PercyOwner asked a great question yesterday on Medicare Part D:
The cap AND making the donut hole smaller is going to help him so much. But good lord, why is there a donut hole in the first place? Other than to save the insurance companies money.
Great question. And let me get into character for my health insurance reform and politics lecturer-mode.
[Disclaimer — Dr. Mark McClellan was my ultimate boss when I was at Duke and he had a substantial role in Medicare Part D design ]Congress tries to do something with health insurance every few years. Sometimes it works and sometimes it fails. We can count on Congress as an institution to look at the last thing that they tried to do and react to its successes or failures. These lessons will be filtered through the perspective and priorities of the minimum winning coalition in Congress and the White House.
The last big attempt to do a prescription drug benefit for Medicare was ClintonCare and before that it it was Medicare Catastrophic. Both failed. Congress was going to do something different.
Medicare Catastrophic passed and then was repealed because the program finance and benefit designed pissed off a ton of middle and upper middle class healthy-ish Medicare beneficiaries by increasing their costs without providing a benefit that they could see. Medicare Catastrophic’s benefits were scaled to only ever apply to 7% or 8% (I don’t have my notes with me) of beneficiaries in a year even as almost all beneficiaries had to pay premiums.
Part D was a reaction against this lesson. First it was a voluntary program. Secondly, it was heavily subsidized by general tax revenue and, third, it tried to give at least a token benefit to almost everyone who enrolled. It had a small deductible and then a pretty rich early benefit where almost everyone who purchased a plan would see some day to day savings (might not match their premium, but it would be real).
But given that there was a soft budget cap and a desire to have some nearly catastrophic coverage, something had to give.
And that was the donut hole. It was designed to have higher cost enrollees pay a substantial chunk of cost-sharing at a point where the median beneficiary was not even close to caring. This provided political buy-in from healthier enrollees while still offering near catastrophic protection for really sick/expensive enrollees. It was near catastrophic as there was still an unlimited 5% coinsurance for very high cost drugs so someone who was really sick/unlucky could still be paying $5000 to $10,000 per year in catastrophic expenses after they paid the donut hole.
There is an economic argument that a big cost-sharing shock will force people to be better shoppers/consumers too. The donut hole is placed so it hits a population with enough spending where changing that spending produces real savings while not driving people to avoid really low cost but highly effective generic drugs that are the most common/typical drugs that low cost utilizers use.
The ACA started to shrink the donut hole. The IRA eliminates it in 2025.
Anonymous At Work
Given the average senior citizen regularly reads pharmacodynamics of Phase I drug trials to see what’s in the pipeline for their care, I can imagine that “the big cost-sharing shock” did force people to be better consumers of patent-exclusive high end medications. </s>
So, how’d that work out?
Baud
Interesting.
Very interesting.
David Anderson
@Anonymous At Work: about as well as you would think it did.
David Anderson
@Baud: Medicare Catastrophic is a critical lesson learned that I don’t think we acknowledge enough when thinking about US healthcare reform from 1980 to present. I spend 15% of my class time teaching Medicare Catastrophic because I think it helps create a framework to understand Congressional decision-making from 1993 to present.
Anonymous At Work
@David Anderson: “Get more stuff without changing what you currently get” was the lesson of Clintoncare and the success of Obamacare. Also, “Never underestimate the moral/economic panic of middle-aged white people.”
raven
“The IRA eliminates it in 2025.”
What impact will that have one my Xarelto cost?
Ten Bears
I just canceled an appointment yesterday because of the donut hole
Why does it exist? To kill me off … ?
KatKapCC
Did you defeat him and win the game?
Fake Irishman
@Anonymous At Work:
This is also the same lesson Biden leaned into with his adminstration’s quietly very successful expansion of Obamacare exchange subsidies in the American Rescue Plan and the IRA.
LanceThruster
#M4ANOW
Saves lives, saves money.
Mental dental vision health prescriptions medical accessories hospice care
Mah.Thur.Fah.Curse.Awl.
Fake Irishman
@David Anderson:
It’s also an interesting case study in how large and complex modern legislation is, and in finding mandates.
Henry Waxman used the Medicare catastrophic bill to attach several large expansions of Medicaid. The Medicare reforms died, but the Medicaid ones endured (covering poor seniors, mandating coverage for pregnant women and infants up to the poverty line) and formed the basis for future incremental expansions.
One of the really interesting questions about American Health Care is how incrementalism has generally failed to expand the footprint of Medicare Coverage (though some of the services covered have expanded), but has been very successful for Medicaid (it kind of has gone from an afterthought to Medicare in the 1965 legislation to covering more people than Medicare today.)
Percysowner
Thanks for the good explanation of why the donut hole came into being. Looking at the history of Medicare Catastrophic, I see it was passed in 1988, long before Big Pharma had decided to raise prices to current levels. I wonder if it would have a better chance if passed today, with drug prices so high, and more people aware that going into a nursing home can wipe out even middle class and upper middle class families. Obviously, this is a thought experiment, but the culture around health care costs has changed in almost 40 years.
