/21/09
[10] HR 3590, signed into law 3/23/10
[11] HR 3590, signed into law 3/23/10
[12] HR 3590, signed into law 3/23/10
[13] Kaiser Family Foundation, 2/2010
[14]HealthReform.gov, accessed 3/23/10

[1] Kaiser Family Foundation, 2010 Primer
[2] Kaiser Family Foundation, 2010 Primer
[3] Kaiser Family Foundation, 11/2009
[4] CMS: Medicare Releases Part D Data For 2006 And 2007 At Medicare Prescription Drug Benefit Symposium
[5] Kaiser Family Foundation, 8/2008
[6] Kaiser Family Foundation, 8/2008
[7] Testimony by Gerard Anderson before Senate Special Aging Committee, 3/17/10; Wall Street Journal, 4/15/09
[8] Boston Globe, 11/21/09
[9] Boston Globe, 11/21/09
[10] HR 3590, signed into law 3/23/10
[11] HR 3590, signed into law 3/23/10
[12] HR 3590, signed into law 3/23/10
[13] Kaiser Family Foundation, 2/2010
[14]HealthReform.gov, accessed 3/23/10