Medicare Drug Benefit Gap May Prove Costly
When a government program is defined in terms of a void at its core, you know it’s trouble.
In the case of the new Medicare drug benefit, that void has been evocatively named the “doughnut hole.” This is a gap in coverage beginning when the full cost of an enrollee’s prescriptions for a year reaches $2,250 (including co-pays, a $250 deductible and the amount the customer’s health plan pays for the drugs), and ending when the enrollee’s own out-of-pocket expenses reach $3,600. After that point, Medicare will pay 95% of qualified drug costs to the end of the calendar year, a so-called catastrophic benefit.
The doughnut hole was designed to limit the new program’s burden on taxpayers. But its complexity is one reason that fewer than 4 million seniors eligible for the stand-alone drug benefit have enrolled so far, well short of the 23 million who are eligible.
Because of the doughnut hole, a plan that appears at first blush to be an inexpensive option -- one carrying a low monthly premium, for example -- may be the most costly in reality. That’s because some plans with high premiums provide discounted drug coverage even within the doughnut hole. Patients who know their prescriptions will cost more than $2,250 a year might save money by choosing an option with a $60 monthly premium and gap coverage, instead of a plan with a $5 premium that consigns the member to doughnut hole hell.
Such calculations are intricate and individual. The variations in premiums, coverage terms and rosters of covered drugs (known as “formularies”) make the comparison of plans head-to-head extremely difficult, if not impossible -- a gift for the private health insurers that sponsor the plans.
They also undermine projections of how many enrollees will gain from the benefit. A 2004 study for the Kaiser Family Foundation projected that the 29 million expected enrollees would save an average of 37% on prescription drugs. But that figure doesn’t count monthly premiums, on which there are few constraints. Moreover, the study forecast that these savings would be unevenly distributed: 8.7 million enrollees receiving special low-income benefits would save 83% on average, but 25% of all enrollees -- 7.4 million people -- would pay more for their prescriptions under the program than without it. Many of the latter are low-income seniors who will lose their access to free medicines thanks to the new program.
These are only hints of the flaws in the system.
The latitude that health plans have to determine their own premiums and formularies gives them the upper hand in dealing with enrollees. Medicare guidelines generally prohibit them from manipulating formularies to discriminate against patients with poor health or certain ailments. But the rules don’t define discrimination, and there are few other constraints.
Importantly, the health plans are permitted to drop drugs from their formularies at any time with 60 days’ notice; patients, however, are only permitted to change plans once, at the end of the year. Therefore, although enrollees will choose plans based on the drugs covered, they may find one or more dropped from the lists as the year wears on. Many patients may end up paying full price for drugs they thought would be covered.
Healthcare professionals expect the plans to exploit their power over formularies very aggressively to keep costs controlled. The plans also are permitted to impose stringent prior-authorization rules almost at will. These typically force doctors to jump through hoops -- such as filling out paperwork or spending hours on the phone with health plan reps drilled in how to say “no” -- before a plan will pay for a prescribed medicine, even if it’s on the formulary.
Let’s consider how this system will work in practice, using the drug Actonel, a once-a-week pill routinely prescribed for elderly patients to combat osteoporosis, as an example.
Of the 48 commercial Medicare drug plans offered in Southern California, three don’t cover Actonel at all; their enrollees will have to pay full price. Twenty-eight plans require prior authorization. The remaining 17 plans cover the drug, no questions asked.
That’s not all. There’s wide variation in how much each plan charges for a month’s supply. Most price it around $500, or $125 per pill. One lists a month’s supply at $470. Blue Shield lists it at $602. The difference is important because the quoted price determines whether and when a patient will exceed the initial coverage limit of $2,250, as well as how many months that patient may spend in the doughnut hole before crossing the catastrophic coverage threshold and receiving the 95% subsidy.
A patient covered by the plan that assigns a $470 price to Actonel would transition into the doughnut hole after about 4 1/2 months, or in mid-May. (This is assuming he or she had no other prescriptions.) The plan charging $602, however, would land the patient in the hole a full month sooner, thus imposing higher out-of-pocket costs for the year.
It’s worth noting that those prices don’t necessarily correspond to what each plan actually pays for the drug; they’re merely contrived from a formula. Indeed, any patient can purchase a month’s supply of Actonel from drugstore.com, an online pharmacy, for $67.99, cash -- spending slightly more for a year’s supply than some plans charge for a month.
Not all prescriptions involve such pricing peculiarities, of course. But there are so many that this program’s value as a consumer benefit has come properly under question.
The wholly unnecessary complexity of the Medicare drug program simply burdens patients while enhancing profits for drug makers and health insurance companies.
Congress and the Bush White House were determined to experiment with what happens when a government program is handed over, wholesale, to private industry. In the process they treated the public as lab rats running in big business’ maze.
Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at email@example.com and view his weblog at latimes.com/goldenstateblog.