The Donut Hole in Medicare Part D (the prescription drug benefit) is slowly going away. Medicare Part D has four tiers of coverage.
Here is the 2013 benefit design:
- Deductible phase where Medicare pays 0% (2013 $325)
- Basic coverage where Medicare pays 75% ($325.01 to $2,970)
- Donut hole where Medicare pays 2.5% ( $2,970.01 to $4,700) (Medicare has negotiated large discounts with providers)
- Catastrophic coverage where Medicare pays 95% of costs ($4700.01 to infinity and beyond)
There is a reasonable non-spite rationale for this benefit design. I don’t think the rationale works well as it was implemented as the donut hole was too high to discourage drug use that could be safely discouraged.
The idea behind the donut hole in the benefit design was to discourage “over-use” of drugs by the medium to high intensity users while still providing help to people who are truly screwed. This is fairly common benefit design in most health insurance plans.
However the problem is that the donut hole applies to people who most likely suffer from chronic conditions. The idea of a 97.5% coinsurance amount is that it will discourage people from buying unnecessary pills. The problem is that people who are hitting that level of payments need those pills. Discouraging people with chronic conditions from buying the drugs that they need leads to higher long run costs as manageable conditions become unmanaged acute crisis situations.
This is a significant problem with most deductible/co-pay/co-insurance plans.
The deductible/low co-insurance incentive structure makes sense for people like me and my family who are reasonably healthy and have no long term chronic conditions. We have the ability to absorb a one-off hit and we can anticipate that any hit is a one off, isolated event at this time in our lives.
It does not make sense for a college friend of mine. She was/is manic-depressive and her manic-depression was smoothed out when she was taking her prescribed regimen. She was, as most college students are, severely cash constrained. Her insurance had a combined $100 a month co-pay for her medications. Her solution to being flat broke was to stretch out her medication by either splitting pills in half (the more ‘successful’ system) or initially taking a full dose every other day. These systems led to one involuntary mental health commitment and two voluntary mental health commitments.
After her second voluntary commitment, her case manager figured out that the government could have saved several thousand dollars a night if she was able to get her meds for free. And amazingly, the case manager was right and fought like a tiger to get a modified care plan that got my friend her psych drugs at no cost share. The last I heard, my former friend was in a pretty good place at the total cost of $1,200 per year instead of $2,500 a night.
Benefit designs that are good (enough) for most people fail miserably when insurance moves from covering unexpected events to managing chronic conditions. People have relatively narrow time horizons and irrationally high discounts on the future in all cases. People in situations of scarcity are not optimizing complex multi-variate problems of life. They are managing single satisficing solutions with minimal regard to interaction impacts. Putting people who, systemically are costly, at the position to choose rent over needed medication is a good way to save money in year one but spend way more in year two.
What’s best for everyone isn’t always best for individuals. If you put in the tests to get the individual the best treatment, then it’s called red tape. If you don’t, it’s called waste.
This sentence needs lots of work…..
@MikeJ: Now that I understand.
Something I think most people don’t realize is that the full cost of your medication counts toward getting you into the donut hole, not just the amount you pay. My husband is on Medicare and takes insulin as well as a few other meds for high blood pressure and cholesterol (I’m sure this is a common combination), he usually reaches the donut hole by the summer. Those insulin injector pens are fucking expensive, several hundred dollars for about a 3 month supply. Add in that every 3 months when he goes to the doctor his dosage gets changed, and it’s a recipe for being totally jerked around by the system. Lucky for us we can afford the medicine, I can’t imagine what people who only live on SS do when faced with a situation like this. Our system is insane.
They’re changing our insurance at the Giant Evil Corporation and one of the plans has a prescription deductible instead of a co-pay. I take a couple of prescriptions for chronic conditions and, as far as I can tell, I will have to choose between paying $400 for a 3-month supply or a $8 co-pay. How is this even a choice?
I’m just now switching jobs. Hope the healthcare chaos gives me some better choices soon.
The prophet Nostradumbass
@Mnemosyne (iPhone): I will have to get something on the exchange, and have asked Covered California to help me figure out what I need. When I first looked at the site, the premiums I was quoted seemed very large.
Obamacare has already helped me so much on this. I have RA and was hitting the donut hole in July or August and had to pay for all my meds for almost half a year, while still paying premiums to the insurance carrier for nothing at all.
Now that the provisions against gouging are taking hold, last year I did not hit the donut hole at all, even while taking the same exact drugs plus one additional generic prescription.
And my premiums went down $5 a month for 2014.
