Filling Medicare’s Donut Hole
When the average American retiree hears the phrase “doughnut hole,” it doesn’t bring to mind a treat from their local bakery. It’s actually the coverage gap in their Medicare Part D drug program.
Medicare Part D is the prescription drug coverage clause run by Medicare-approved private insurance companies that was begun in 2006.
When Part D was first hammered out as a way to help seniors pay for prescription drugs, the only alternative the government could find to pay for it was to impose an annual limit on what it covered for members. The government—which is expected to pay between $395 and $535 billion on Part D benefits through next year, didn’t allow a big enough budget to subsidize an unlimited supply of prescriptions for every beneficiary. So when the retiree used up their drug allowance—around $2,800—they would tumble into the dreaded “doughnut hole.” Even though you were still paying premiums, you were responsible for the next $3,700 in drug costs out of your own pocket until you reached a catastrophic limit and your Part D coverage kicked in again.
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The seemingly bottomless doughnut hole has been a source of angst ever since the Part D portion of Medicare began in 2003. One way retirees cope with being in the hole is to simply stop taking their medication. The government has worked to help retirees close the hole in several ways, such as offer $250 rebates to all Part D enrollees, provide 50 percent discounts on brand-name drugs in the doughnut hole, and begin phasing-in additional brand name drugs that will close the hole completely by 2020.
Each state offers its residents at least one plan that provides some type of coverage during the doughnut hole. Some plans that cover the hole may charge higher monthly premiums, while others may offer only generic drug coverage. The good news is that the hole is shrinking, albeit slowly. Last year, drug manufacturers had to cut the cost of all their brand-name drugs in half for those retirees reaching the doughnut hole, saving them over $700 in costs. Earlier this year, it was decided to discount drugs in the hole by 15 percent. By 2020, Medicare participants will pocket $3,000 in savings when the hole is scheduled to close for good.
One dangerous by-product of the doughnut hole is retirees discontinuing their medication. Proponents of the doughnut hole argue that the coverage gap benefits the health care system by making beneficiaries more sensitive to their medical costs. But evidence found by researchers at Harvard University’s Brigham and Women’s Hospital found just the opposite. They discovered that retirees faced with increased out of pocket costs burdened by the Part D coverage gap are twice as likely to stop taking their prescriptions altogether.
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“We associated a lack of financial assistance after reaching the doughnut hole’s spending threshold with a doubling in retirees discontinuing their medications,” said the study’s lead author Jennifer Polinski. “This decrease in medication could actually result in higher medical costs as a result of adverse health events.”
So, what’s a retiree to do? Short of sitting outside your pharmacy with a tin cup asking people to donate to your prescription fund, your best defense is an aggressive offense. Here are some steps you can take now to avoid the doughnut hole:
• Determine what your state has to offer: Many states have programs that help with the costs of prescription medicine based on income. Pennsylvania has a program called Pacenet that helps retirees with medication costs—even through the doughnut hole. For a retired couple with an income threshold of $31,000, Pacenet might help. They may still have premiums or co-pays, but the savings they’ll get are worth it.
• Contact the company that makes your medication: before Part D was available, many drug companies had programs that offered to reduce the price on their drugs based on a sliding scale of income. Occasionally they would give drugs away for free. Give it a try.
• Talk to your pharmacist: Your pharmacist may have some valuable tips on to save big bucks on your prescriptions. A helpful pharmacist is worth their weight in gold.
• Tell your doctor you cannot afford your medication: Your doctor has piles of sample medications that can help you over the hump. There might be a cheaper drug that can do the same thing. Review your medications with your doctor to help you cut costs—it might take you longer to reach the hole, or you may be saved from reaching it at all.
• Ninety day supplies save money: Sometimes the cost of covering a 90 day supply of medication is just the same as paying for a 30 day supply.
So, what is one of the pre-retirees’ biggest fears that they don’t discuss with their financial advisor—health care. Many people don’t have a good grasp of their actual healthcare costs because they’ve paid only a small amount of those costs during their working years.
Those who do discuss retirement health care costs with a financial advisor have a better handle on those costs and what to expect down the road. Contact a financial educator at First Senior Financial Group and find out how you can avoid the pitfall of being drawn into Medicare’s seemingly bottomless doughnut hole. You won’t be sorry.
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