David Anderson
@Percysowner: I think that the design of Medicare Catastrophic (mostly benefits the least lucky 7% to 10%) with the financing coming from only current Medicare beneficiaries, many of whom already had private coverage of the gaps that MC was trying to fill would still produce a massive shitstorm of resistance today.
Hell, I think that the IRA changes to Part D have some of the same political weaknesses that doomed Medicare Catastrophic. [Disclaimer, working on a few things in this area]
David Anderson
@LanceThruster: tell me how to get 218-51-1-5
Betty
Based on the experience of several family members, I would say the word catastrophic does not describe their health situation. Perhaps because of the outrageous price of much needed drugs for fairly common chronic conditions, such as diabetes.
Kosh III
@Ten Bears:
I just canceled an appointment yesterday because of the donut hole
Why does it exist? To kill me off … ?”
I recall a D Congresscritter hitting the mark by saying Republican health care plan was “get sick and die. “
Mellano
Thank you for this explanation. How is the IRA structured to make up for closing the doughnut hole? More federal revenue funding? Does it come out of the PDP plans’ side (higher premiums)? Are savings from drug negotiations expected to offset these costs in (w)hole or part?
Ohio Mom
One result of the donut hole is that I never know what the cost of a prescription will be. Sometimes it’s one price, then it goes up, sometimes it goes back down.
Makes it difficult to budget, which so far, I haven’t had to worry about too much but for seniors on very limited resources, it must be a nightmare.
Ohio Mom
@LanceThruster: As I am actually getting tired of saying, Medicaid is better than Medicare.
Ohio Son has had Medicaid because he’s disabled and we’ve never had a problem with it, which I can’t say for Medicare. There are no copays or deductibles, and for us at least, nothing a doctor has ordered has ever been denied.
As far as Medicare, It’s a royal pain in the ass, checking every year to see if the Gap Plan we have is the one we want to keep, and running the numbers on the drugs we take to see which Part D plan is the best value. And my favorite part, hoping that if new prescriptions are issued during the coverage year, that doesn’t undo all the work that went into choosing the Part D Drug plan.
But the moniker “Medicaid” brings to mind poor people and middle class people don’t want to have anything to do with a poor people’s program. So I admit that Medicaid slogan “Medicaid for All” is dead in the water.
Kelly
@Ohio Mom: I concur, Medicaid is better than Medicare. Medicaid was so simple. I’ve been on job provided health insurance, self paid pre-Obamacare health insurance, Medicaid and now Medicare with an Advantage plan. Medicaid and my Obamacare plans were simpler to figure out and just better.
Butch
Since I used to work on Capitol Hill…a neglected issue here, which also influenced the delayed start of the ACA (until 2014), is the desire of the legislators for a positive Congressional Budget Office score.
Don K
@Ohio Mom:
This. I’m HIV-positive, and taking one of the new name-brand meds was affordable in January-February, jumped to around $1,700/month in March, then fell back to a few hundred in summer for the rest of the year.
I told my Infectious Disease doc I needed something more cost-effective, and her favorite pharmacist came up with a combo of three generic meds. Two have no copay and the third is ten bucks a month, which is affordable for me. Three tabs per day rather than one is no big deal for me.
So I suppose I’m an example of the donut hole working as designed.
Another Scott
@David Anderson: Entrenched vested interests that understand how to bend the existing system to their will do not like change that take away their rents. Not at all.
The states used to be “laboratories of Democracy” for figuring out how to create lasting, incremental progress, but anything to do with medicine seems to be too big and complicated and expensive post RmoneyCare in MA. Would you agree with that, or is that too glib and pessimistic?
Dental and Mental Health and Long Term Care seems to be the remaining white whales. Any idea how something like a quasi-universal system for them could be created these days, given what Roberts did to Medicaid expansion and RWNJs running too many states, etc., etc.? :-/ Dare we hope that it won’t take 50-75 years of incremental progress to get to universality?
Thanks as always for these thought-provoking posts.
Cheers,
Scott.
TBone
@Ohio Mom:
How about, simply,
Universal Health Coverage
Carol
@raven: I’m wondering the same thing about my eliquis and trelegy costs. I am apparently in the donut hole now since my costs have gone up to about 3 times what they were a few months ago.
And what is the IRA?
Lesnev
I’m diabetic (T2) and take (4) different drugs. One is cheap, one is middle of the road and two are quite expensive. I go thru the donut hole and into the catastrophic coverage every year. My yearly out of pocket has been relatively flat for 3 years.
The biggest change from ’23 to ’24 is the out of pocket money is earlier in the year since it’s $0 out of pocket (100% coverage) when the catastrophic coverage kicks in for me. The MSRP of one of the expensive drugs has increased 140% since 2021. It seems the drug companies are increasing the MSRPs to get higher out of pocket earlier since they get nothing later. So when “they” say there will be savings, I am not so sure it will happen. The drug companies always seem to get theirs.