I have RA too and I’ve been panicking. Right now I pay $319 a month for COBRA and I get subsidized by Enbrel to a point. I applied for disability and they said I can’t get Medicare til I’m on disability for 2 years. My COBRA only lasts 18 months total so in between that time, I’ll be on Medicaid and the Enbrel is a high tier drug. I could take Methotrexate but it didn’t move my sed rate much and I vomited every day. It seems like you’re already on Medicare which Enbrel will give subsidies for I think. But not Medicaid. Worse comes to worse I’m already in independent living so if I can’t afford the drugs eventually and end up in a wheelchair, at least I’m in the right place for it. Your situation would give me hope but you’re already in the land of Medicare and when my COBRA runs out, I’ll be in the land of Medicaid, which, to be blunt, seems to be a euphemism for “die slowly.”
Another Holocene Human
Some really good points, Richard, which is why nobody will pay any attention. Gee, yeah, wouldn’t it make sense to deal with chronic mental health issues on an ongoing basis instead of reacting to crises? Hmmm.
The donut hole just seemed like political bullshit to me. If they really wanted people to stop overusing pills, why don’t they spend more money on having pharmacists counsel patients who are prescribed multiple medications and have a health-care coordinator who makes sure various specialists aren’t just chasing the side effects of each subsequent drug? (I know two people who got very ill and nearly died from too many medications and the wrong medications fighting with each other. I bet that cost a pretty penny.) But instead pharmacists are just pill mill supervisors (not that they want to be, but they work for chains, and chains want to make profit no matter the cost).
Make medicare better. Get patient advocate/navigators and pharmacists involved in making sure patients aren’t given the wrong/too many/interacting/overpriced pills.
Another Holocene Human:
It was. While the structure may have mimicked insurance company disincentives for over-prescribing, the real reason the Bush administration designed it that way was to keep Part D from breaking the budget under CBO projections, while they simultaneously gave out more and more tax cuts to their rich conservative buddies.
@EthylEster: fixed :)
Dude, I have a Masters and a Ph.D. I read a lot. So, um, what does satisficing mean? You are writing at the thirty fifth-grade reading level.
Bitter and Deluded Lurker
@Tim F.: Satisfice: “to act in such a way as to satisfy the minimum requirements for achieving a particular result.”
I had to look it up, too.
Think of “satisficing” as a mash-up of “satisfying” and “sufficing.” Not meeting the full need, but good enough for now.
@Humanities Grad: Yep — good enough for now is a workable definition… a longer take here:
@Another Holocene Human: I chose a mental health example as I saw a picture of the person I talked about on Facebook as this post was marinating in my mind. I could have talked about my diabetic aunt and the example would have worked as well.
My mom was telling me about reaching the donut hole pretty soon and having to pay for her meds full price. She has serious eye issues (blind in one eye and going blind in the other) and the meds are outrageously expensive. She’s tried finding out if she can get generic drugs, but no one makes the drugs she uses but one company. She’s stuck paying outrageous prices. One of the drugs is a special drug that she found out the company is talking about not making it anymore, since only certain types of people use it so they can only make so much money on it. Needless, to say she’s always cursing Part “D”. Also, she curses the lack of good dental care insurance.
Richard, thanks for explaining why the donut hole even exists. I had always assumed it was the result of dysfunctional political sausage making that managed to obtain a result that was 120 degrees off of target.
I’m also on Enbrel (for psoriatic arthritis – miracle drug for me) and have a friend who’s the area manager for that drug. I have no idea what they have going now, but for a long time they offered a deal that capped your out of pocket each month at a small fraction of the normal cost, whether you had insurance or not. I don’t know if it was a regional or national deal (I’m in the Southeast), but it’s definitely worth checking with the drug company if you haven’t already.
@karen: Enbrel is probably available to you through the patient assistance programs (PPARX.org). Another option might be methotrexate by injection.
This is a really important point and I didn’t grasp it until it happened. The actual cost of the drugs to the insurance company is what counts in getting to the point when you fall into the donut hole BUT getting out of the hole involves you personally spending $4,700 out of pocket. So, although it looks as if the most you’d need to spend out of pocket is under $2,000, it could be much more than that. I believe Obamacare gradually closes this gap, however, and it seemed that last year was not as expensive as the year before.
@Richard Mayhew: Thank you! And I edited the comment while in moderation to also disparage the whole “satisficing” sentence, which somehow didn’t get through. I spent several minutes trying to figure out what mangled edit could produce that word. I am shocked to find that this is a real word. So kudos for that.