Doughnut hole near in Medicare drug plan

PERSONAL FINANCE

July 30, 2006|By EILEEN AMBROSE | EILEEN AMBROSE,SUN COLUMNIST

Millions of Americans enrolled in Medicare's new prescription drug program might soon face sticker shock at the pharmacy, if they haven't already.

That's because after months of sharing the cost of drugs with insurance companies, these consumers will reach the point where they must pay the entire tab themselves. Once their out-of-pocket costs for the year reach a few thousand dollars, insurance will kick in again.

This coverage gap is known as the "doughnut hole." It was designed to limit the cost of the drug program.

"Some people are shocked," says Deane Beebe, a spokeswoman for Medicare Rights Center. "They think it's a mistake that they are charged the full price for their drugs."

Not everyone will fall into the doughnut hole. The poor are protected from it. Some don't spend enough on drugs to reach the gap. Others pay a higher premium for plans that provide coverage in the doughnut hole.

Still, PricewaterhouseCoopers recently figured that 3.4 million people will fall into the gap this year. Also, the Institute for America's Future, a group advocating the gap's elimination, estimates that Sept. 22 is D-Day, when the average senior enrolled in the drug program at the start of the year will hit the doughnut hole.

Those in the hole, or headed for it, can take steps to help them get through the gap. But those with disabilities or chronic illnesses who have already hit the gap often struggle to keep up.

Charlotte Weston of Milford, Conn., says she fell into the gap about three months ago.

The 57-year-old says a heart attack and other health problems forced her to quit her job as an emergency room nurse more than a dozen years ago. She says she's ineligible for federal and state drug assistance programs.

She says she was paying $150 a month under the drug plan before the coverage gap. She now pays about $850. Her doctor helps out with free samples of one drug.

Weston lets other bills slide. She says her utilities were shut off one day this month until she paid the delinquent bill with her disability benefits.

"I'm just driving myself deeper and deeper in debt," Weston says. "You rob Peter to pay Paul and can never pay Peter back."

Many participants are unaware of the doughnut hole, experts say. Or, if they heard about the gap, they don't understand how it's calculated and are surprised when it hits.

Here is basically how it works:

The standard drug plan has a $250 deductible, the amount a beneficiary must pay before insurance kicks in. Thereafter, the insurer pays 75 percent of the drug bill, and the consumer picks up the rest.

The consumer enters the doughnut hole once total drug expenditures reach $2,250. These include the deductible and money paid by the consumer and insurer. Premiums aren't included.

This is where it can get confusing, experts said.

Consumers might know to the penny how much they shell out each month for drugs. But they don't always keep tabs on how much the insurer pays, and the amount can be significant. Before they know it, consumers can reach the $2,250 limit and be in the doughnut hole.

"Unless they have been keeping careful tabs on what their total drug expenditures have been so far in the year, they probably will have sticker shock when they go to the pharmacy," says Tricia Neuman, a vice president with Kaiser Family Foundation. "Instead of paying $30 a month, they could be asked to pay $130 a month."

Once in the hole, they must pick up the full cost of their drugs while still paying premiums.

They will climb out of the hole once their out-of-pocket costs for the year reach $3,600.

This includes deductibles, earlier co-payments and the cost of drugs during the coverage gap. Premiums, payments made by the insurer and purchases of drugs not covered by the plan don't count. This is different from the calculation to get into the hole.

Once consumers reach the $3,600 limit, insurance kicks in again. But this time, it covers 95 percent of the cost of drugs, protecting against catastrophic expenses.

The doughnut hole can occur each year, although dollar limits will change to reflect rising drug costs.

Here are suggestions to help you through the hole:

First, check if you are eligible for assistance under the Extra Help program that assists with premiums, deductibles and co-payments. There is no doughnut hole with Extra Help.

About 3.2 million Americans, including up to 40,000 Marylanders, are eligible but haven't applied, said Scott Parkin, a spokesman for the National Council on Aging.

Eligibility and how much assistance you receive depends on income and assets, Parkin said. Generally, income must be less than $14,700 for an individual to qualify, and $19,800 for a married couple.

Assets -- which include savings and cash-value life insurance but not a home -- can't exceed $11,500 for an individual or $23,000 for a couple.

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