Strategies to Avoid Medicare’s Big Hole

1. Strategies to Avoid Medicare’s Big Hole By STEPHANIE SAUL Published: November 24, 2007 http://www.nytimes.com/2007/11/24/health/policy/24donut.html

2. Medicare Doughnut Hole • The Medicare doughnut hole is the federal provision that older Americans love to hate. • And that is not expected to change next year, when the doughnut hole — the nickname for a big financial gap in each person’s Medicare prescription drug coverage — gets slightly larger. If the past is a guide, many people will struggle to secure a full year’s supply of the drugs they need. • But despite the arrangement’s unpopularity with older consumers, some experts see a positive public policy trend when they peer into the doughnut hole. Because it potentially forces a Medicare enrollee to pay more than $3,000 from his or her own pocket during the gap period, the hole is helping curb growth in the nation’s drug spending by pushing people toward low-cost generic drugs. • And because the cheaper generics generally work just as well, patients are incorporating them into their permanent drug regimen, according to Dr. Tim Anderson, a pharmaceuticals analyst for Sanford C. Bernstein & Company, who is also a physician.

3. Initial Coverage Limit - Coverage Gap (Donut Hole) begins at this point. (The Beneficiary pays 100% of their prescription costs up to the Out-of-Pocket Threshold) How it Works Deductible - (after the Deductible is met, Beneficiary pays 25% of covered costs up to total prescription costs meeting the Initial Coverage Limit. Doughnut Hole 2008 Parameters

4. Generics? • It may not be a message that brand-name drug makers want to hear. But with the Medicare Part D drug program enrollment period now under way, through Dec. 31, analysts predict millions of older Americans will study generic drug prices and options as they select an insurance plan. Some economists say that many Medicare enrollees, through carefully planned use of generics, can avoid reaching the doughnut hole altogether. • When the Medicare Part D program began in January 2006, makers of name-brand drugs considered it a welcome stimulus to overall use of prescription drugs. The industry knew the doughnut hole might steer some patients toward generic drugs, but not necessarily so soon. • “I don’t think they anticipated how quickly this kind of event could shift patients toward utilizing generics,” said Peter C. Demogenes, a senior director of the research firm Wolters Kluwer.

5. How it got this way • Congress carved the doughnut hole into the Medicare prescription drug plan as a way to limit the federal outlay. But architects of the plan made sure some costs were covered for all Medicare beneficiaries upfront, while also seeing to it that the sickest would get help with catastrophic drug costs on the far side of the doughnut hole. Once a beneficiary has made it through the coverage gap in any given year — in 2008, after the total cost of drugs has reached $5,726 — prescriptions are generally covered at 95 percent. • About 4.2 million people reached the gap last year, according to a Wolters Kluwer study, and many of them switched to generics as a way to keep their out-of-pocket costs low. Others started using generic drugs even before they reached the doughnut hole to avoid the higher co-payments their policies charged for brand-name drugs. • In 2006, an estimated 59.6 percent of the Part D prescriptions were filled by generic drugs. By the first quarter of 2007, the most recent period for which data are available, the generic rate in Medicare had edged higher, to 61.5 percent, according to Medicare figures.

6. The Economics Switch to Generics