As they do their homework, many are discovering that this unique and untested insurance concept can mean only one thing: more money out of their own pockets.

That’s because the doughnut hole is the point at which Medicare drug plans stop paying for prescriptions, at least temporarily. The cutoff occurs when a person’s drug expenses hit $2,250 in a year.

The drug plans start in January for people who sign up by the end of this month, but Medicare recipients have through May 15 to join in 2006. Some plans have eliminated the coverage gap by offering uninterrupted coverage throughout the year. But those policies charge higher monthly fees or premiums.

In the most basic plans being offered, people will have to pay an initial $250 deductible before their drug coverage starts. After that, insurance plans will pay 75 percent of all their drug costs from $251 until they reach $2,250 worth of drugs.

But when the total cost of drugs exceeds $2,250, coverage will stop temporarily. That’s when people will have to start paying 100 percent of their drug costs until they hit $5,100. That will mean an extra $2,850 of their own money.

If they still have drug costs beyond that, however, catastrophic coverage will kick in, and their insurance plans will pay 95 percent of their remaining drug costs for the year.

By creating this unique design, Congress was trying to ensure that the new benefit would cost the government no more than $400 billion during a nine-year period.

The idea was to help as many people as possible by offering coverage at the low end - less than $2,250 - and again at the high end: beyond $5,100, when costs become extreme.

“There just wasn’t enough money to do a continuous benefit,” said John Rother, national-policy director for AARP. “So you needed something that would benefit a lot of people in the beginning, and something that would protect people who incur very high drug costs. When you put those two together, that’s how you end up with coverage in the beginning and coverage at the end, but not in the middle.”

Even with the doughnut hole, the program is expected to cost Medicare much more than initially expected: up to about $850 billion through 2015, according to the Congressional Budget Office.

Critics say the Republican-led Congress that drafted the Medicare drug law could have offered continuous coverage if lawmakers had cut costs in other ways. The most frequent complaint focuses on a provision in the law that prevents Medicare from negotiating with drug companies for lower prices.

Other government agencies, such as the Department of Veterans Affairs, can negotiate to reduce the costs of medications. Sen. Bill Nelson of Florida and other Democrats say there is no reason Medicare can’t do the same thing.

“At the time [the drug bill was being debated], we had some estimates showing that you could basically cover the doughnut hole with the money you would save by negotiating bulk discounts,” said Dan McLaughlin, a spokesman for Nelson. “There’s no reason for not doing it other than a giant cave-in to the pharmaceutical makers.”

During the debate in Congress, the Republican leadership defended the provision by arguing that prices would be held in check by competition among drug plans.

Courtesy of Soldotna Professional Pharmacy

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