Healthcare Reform & Medicare Part D: Reducing Costs in the Donut Hole

One provision of the healthcare reform law under PPACA that received little attention is the Medicare Part D “Donut Hole” Reduction.  Since Medicare Part D drug benefits began in 2006, most enrollees paid 100% of the prescription drug costs after exceeding a coverage limit.  They would continue to pay 100% until they reached a level that qualified them for catastrophic coverage.  The area between the coverage limit and the catastrophic coverage is known as the “donut hole.”  It has been a major concern for the many seniors, but reform may shift concern to employers.

patriotic-donutIn 2007, approximately 3.4 million Part D enrollees (14%) reached the coverage gap.  A Kaiser Family Foundation study also discovered that 15% of enrollees who entered the donut hole stopped taking their medication due to the cost. As a result, legislators made it a priority to address the donut hole through healthcare reform.

Beginning this year, PPACA reduces the amount that individuals will pay in the donut hole.  In 2011, beneficiaries will receive significant discounts on brand-name drugs, and in 2013, the government will begin providing subsidies.  In 2020, it is anticipated that the donut hole will be eliminated altogether.  Currently, the coverage gap is $3,610, but was expected to exceed $6,000 by 2020.

From an employer perspective, however, this could change the retiree benefit landscape.  With the elimination of the coverage game, as well as the elimination of the tax deduction for the retiree prescription drug subsidy, many employers may re-consider offering retiree drug benefits.  The elimination of the donut hole also will increase the actuarial value of the Part D benefit.  As a result, participating employers would be forced to increase their retiree drug benefits to keep up with the actuarial value and keep receiving the subsidy.

Ellen Tucker

Ellen Tucker

Principal, Health & Welfare Consultant - Ellen’s expertise in the areas of underwriting, product development, financial analysis, provider relations, market research, strategic planning and benefit administration make her one of the most knowledgeable individuals in the healthcare industry today.
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