Doughnut Hole Pretty Narrow

An IMS study released on August 2 finds that only 6 percent of the 23.9 million people enrolled in the Medicare Part D benefit reached the so-called “doughnut hole” in 2006. The doughnut hole, or coverage gap, occurs when a person’s calendar year drug spending is between $2,250 and $5,100. Over this span, seniors who lack other forms of coverage are forced to pay the entire cost of drug therapy. In addition to the fact that only 6 percent of patients reached the coverage gap, 45 percent of those who did reach it did so in the last three months of the year with just a short time before subsidies resumed in January 2007.

This is good news for the drug industry, particularly the makers of expensive patented drugs. Calls to change the Medicare Modernization Act to allow direct price negotiations with manufacturers were a major part of the Democratic platform in the 2006 elections. Lower than expected costs and high member satisfaction with Part D stalled this effort in 2007 but it will almost certainly be raised again in 2008 and beyond. Any evidence that the program is working as planned reduces the potential for negotiations.

That said, it should be noted that 61 percent of Part D enrollees are not subject to the doughnut hole because they are either “dual eligibles” (qualified for both Medicare and Medicaid) or under the required income threshold. Therefore, of the 39 percent who were not shielded from the doughnut hole, 15 percent (i.e. 6 percent divided by 39 percent) had high enough spending to reach the coverage gap.

That means only 1.43 million people experienced an interruption in coverage and only 789,000 experienced an interruption that lasted more than three months. This is a fraction of the 3 to 7 million that were expected to fall in the doughnut hole according to pre-2006 election estimates.