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Reminder on Medicare Part D Donut Hole September 1, 2010

Posted by Ken in Health Care, Politics.

A hand-drawn chart showing Total Out-of-Pocket expenses under Medicare Part D

Recently Health and Human Services Secretary Kathleen Sebelius has said that there is “a lot of reeducation to do” heading into the midterm elections – to help her in her efforts, I wanted to take a moment and explain the one immediate benefit many Americans are enjoying as a result of the Health Care Reform Bill referred to as “Obamacare” – the $250 rebate check for the so-called donut hole in their prescription drug coverage.

As you may recall President Bush (43), with bi-partisan support, implemented the Medicare Prescription Drug, Improvement and Modernization Act commonly referred to as “Part D” that provided real, significant savings to nearly all seniors who need prescription drugs. In a nutshell, seniors would choose the Part D plan that best suited their needs, and they would realize savings once their drug costs exceeded $295/year. The plan provides for 75% savings on every dollar spent above $295, until your medication costs exceeded $2,700 for the year, with a second round of discounts kicking in once your total expenses hits $6,154, after which you get 95% savings on every dollar spent above that threshold. But what does that mean?

If you spend less than $295/yr on prescription drugs, this plan offers you no savings, but at just under $25/month, your expenses should be fairly manageable.

If you spend between $296 and $2,700/year on prescription drugs, your maximum out of pocket expense will be $896.25 – a maximum possible savings of over $1,800. Every dollar between $295 and $2,700 spent only costs you 25 cents.

If you spend between $2,701 and $6,154 you will have no savings on any dollars spent in excess of $2,700 – this is the “Donut Hole” and the folks that complain about the donut hole tend to forget that Part D has already saved them over $1,800, and if you were to calculate the savings after Part D was enacted, they are only spending $4,350.25 for what cost them $6,154 before Part D was enacted – a 30% savings on all drugs right up to the Donut Hole upper limit.

Now, if your needs are such that you require more than $6,154 a year in prescription drug expenses, you will realize a 95% discount on every dollar spent beyong $6,154. In my sample chart, I only go to $9,000/yr, which is $750/month, and at that level the realized benefits are that for the $9,000 in total annual benefits your total-out-of-pocket expense is $4,492.55 – just a smidge more than a 50% discount, and and expenses increase, the savings really add up – the next $5,000 in benefits only increase the out-of-pocket expenses for the patient by $250!

But, having exploited the seemingly horrific “donut hole,” certain politicians felt a change was needed to address the Donut Hole, so, as part of the Health Care Reform Bill passed into law earlier this year, they included a provision that instituted “rebate checks” to help ease the financial strain of those that find themselves in the dreaded “donut hole” – they will get a $250 check from the government. The Health Care reform bill proposed to eliminate the “donut hole” by the year 2020.

This very real benefit from the Healthcare Reform Bill kicks in once you spend more than $$2,700/yr on prescrition drugs and alters your out-of-pocket expense. For my worst-case patient that requires $750/month in prescription drugs, their out-of-pocket cost is decreased from $4,492.55 (50% discount) all the way down to $4,242.55 (a 52.8% savings).

Secretary Sebelius reports that over one million $250 rebate checks have been sent out so far (meaning that over one million medicare recipients have spent more than $896.25 for more than $2,700 worth of prescription drugs, and she further expects a total of four million rebate checks may be sent out before they year is over (the checks are sent as the $2,700 expense threshold is crossed) – the total cost of the rebate checks will therefore approach one billion dollars this year.

Also, just a reminder, that medicare recipients can select Part D plans that include additional coverage to help with the so-called “donut hole” expenses by paying slightly higher premiums for their coverage.



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